Chipotle (CMG) is a Mexican grill restaurant with a limited menu and high degree of meal customization. The restaurant first opened in 1993 and currently has over 1700 stores in the U.S. and abroad. McDonald’s (MCD) had a controlling interest in the restaurant in the early 2000s but divested after Chipotle’s IPO in 2006. Since the IPO, Chipotle’s stock has risen from $42 to over $650 and is still considered to be a long-term investment opportunity.
“Food with Integrity”
Chipotle’s motto of “food with integrity” was inspired by what founder Steve Ells learned about American food production. Ells became committed to serving food that was ethically and naturally produced, which Chipotle claims results in meat that is tastier than what other restaurants serve. In 2013, Chipotle instituted a no-GMO policy for its ingredients.
Consumers agreed. Despite higher food costs that caused Chipotle to raise its prices in 2014, same-store sales grew by 16.8 percent, store margins rose to 27.2 percent and net income increased by 36 percent. Chipotle opened 192 new stores in 2014 and hopes to open another 200 in 2015.
Why? As books and documentaries exposing the negative sides of the fast food industry became popular, Chipotle’s sales and profits grew. Consumers who wanted healthy food weren’t ordering salads at McDonald’sand Wendy’s (WEN), looking instead for naturally-raised or organically-produced food. (For more, see: Feed Your Appetite For Chipotle Stock with Options.)
Small Menu, Big Choice
One of the keys to Chipotle’s success is its small menu. A smaller menu has three benefits. First, since Chipotle only stocks fresh ingredients, there is always a chance of food spoilage. The small menu reduces the number of ingredients needed on-hand, thus reducingthe likelihood of waste.
Second, small menus mean quick service. At other fast food restaurants, the kitchen can get overwhelmed by the orders and can make mistakes. At Chipotle, mistakes are almost impossible:order a soft taco, choose the fillings and pay. If the employee forgets to add beans, the consumer is watching and can point out the omission. It’s easy and fast and consumers love it.
Finally, a small menu also means that customers know exactly what’s for sale each time they visit the restaurant. Chipotle doesn’t need to develop new products or create flashy advertisem*nts to let consumers know its offerings, and consumers aren’t disappointed by the disappearance of a product after a trial or promotion period.
It may be thought that small menus are bad: why would consumers want to have their choices limited? Chipotle has thought of that, and its policy is to make anything the consumer wants if the materials are available. This policy has led to the creation of the Quesarito, Chipotle Nachos and many more secret menu items.
Corporate-owned
Since Chipotle has no franchises, the company is able to maintain tight control over all aspects of its operations. Although Chipotle could grow faster with franchises, it would risk losing control over its suppliers, taste and culture.
It’s not a secret that franchisees sometimes cheat by buying ingredients from a cheaper supplier or by trying to cut employment costs, making it difficult to hire excellent workers. By owning all the Chipotle stores, the company can ensure that from location to location, the design, taste and price are identical, more so than they would be if the restaurants were run by franchisees.
The Bottom Line
Steve Ells admits that he did everything wrong when he opened Chipotle: his design was minimal, his food too expensive, his portions too large. Twenty years later, the company has a market cap of $20.33 billion and reported $4.11 billion in revenue in 2014. By doing “wrong” by the fast food world and “wrong” by the sit-down restaurant world, Chipotle has become a hybrid restaurant that serves quick and delicious food at good prices.
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FAQs
Why? As books and documentaries exposing the negative sides of the fast food industry became popular, Chipotle's sales and profits grew. Consumers who wanted healthy food weren't ordering salads at McDonald's and Wendy's (WEN), looking instead for naturally-raised or organically-produced food.
Why is Chipotle stock so successful? ›
With the exception of the few years when the stock was struggling in the aftermath of the E. coli outbreak, Chipotle has been a consistent winner. Its menu and concept have long been popular with customers, and it generates high margins with restaurant-level operating margins hovering near 30%.
How did McDonald's help Chipotle? ›
By 2001, McDonald's had grown to be Chipotle's largest investor. The investment from McDonald's allowed the firm to quickly expand, from 16 restaurants in 1998 to over 500 by 2005. On January 26, 2006, Chipotle made its initial public offering (IPO) after increasing the share price twice due to high pre-IPO demand.
