The recipe to Chipotle’s success
A look into how Chipotle has invented a unique operating model to deliver fast, affordable, high-quality Mexican food.
I have spent a lot of time thinking about how Chipotle manages to consistently make the world’s best burritos. Chipotle has been a big part of my life since I first discovered the chain when I was in high school. A lot has changed since then – cities, jobs, relationships, my hair color– but Chipotle’s guacamole and salsa-laden goodness has been there for me through all of it. And now that I’ve taken TOM, I finally understand where the magic inside that silver wrapper comes from: the tight alignment of their business model and operating model!
First, their business model: Food with Integrity. What does that mean, you ask? Fast, affordable, high-quality food. They are committed to sourcing the best ingredients they can find and preparing them by hand. In the CEO’s words, they deliver “fresh, local, sustainable ingredients, cooked with classic methods in an open kitchen where the customer can see everything, and served in a pleasing environment.” See – he can’t even explain their strategy without getting into their operating model!
Chipotle has been so successful at scaling their business and operating model that they have created an entire new segment of the market: Fast Casual. And they manage to generate 25 to 26% margins, among the highest in the fast food industry. Here are some of the critical elements of their operating model that allow them to deliver that consistently across their 1,700 locations:
Menu: Chipotle has a very streamlined menu with just four items – burrito, burrito bowl, tacos, and a salad. For each, there 5 different choices of protein, 2 types of rice, 2 types of beans, and 9 different kinds of salsa and toppings that customers can choose from. As a result Chipotle only has to stock 24 ingredients, which keeps costs, complexity, and waste down. But customers are still able to create more than 1,620 different combinations – a win / win if you ask me!
Production: Food is prepared in an assembly line. There are typically 3 team members staffed at different points on the line – the first toasts tortillas and adds rice and beans, the second adds the proteins and salsa, and the final station adds toppings. By breaking up labor this way Chipotle is able to match cycle times, thus mitigating bottlenecks and keeping the line moving. As a result, Chipotle can fill as many as 300 orders per hour in top performing locations – that’s a burrito every 12 seconds!
Furthermore, the customer walks down the line as their food is being prepared. This allows the customer to give the relevant Chipotle team member the information needed to complete that part of their order. As a result, Chipotle don’t need any fancy system to manage or track information systems – even more efficiency and cost savings! Don’t believe me? Ask this guy:
Limited service: Customers order at the counter and bus their own tables, which eliminates the need for extra labor to serve customers and helps keep costs down.
Close Relationships with Suppliers: High quality, responsibly produced ingredients are core to Chipotle’s business models. They don’t use ingredients that include GMOs, which are found in 80% of conventionally processed food, so have developed a rigorous selection and screening process to find suppliers that comply with their strict requirements. There are not very many suppliers that meet their requirements, so they are at a high risk of supply chain disruptions. To mitigate that risk and ensure consistency of supply, Chipotle spends considerable resources to build longstanding, collaborative relationships with suppliers.
Also, it turns out, Chipotle even has a TV Show. That’s not relevant to their business nor operating model, but a fun fact I learned while researching this project. With, I’m off to Chipotle for some dinner!
Sources:
https://en.wikipedia.org/wiki/Chipotle_Mexican_Grill
http://fortune.com/2011/09/12/chipotles-growth-machine/
http://www.fastcompany.com/3027647/lessons-learned/how-chipotle-changed-american-fast-food-forever
http://uoinvestmentgroup.org/wp-content/uploads/2012/04/CMG-Update.pdf
Really interesting post! Part of the beauty of their operating model seems to be how simple and transparent their process, with customers following along and able to provide input as their burritos are made. Do you think this makes them vulnerable to competition, since everyone can see how they do things? It seems like this should be an easy thing to replicate, which makes it surprising to me that they have maintained such strong market share.
Thanks for writing, Jackie – interesting post! As you know, I am very intrigued by the “healthy” (or in this case, healthier) fast-casual food business, and Chipotle has been a pioneer in the space. Recently, however, I have become skeptical of the company’s devotion to “high quality” ingredients. Chipotle made a big deal out of their announcement to switch to non-GMO foods, when there were only a couple of easy, inexpensive menu items they had to change (corn and oil). In fact, it still serves soda with GMO ingredients. (See this article for more: http://www.npr.org/sections/thesalt/2015/04/30/403249551/why-we-cant-take-chipotles-gmo-announcement-all-that-seriously). This seems to have been more of a marketing play than a commitment to high-quality food and consumer health. What is the responsibility of fast-casual food chains in transparency and food education? Is Chipotle’s stated mission at odds with its actual products?
And more recently, there has been an e.coli outbreak at a number of Chipotle locations. What measures does Chipotle take to ensure the quality and freshness of its ingredients? I am curious to see how/if Chipotle changes its operating model based on the illness outbreak.
Hey Jackie, great post! Chipotle is always a fan favorite. The fascinating part about Chipotle’s operating model has always been the incredibly efficient assembly line they employ to make your food. Their ticket times (time from when the customer orders to when he/she walks away with food) consistently lead the industry, which creates huge value for customers who stop in for a quick lunch break. To your point, this is also great for Chipotle since it allows the company to push through a higher volume of customers per hour, which can drive down their labor as a % of sales (which are also typically industry leading).
My question is how do you think Chipotle keeps demand for its products so high? Having low ticket times is great, but doesn’t completely explain why faithful customers like you go back so consistently and frequently. Is it the variety they offer? Or is the food just that good? The benefits Chipotle gains from its operating model seem to require high demand. Is that a concern for them going forward, as the concept may become stale (very little product innovation) or potentially critically damaged due to the recent e.coli scare?
As a person who ate way too much Chipotle in college than I should have, thanks for posting this. As a Chipotle continues grow, the company will have to continue to maintain its service while achieving scale. There are a few issues that can compromise the quality of their food in that pursuit. For example, sourcing high quality ingredients from suppliers in adequate volume. Also, I believe the Fast Casual segment of the fast food market will continue to grow exponentially. However, I wonder whether this operating model can be implemented successfully when it comes to cuisine outside of traditional fast food offerings (i.e. burgers, burritos, pizza, and etc). If it can be, do you think will the rise of “Chipotle” like restaurants featuring Chinese or Indian food?