This is an English adaptation of a FoodBud historical article originally published on April 8, 2022.
Chipotle, known for Mexican burritos, became one of the fast-casual sector’s breakout chains. It opened its first restaurant in 1993 and had nearly 3,000 locations by the end of 2021.
When Chipotle went public in 2006, its IPO price was $22. By the time of the original 2022 article, the share price had climbed to $1,544, a 35-fold increase over 15 years, and the company’s market capitalization was $43.3 billion.
Founder Steve Ells had liked cooking since third grade. His mother recalled him repeatedly making scrambled eggs in the kitchen. Chipotle, pronounced similarly to the smoked chili “chi-POAT-lay,” began largely by accident.
Ells studied art history at the University of Colorado, then trained at the Culinary Institute of America. In 1990, he took a $12-an-hour line-cook job at Stars, a landmark San Francisco restaurant whose chef Jeremiah Tower was an early celebrity chef. Ells wanted to build his own acclaimed restaurant, but lacked capital.
His plan was to start a quick-service business, generate cash flow, and then use that capital to move upstream into full-service restaurants. He liked the taquerias in San Francisco’s Mission District, so he returned to Colorado to open a similar restaurant.
With $75,000 in startup funding from his father, a former pharmaceutical executive, Ells converted a Dolly Madison ice cream shop near the University of Denver into a burrito restaurant. He named it Chipotle. It opened in 1993, when Ells was 28 and had no formal business-management training.
The made-to-order, generously portioned burritos were an immediate hit. On opening day, the store made several hundred dollars; on the second day, sales doubled. Chipotle was soon serving 1,000 burritos a day, and first-year profit exceeded Ells’s $24,000 target. Within two years, he had opened more stores in Denver.
Ells also began challenging fast-food norms. Concerned about industrial livestock conditions, he started using naturally raised animals, bought organic ingredients where possible, and promised not to use hormone-treated products. He later said this was less about what customers would reward and more about professional ethics.
Chipotle ultimately stopped being a backup plan. Ells abandoned the dream of opening a fine-dining restaurant, though he said he felt “a little guilty” each time he opened another Chipotle because he was not doing fine dining.
As Ells focused on building a chain, the key challenge became expansion beyond Colorado. In 1998, he sent a business plan to McDonald’s executives. McDonald’s liked it: in the first year, it committed about $50 million to Chipotle, and within three years it held control of the company.
Ells received $360 million in discretionary capital from McDonald’s and expanded Chipotle to more than 500 restaurants, though the chain still contributed little to McDonald’s profit.
The partnership eventually became strained. One reason was McDonald’s preference for a global strategy, which Ells considered too rushed. There were also operating disagreements: McDonald’s wanted to rename the chain “Chipotle Fresh Mexican Grill,” adding “Fresh,” which Ells thought was meaningless, and it also viewed Chipotle’s ingredient costs as too high.
The two sides reached an agreement to separate. In 2006, Chipotle listed on the New York Stock Exchange, and its share price doubled on the first trading day. McDonald’s exited Chipotle with more than $650 million in profit, while Ells gained the freedom to run the company his way.
Ells later said Chipotle became a better company after independence. Before the IPO, some people questioned whether leaving McDonald’s would mean losing valuable resources. Ells believed it would not.
For years, Chipotle’s operating motto was “Food with Integrity.”
Ells wanted to serve fresh food, but that model carried higher food-safety risk than traditional fast food. Unlike many quick-service chains, Chipotle processed raw meat inside restaurants, creating more room for harmful pathogens if handling was poor.
Beginning in 2015, Chipotle faced repeated foodborne-illness incidents. In September 2015, a food-poisoning scandal broke, followed by at least 35 E. coli cases potentially linked to Chipotle. The company temporarily closed 43 restaurants to try to contain the spread. Its share price had passed $757 the previous week, then fell back to $624 on November 2 after the incident.
Steve Ells left the management team in 2016. Brian Niccol, previously at Taco Bell, became CEO.
After taking over, Niccol retained Chipotle’s core operating philosophy while building a more comprehensive management framework around its employee-incentive policies. For food safety, Chipotle introduced the “Focus Prep” program to reduce employee contact with raw materials, and used FoodLogiQ software to track produce-safety information from farm to restaurant.
In April 2020, Chipotle paid $25 million to resolve criminal charges related to food-safety issues from 2015 to 2018.
