CASE: The Chipotle Mexican Grill
In 1993, Steve Ells opened a burrito-and-taco restaurant in a Denver storefront, not far from the University of Denver campus and popular with students. He named it Chipotle Mexican Grill, after the dried pepper common in Mexican cooking. A trained chef and and graduate of the Culinary Institute of America, Steve's idea was for Chipotle to be a cash cow to help him finance a "real" upscale restaurant. Chipotle, however, began branching out: first to several locations in an around Denver, then eventually nationwide. In 1998, McDonald's bought a 91% stake in Chipotle, this was followed by a 2006 initial public offering in which McDonald's retained 69% of the stock and 88% of voting rights. By the end of 2005, there were about 500 Chipotle outlets generating approximately $600 million in sales annually. Currently, about 15,000 people are employed by Chipotle. Steve Ells still serves as the chairman and CEO.
What accounts for the success? For starters: a simple menu, skilled cooking techniques, fresh preparation, served quickly, and a "cool" setting. The menu is described as "fast casual" and is at first glance rather limited: only tacos and burritos. Steve notes however, that there is a wide variety of flavors to choose from, and by focusing on a couple of things, Chipotle has been able to ensure that they do them very well. He argues that too big a variety leads to too much pre-preparation or processed ingredients, and notes that since its earliest days, Chipotle items are always made-to-order. He admires and tries to emulate In-N-Out Burger, a 50-year-old chain that sells only fries, hamburgers, and milkshakes, but offers high quality for which people are willing to pay a premium. He also admires Steve Jobs of Apple, and feels that one can learn a lot from Job's "passion for not accepting mediocre stuff."
There are some other factors at work here as well. The pork used by Chipotle comes from pigs raised naturally, without hormones, on family farms. In 2005, Chipotle switched its dairy purchasing policy: Since then, all sour cream comes from cows that are not given the hormone rBGH. The restaurants use fresh avocadoes, tomatoes, and peppers, prepared from scratch. And Chipotle believes in the "open kitchen" format: People can see for themselves that the food is fresh.
Steve's term for Chipotle's vision is "food with integrity". He notes that he loves seeing high school students going into a Chipotle, spending a couple of dollars more for a meal than they might elsewhere, and maybe getting a bottle of water instead of a soda. Chipotle's has never advertised as a place for kids or teenagers to eat. In fact, it does very little advertising. Steve feels that advertising the "food with integrity" vision won't work; to use his term, it would "be too preachy". Rather, he lets the food quality, value, and convenience do the talking. The open kitchen also helps promote Chipotle's freshness and quality. He estimates that no more than 5% of his customers know about "food with integrity". The rest come in because they like the taste of the value, or just because "the place looks cool".
But Steve believes that "food with integrity" can mean much more. He points out the popularity of organic food stores. People respond positively to organic, sustainably grown vegetables, humanely raised meat, and fewer preservatives. At Chipotle, he has considered switching over to all-organic produce, but does not want to price a dining experience at Chipotle out of the average fast food customer's range. According to one estimate, going organic overnight would make the retail price of a burrito jump to 15. Nevertheless, switching to natural pork increased the price of carnitas from 4.50 to $5.50, but sales also went up.
Totally organic is perhaps a long-term goal, and there are certainly interim steps. About 30% of its beans are organic, though other vegetables are generally not. About 60 - 70% of the chicken and about 40% of the beef is sourced naturally, as well as all of the pork. The sour cream is still not organic, though it is hormone-free. The other thing to keep in mind is that as Chipotle grows, it gets more power in the supply channel. As a tiny chain, it was not able to get natural chicken thighs from high-end supplier Bell and Evans, but at its current size, it can do so today.
Though today's Chipotle would seem to be among the leaders in providing healthy fast food to the public, Steve feels that he is still lagging behind. His goal is for all Chipotle restaurants to offer only organic, pesticide-free ingredients, lacking preservatives and artificial flavors and colors, and all natural, humanely-raised meat. He would even be more delighted if every restaurant were to follow the same vision.
QUESTION:
If you were advising Steve Ells, what could he have done to evaluate the all-organic concept? Discuss.
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