Chipotle is a popular Mexican grill style fast food restaurant in the U.S. They receive wide popularity for their freshness and quality of food, as well as the speed in which they make their food. In 2015 Chipotle suffered a major setback when they were hit with several outbreaks of foodborne illness. Norovirus, Salmonella, and E. Coli to be exact. A total of 510 customers caught these illnesses and became sick. Since then, Chipotle has recovered quite well. How has Chipotle been able to recover? A hit like that could have been enough to seriously hurt their brand. Why also were/are customers not bugged by the outbreak? These are the questions I will be addressing throughout this study.
Chipotle all started in an old ice cream shop in Denver, Colorado. Steve Ells, the Founder/CEO of Chipotle, had a vision for Mexican grill style restaurant centered around the burrito. He was loaned $75,000 from his father, Bob Ells. He formed a business plan, made best and worst case scenarios, and decided on how many burritos needed to be sold per day. He found the break-even to be 114 burritos sold per day. They worked hard to construct an identity through the logo and color scheme. Originally they settled on a green and red color scheme with the word Chipotle spelled out as their logo. This would change as time passed. The shop finally could open in 1993, but there was one thing very different about this new Mexican grill style restaurant—there were no menus. At first people weren't quite used to this. They would walk in, look around and then leave. Ells loved the idea of having customers look at the food rather than a menu board. Despite this, the restaurant became successful, he was reviewed by the Rocky Mountain News—a local news group. He got a good review and business got good after the word was out.
The business plan had a profit goal of $24,000 for the first year. That number was surpassed by such an amount that they almost stopped paying attention to the business plan all together. Business was booming for Ells and his early Chipotle, he was making much more money than he had anticipated. At this point, the idea of opening another restaurant became a serious question. Business continued to be successful, so they decided to open another restaurant in Denver. At about the same time, customers started asking for a burrito without the tortilla, thus the invention of the burrito bowl was formed—All the contents of a burrito put into a basket without the tortilla. The second restaurant also had a linear line format which made a great serving line for the restaurant. To this day they still use this style of restaurant. The business continued to flourish and profits continued to rise as Chipotle gained more and more popularity. Because of this Ells continued to open more Chipotle restaurants.
By 1996 Chipotle was going to need serious capital to continue to grow their business. Steve Ells parents raised $1.3 million for him from a group of wealthy colleagues. This was not going to be enough, and Chipotle continued to look for investors who could surpass the $1.3 million. They formed a new business plan and sent it to 13 venture capital/investment companies who were in the restaurant business. They were rejected by all 13 of the companies. Bob Ells had a colleague who worked in business development for McDonalds, and he contacted him about Chipotle. Steve Ells was invited to go to a board meeting and display the products that they sold in the Chipotle restaurants, and the McDonalds board loved it. Days later negotiations started. The Chipotle and McDonalds boards looked at the potential of Chipotle and the financial projections, and soon after McDonalds agreed to invest.
McDonalds was a primary Chipotle investor for 7 years from 1998 to 2005. They gave Chipotle $50 million in the first year, which wasn't a lot to give considering McDonalds was and still is a multi-billion-dollar business. Chipotle had this $50 million invested into their already built 13 stores as well as the potential creation of more. To Steve Ells liking, McDonalds took a very hands off approach to Chipotle at first, they trusted Ells, and Ells trusted them. McDonalds did have a lot of suggestions for Chipotle, few of which though, Chipotle took. McDonalds wanted drive through and breakfast, but Chipotle felt like the best way to go was to stick to their brand. McDonalds wanted Chipotle to make tweaks to their menu depending on what region of the country they were in, but still, Chipotle remained true to themselves and stuck with what had worked. Towards the end of Chipotle's relationship with McDonalds, they started to put more and more focus into the quality of their food. McDonalds took Ells to one of their chicken farms, and Ells came back saying that it was one of the most disgusting things that he had ever seen. The idea of “food with integrity” is one of Chipotle's big marketing points, although this term hadn't been dubbed yet, this idea of focusing on the ingredients started around this time. Chipotle made some changes to the menu, primarily to a form of meat called Carnitas. When this started to happen, it was easy to see that there was potential for conflict between Chipotle and McDonalds.
In 2006 the relationship between Chipotle and McDonalds was beginning to diminish. Chipotle was not really contributing to McDonalds, the franchises were becoming distracted, and the Chipotle group was becoming upset with McDonalds supply chain. It became apparent to everyone that it was time to split. Under McDonalds, Chipotle increased its number of stores from 13 to around 500. Now that Chipotle's relationship with McDonalds was over, it was time to look for more investors. Chipotle started out at $22 a share, but the stock didn't open until it was at $44 a share, which created a sizeable loss to Chipotle, but it showed how much demand
there was for Chipotle stock.
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