What is Chipotle's competitive advantage? ›
“Food with Integrity” is Chipotle's focus. And cultivating quality restaurateurs who deliver premium food ingredients at affordable prices is their sustainable competitive advantage (Kretzman, 2014).
Is Chipotle a successful business? ›
Chipotle is ranked on the Fortune 500 and is recognized on Fortune's Most Admired Companies 2024 list and Time Magazine's Most Influential Companies. With over 115,000 employees passionate about providing a great guest experience, Chipotle is a longtime leader and innovator in the food industry.
When did Chipotle become popular? ›
The restaurant's popularity began to grow through word-of-mouth. By the late 1990s, Chipotle had gained a loyal following, particularly among young adults and college students. In 1998, Chipotle caught the attention of McDonald's, the global fast-food giant, which saw potential in the growing fast-casual segment.
Why Chipotle is better? ›
Although the quantity of options is not much different, Chipotle is set apart by its flavorful, braised meats such as barbacoa and carnitas. These are more traditional to Mexican street-style food than ground beef. Now for the most important feature: the taste.
Why is Chipotle successful on TikTok? ›
Key Takeaways. TikTok Tactic — Timely & Relevant Content: TikTok trends live and die overnight, what is popular today may be entirely different tomorrow. Chipotle has mastered the art of creating timely and relevant content by keeping their finger on the pulse and jumping on trends within hours of them becoming popular ...
How popular is Chipotle? ›
All in all, 24 percent of restaurant chain customers in the United States use Chipotle Mexican Grill.
Why is McDonald's the most successful fast-food restaurant? ›
The early efforts towards process repetition and efficiency not only set the basis for McDonald's success from the standpoint of customers' expectations, but also help McDonald's stay on top in a culture where producing at a quick pace is commonly expected.
Franchise Model: A Key to Rapid Expansion
In addition to its focus on customer experience, McDonald's success can also be attributed to its franchise model. Franchising has allowed the company to expand rapidly while minimizing capital expenditures.
Are Chipotle and McDonald's competitors? ›
3 However, it faces significant competition from other quick-service brands, such as Burger King, Wendy's (WEN), Taco Bell, KFC, and Subway. Fast-casual restaurants are also close competitors, with names like Chipotle Mexican Grill (CMG), and Panera Bread Company.
What makes Chipotle so special? ›
Chipotle prides themselves on serving fresh ingredients made everyday. This fact appeals to many because Chipotle is a convenient way to get food fast in a healthier way than most other fast food places.
Why is Chipotle stock so good? ›
CMG's stock growth can be attributed to Chipotle's strong financial performance and the recent 50-for-1 stock split announcement. CMG's positive performance can be attributed to restaurant-level operating margin expansion, menu innovation, price increases, and good execution of the company's digital strategies.
What is Chipotle's unique selling point? ›
Chipotle's Unique Selling Proposition
The company sources high-quality ingredients from sustainable and ethical suppliers. This commitment extends to animal welfare, with Chipotle only using meat from animals raised without antibiotics or added hormones.
Why is Chipotle so hyped? ›
Part of what makes Chipotle so popular among such a broad range of people is its versatility and ease of customization. Every customer has their own order or preference of what they want in their order. For anyone who wants a relatively healthy meal that will fill you up, with no doubt, Chipotle is the way to go.
Why do Millennials love Chipotle? ›
Chipotle's popularity among young consumers is a testament to its omnichannel marketing strategy, which often highlights the quality of its ingredients. It's also a testament to the power of social media marketing, especially among younger consumers.
How did Chipotle make a comeback? ›
Now after hiring a new chief executive – the former head of Taco Bell – Chipotle is rebounding, helped by better quality control, new menu items, and expanded delivery and pickup options. Chipotle has surged 66% so far in 2019, making it the second-best performing stock in the S&P 500 through Friday.
Why do people still go to Chipotle? ›
In most of their advertisem*nts they point out how fresh and healthy their ingredients are. Chipotle even offers “Lifestyle Bowls” which are bowls that you do not have to build yourself but are considered health bowls with all of the essential proteins, fats, greens, etc.