Chipotle’s core differentiation was framed as being “healthier than fast food, cheaper than health food.” While investing heavily in ingredient freshness, the company did not try to win customers only by shortening preparation time in the style of McDonald’s or KFC.
Its operating formula combined moderate pricing, higher-quality ingredients, and fast throughput.
Ells emphasized fresh ingredients and preparation from the beginning. He said that when he founded Chipotle in 1993, the idea was simple: serve customers a simple but high-quality menu every day, use fresh ingredients, apply cooking techniques similar to those used in many good restaurants, and then increase serving speed.
That operating philosophy is visible in the restaurant format. A Chipotle line and kitchen can have as many as 16 employees preparing food while customers queue outside; at times, hundreds of customers may be served in an hour. The menu is simple, with four core formats: burritos, burrito bowls, tacos, and salads. Across those items, Chipotle used 64 ingredients, while a McDonald’s Big Mac was described as containing 70 ingredients.
Chipotle also used energy-saving and environmental measures to reduce cost and improve efficiency. It expanded regional distribution centers to reduce transportation costs and used central kitchens for preprocessing to lower store-level waste. The number of regional distribution centers rose from 16 in 2005 to 26 in 2021.
Starting in 2008, Chipotle reduced redundant build-out in new restaurants and used recycled drywall, non-toxic paint, recyclable white tile, energy-efficient appliances such as water heaters, lights and windows, and solar panels. It used 100% recycled napkins, saving more than 22 million gallons of water annually.
The chain’s assembly-line service model assigned each employee a small part of the process, shortening production cycles and increasing throughput. At peak times, one Chipotle store could serve up to 300 people per hour, equal to a cycle time of only 10 seconds per employee.
Ells’s early move into “Food with Integrity” began in 1999, when he read about agricultural ideas shared by Bill Niman and Salatin. Ells visited Niman’s ranch in Iowa and became interested in its hog-raising methods. He and Niman also visited conventional hog farms and slaughterhouses, which supplied most of Chipotle’s pork at the time.
Chipotle also expanded its “local growers program,” committing stores to buy a portion of seasonal produce from farms within a defined radius. The initial threshold was 200 miles, later relaxed to 350 miles. By 2010, Chipotle worked with about 50 family farms and bought around 5 million pounds of lettuce, onions, tomatoes, and other produce.
The article described supporting family farms as one of Chipotle’s goals, noting that the number of U.S. farms had fallen from 3.82 million to 2.2 million since the 1960s, a decline of nearly 40%. Chipotle helped family farms transition from conventional to organic agriculture, a costly process that takes three years. It also committed to adding one more farmer to Niman’s farm network for every two new stores opened, provided funding to 50 farmers under age 40 to support the next generation, and allowed family farms supplying Chipotle to sell their own products through Chipotle’s online platform.
Ells said Chipotle’s commitment to local farm products was intended to change how people viewed and ate fast food.
In 2015, Chipotle became the first national restaurant chain in the United States to fully remove genetically modified organisms, or GMOs, from its supply chain. Since its founding, it had also continued increasing the share of organic products on its menu.
According to Chipotle’s annual report, 2021 revenue was $7.5 billion, up 26.1% from $6.0 billion in 2020, mainly driven by higher restaurant sales and menu-price increases. Delivery revenue was 89.9 million yuan, up 40.3%. Full-year net profit was $650 million, up 83.5%.
In 2021, digital sales from delivery and in-store pickup reached $3.4 billion, or 45.6% of revenue, compared with 46.2% in 2020. The loyalty program had 26.5 million users in 2021. Average unit volume was $2.641 million, up from $2.223 million in 2020.
Total restaurant operating costs in 2021, including ingredients, labor, rent and other items, accounted for 77.4% of revenue. Ingredients were 30.6%, labor was 25.4%, rent was 5.5%, other operating costs including marketing, delivery, payment fees and utilities were 15.9%, and depreciation and amortization were 3.4%.
As of December 31, 2021, Chipotle had 2,918 restaurants in the United States, 44 international restaurants, and 4 non-Chipotle branded restaurants under Pizzeria Locale. It had 97,660 employees globally. In 2021, it opened 215 new restaurants, 174 of which had Chipotlane drive-through pickup lanes.
At the time of the article, Chipotle expected to open 235 to 250 restaurants in 2022, with Chipotlane in 80% of new units. Longer term, it estimated potential U.S. store capacity at 7,000 locations.
Note: IPO, share-price, market-capitalization, 2022 opening guidance, and long-term store-capacity figures are historical figures from the original 2022 article.