How Chipotle Changed American Fast
Food Forever
Chipotle set out to challenge fast
food trends and be better than the competition--in the end, they launched a new
industry. Here's how they rose to the top of the fast-food chain.
In 1991, Steve
Ells
couldn’t afford to eat regularly at the
legendary Stars restaurant where he was working as a $12-an-hour line cook.
Instead, he was more frequently found gorging himself on giant burritos at a
taquerÃa in San Francisco’s Mission District called Zona Rosa. It was there,
over a carnitas burrito, that Ells had the insight that would change his
life--and American fast food--forever.
Ells looked up from his table at the
long line of people waiting to order their food and the small group of workers
behind the counter preparing the rice, beans, pork, and guacamole. “I remember
jotting down on a napkin at that moment how many people were going through the
line, how quickly,” he told the Rocky Mountain News in 2006, “and I thought,
they probably have this much in sales, the food costs might be X--a good little
business.”
As a trained chef and graduate of
the Culinary Institute of America, Ells was intrigued by something else about
Zona Rosa. Its food was produced fast and inexpensively, but the quality and
the flavor weren’t compromised in the way that typical fast food fare is. He
returned to his hometown of Boulder, Colorado, and there in 1993 he opened the
first in a chain of Chipotle Mexican Grills.
There are now over 1,400 Chipotle
locations in 43 states, and the chain reportedly made a 25% profit margin on $2
billion in sales in 2011.
Chipotle began a trend in
restaurants that the industry has dubbed “fast casual,” which offers a more
upscale dining environment and food quality, along with higher prices, but in
the familiar, convenient limited service format of fast food. “When I started
Chipotle, I didn’t know the fast-food rules,” Ells explained years later.
“People told us the food was too expensive and the menu was too limited.
Neither turned out to be true.”
By either ignoring or directly
challenging all the dominant trends in its industry, Chipotle quickly became a
great brand. Now Chipotle has become the trend-setter in the category, and trade
publications feature headlines such as, “Who Will Be the Chipotle of Pizza?”
Wendy’s and Taco Bell are just two of the most prominent fast food players
investing in new store designs that look shockingly similar to that of
Chipotle. The Wall Street Journal dubbed Ells the “Fast Food
Revolutionary,” and Esquire crowned him America’s most admired CEO.
The common wisdom in the fast food
industry has always been that you grind out your
profits through reduced prices, expanded menus, and raised operational
efficiencies. At the time of Chipotle’s founding, Taco Bell--the putative head-on
competitor to Chipotle in the Mexican food category--was turning heads in the
industry with its enormously successful penny-pinching “59–79–99” value menu.
But Ells grew Chipotle by going in
the opposite direction. He determined that Chipotle
could introduce a higher quality of Mexican fare to a broader audience by
defining a different value equation for fast food. All the food would be
freshly prepared. The ingredients would be top quality. And the restaurants
themselves would be beautiful, all wood and metal, offering a dining experience
several notches above fast-food Formica counters and fluorescent lighting.
Efficiencies in the fast food industry depend largely upon limiting spoilage
and minimizing labor costs by cooking frozen meat patties and french fries, but
Chipotle restaurants don’t even have freezers. All of Chipotle’s ingredients
are delivered fresh. After the company bought hundreds of labor-saving
onion-slicing machines, Ells ordered that onions go back to being hand-cut
because he felt that made them taste better. Machine-cutting had left the
onions a little dried out.
Another standard fast-food practice
is to pay employees as little as possible, while Chipotle’s practice is to pay
more, but to dismiss employees who lack energy or are otherwise mediocre
performers (One industry observer marveled, “Who ever heard of a fast-food
restaurant firing someone for being mediocre?”).
Despite its higher wages, however,
Chipotle still manages to spend more on ingredients than it does on payroll, the
exact reverse of the fast food formula for success. In the years when other
restaurants of all kinds were cutting prices in a race to bottom, Chipotle
either held fast or raised prices. For instance, when Ells was unhappy with the
taste of his shredded pork burrito, he went out and sourced a higher grade of
pork and raised the burrito’s price by a dollar, and sales of the product
reportedly doubled to a full 8% of company revenue.
In the course of Chipotle’s rise
from one store to over 1,400, there have been countless temptations for the
company to stray from its distinct course and lapse into following trends. Much
of Chipotle’s early growth had been financed by a large investment from
McDonald’s Corporation, and executives there failed in their efforts to get
Chipotle to offer low-risk high-profit menu items such as cookies and coffee.
“They probably did give me grief,” Ells modestly explained to Time magazine in
2012. “We wouldn’t do [cookies and coffee] better than anyone else. And I don’t
want anything to be part of Chipotle that wouldn’t be the very best.”
McDonald's sold its stake in
Chipotle in 2006, and since then, Chipotle has moved farther and farther away
from the typical fast food way of doing business. Ells’s latest obsession is
the issue of sustainability. Chipotle is now the largest buyer of higher-priced
pork, beef, and chicken from animals that have been naturally fed and humanely
raised outside of the factory-farming system, which provides inexpensive
commodity meats to the rest of the food industry. Produce served at Chipotle is
also locally raised if possible (lettuce served in January on the East Coast
still comes from California). What Chipotle has learned is that customers
notice the difference in flavor from natural meats and fresh vegetables grown
“with integrity,” as the chain’s tagline states--and they’re willing to pay
extra for it.
By Denise Lee Yohn
http://www.fastcompany.com/3027647/lessons-learned/how-chipotle-changed-american-fast-food-forever?partner=newsletter