In this episode, we talk about starting a food empire and then rescuing it. Today’s topic – Chipotle.
Back in the early 1990s, a former line cook who had dreams of becoming a chef started something that would change the very idea of fast food.
Steve Ells was a graduate of the Culinary Institute of America and he had dreams of starting his own fine-dining restaurant. Steve was inspired by the taquerias and burrito restaurants in San Francisco’s Mission district. He saw how popular they were and thought he could take that idea and make it popular outside of California. Maybe a taco shop could fund his fine-dining restaurant dream?
In 1993 Steve borrowed $85,000 from his father and opened his first restaurant in a former Dolly Madison Ice Cream shop in Denver, Colorado, just down the street from the University of Denver campus.
This restaurant was called Chipotle Mexican Grill. Steve and his dad did the numbers when they opened – they needed to sell exactly 107 burritos per day to be profitable. After the first month, they were selling over a thousand burritos a day. Less than two years later, in 1995, they opened their second location using the profits from the first store. Things were getting serious. Ells formed a board of directors, created a business plan, and raised an additional $1.8million. Ells admitted he was making it up as he went along as he had no business background, and no real business plan.
In an interview with NPR’s “How I Built This,” Ells said the success of Chipotle surprised even him:
“This was going to be one restaurant… And this was going to be a cash cow that could fund and help support a full-scale restaurant. knew that full-scale restaurants were a dicey proposition. I mean, they go out of business often. It’s hard to make margins, very difficult to operate. And so I wanted Chipotle to be a backup. “There was no business plan,” he said on the podcast. “I was just making this up as I went along.”
By 1998 there were 16 Chipotle restaurants – all in Colorado. One of Chipotle board members happened to work for McDonald’s in business development. That’s how Steve Ells ended up bringing some Chipotle burritos to a Mcdonald’s board meeting. McDonald’s did end up buying a minority share in the fledgling company and they did channel that $50 million into building Chipotle into one of the greatest success stories in modern restaurant history. By 2005 McDonald’s owned 90% of Chipotle. In 2006, with over 500 Chipotle locations in the US, and more opening every month, McDonald’s sold it off… and divested completely of Chipotle. According to press accounts, McDonald’s not only sold off Chipotle but other brands like Boston Market. They said they were “distractions” to the McDonald’s core brand and that they needed to get back to their core.
For their part — Chipotle never looked back. By 2015 Chipotle had over 2000 locations, net revenue over $475 Million, an all-time high stock price over $785 a share, and more than 45 thousand employees.
And then – disaster struck:
In August of 2015, health officials linked Chipotle to an E.Coli outbreak that sickened over 50 people in numerous states.
Soon after, more than 120 Boston College students showed up at the college’s health services with norovirus symptoms that were later linked to an area Chipotle. It was national news. Eating at Chipotle wasn’t safe. And just like that, people stopped going. Both Chipotle and the Centers For Disease Control worked to get to the bottom of it, but a specific cause was never found. There were suspicions that it was tainted beef or poorly handled vegetables. In the end, no cause was ever conclusively determined.
And the only thing worse than food poisoning you can trace… is mysterious food poisoning you can’t pinpoint. If you don’t know where it came from – you can’t say for sure that it’s gone. With no real information to share, Chipotle did little to reassure the public.
The press hammered Chipotle for their failure to give answers and the company’s stock price plummeted dropping more than 13 percent in just a couple months. Just as quickly as Chipotle rose to prominence, it seemed they might lose it all.
The Chipotle team started working to reassure customers – and to rebuild the trust they’d lost. Chipotle started testing different strategies, including reformulating their food safety protocols, changing their employee sick leave policies, and offering customers free burritos to come back.
High executive salaries came under scrutiny – specifically, the company’s founder Steve Ells and his co-CEO Marty Moran who together made nearly $50 million dollars in 2014. Moran eventually left Chipotle and Ells resumed full leadership. It was time for decisive action.
On February 8th, 2016 Chipotle took a bold step. That morning, Every single Chipotle location in the United States closed for a nation-wide all-staff meeting on food safety. A new head of food safety was introduced. And new safety procedures were announced including:
- Having all employees wash their hands every 30 minutes;
- Having 2 employees verify that produce had been immersed in hot water for 5 seconds to kill germs on their surfaces;
- And that they would be using a process called Pascalization, a high-pressure processing method, to pre-treat ingredients.;
They set out on the even larger task of rebuilding their image and reconnecting with their once-loyal customers. Chipotle’s marketing had always been bright – positive – even glib. Chipotle went back to the drawing board with their product marketing. They started giving it away with free offers and Buy-One-Get-one promotions but their strategic efforts were still largely a holdover from the pre-contamination era and a change was needed.
In 2018 Brian Niccol replaced Steve Ells as CEO. The Former Chief Marketing Officer for Pizza Hut, and most recently CEO for Taco Bell, Niccol had repositioned Taco Bell as a lifestyle brand
Niccol had the perspective to see the brand as a new chapter and to dispense with what had been the conventional wisdom of the brand up to that point. Niccol launched centralized national marketing initiatives and focused on Digital.
Chipotle’s revitalized strategy resulted in $1.2 billion in new revenue over a three-month period – and a 65% increase in digital sales. Perhaps the best thing for the brand was that the focus on convenience and better technology was successful in attracting younger consumers – notoriously hard to win in the competitive restaurant category.
The numbers are proving the strategy out:
Revenues increased by almost 14% in early 2019 and Digital sales more than doubled – making up almost 16% of total revenue.
While some of Chipotle’s comeback story is familiar (new management, new positioning) there are other aspects that don’t follow the typical comeback playbook:
1. They didn’t fire their agency. Brandt stuck with Venables, the agency Chipotle had used for years before he arrived. He knew that in the midst of changing the entire strategy – keeping people who knew the brand was key. The lesson to be learned: when making large-scale changes – don’t change EVERYTHING. You have to keep some elements to make the changes work. Brandt was humble enough to know there were people on the brand team who know more than him.
2. They didn’t go back to what had worked before. The Chipotle team recognized that the elements that had worked for their brand before – had worked to get them to a place they needed to move past. Their earlier strategies had created a successful niche brand. Success in the future would have to transcend that.
The lesson to be learned: Know what your strategy is going to work FOR. A strategy may be successful, but you may not want the results of that success. If you want a different result, you have to do different things.
We talk about:
[03:55] Chipotle history
[07:20] Chipotle & McDonald’s
[10:30] Food poisoning disaster
[14:50] Comeback attempts
[17:10] Chipotle’s marketing strategy after food poisoning scandal
[18:25] New CEO – Brian Niccol and his innovative strategies
[22:55] What makes Chipotle’s comeback story unique
[24:25] What can be learned from this story