A Chipotle Off the Old Block

How a local burrito joint wrapped up the nation's fast-casual food market.

"What you see is what you get," Ells says. "The customers can see the food being made; they know that it's fresh. They can see that the chicken and steak have never been frozen. They see fresh tomatoes, cilantro being chopped up, avocados being mashed. I think that gives people comfort that they're whole, unprocessed foods."

Fast burritos that weren't drenched in cheese and chile were a revelation to Tex-Mex Denver, and people clamored to check out the Chipotle experience.

"I remember paying back my dad's loan in just a few months," Ells says with a smile. "It was designed to be paid back over years, but business was good. They liked what I had to offer.

 
Ethan Wenberg
 
The man: Steve Ells in the original Chipotle store.
James Glader
The man: Steve Ells in the original Chipotle store.

"My intention was not to create a chain," he adds. "I wanted to have one restaurant and have it be able to support my efforts to start a 'real' restaurant, whatever that may be. I never got around to that real restaurant. As it turns out, Chipotle is pretty real. I'm satisfied."

Ells may not have known his concept was destined for the big time, but Denver restaurant consultant John Imbergamo did. "I think that Steven knew from the day that he opened the first one that he was going to have many restaurants," says Imbergamo, president of the Imbergamo Group. "The whole concept and system, in my opinion, was designed to be replicated."

As it turns out, so was the marketing campaign. Chipotle has always relied on word of mouth more than advertising, but early on, the company did experiment with several different branding ideas. They all fell flat until Ells and then-marketing consultant/now-full-time "Keeper of the Faith" Dan Fogarty realized that simplicity -- like everything else at Chipotle -- was what resonated. So the foundation of Chipotle's image became a big, foil-wrapped burrito.

"You just look at it, and it's big," Fogarty says. "Now a lot of people recognize the image and associate it with Chipotle."

Of course, the big-burrito campaign wouldn't be complete without its signature irreverent messages, such as "Usually when something is this good, it's illegal," "Foil shizzle" and "The gourmet restaurant where you eat with your hands."

"What we try to do is just have fun with certain aspects of Chipotle and try to tell something about our culture or our brand," Ells says. "We try to say something about the Chipotle experience. We don't ever want to say we have the best burrito."

"My personal favorite is 'They beep when they back up,'" Fogarty says, laughing.


1998: Super-Size It

By 1998, the big-ass burrito craze had taken over Denver, and Ells began wondering if he could conquer the rest of the country. He decided to try Kansas City as a test market -- and was a success.

"I think we had maybe a dozen stores in Colorado when we decided to go to Kansas City and really prove that this wasn't a Denver phenomenon," Ells says. "And then we went to Minneapolis. Then we started to get into the coasts -- Washington, D.C., California..."

He had a little help from fast-food behemoth McDonald's, which provided the cash infusion for this growth just as Chipotle was considering a Kansas City restaurant. "We got involved with Chipotle at a very early stage and helped them to grow," says Mats Lederhausen, managing director of McDonald's Ventures, the division that manages the non-McDonald's brands of Chipotle and Boston Market. "We have a great partnership; it works really well. They run their business very much independently."

"McDonald's lets us operate autonomously," says Ells, who sold them 90 percent of Chipotle. "They've funded our growth now for the past six years, and we continue to run Chipotle out of Denver."

But as sales sagged at McDonald's in the past few years, rumors swirled that they were shopping Chipotle around.

"We never said that we would sell Chipotle," says Lederhausen, who is also chairman of Chipotle's board of directors. "We never engaged in that, because we love Chipotle; it's hard not to. I think that they're doing a lot of things -- if not everything -- right."

Chicago food-industry consulting firm Technomic estimates that Chipotle's 2003 sales were $321 million, up from $225 million in 2002 and $145 million in 2001. And Smith Barney estimates that Chipotle's same-store sales rose by 24.5 percent in 2003, helping the non-McDonald's brands to post $700,000 in operating profits in the first quarter of this year compared to an operating loss of $12.9 million in the first quarter of 2003.

"McDonald's has been investing in the non-McDonald's brands for five or six years now, and we've learned a lot," Lederhausen says. "We learned what worked, what didn't work.

"I think it's very important not to confuse size with success," he continues. "We want to grow Chipotle by being better instead of being bigger. The goal is to make Chipotle great. It's almost great now, but everything can be better. The world would be a better place if Chipotle is a success. Which is what it is really all about."


July 2001: Hog Heaven

One of Ells's favorite phrases is "Food with integrity."

That concept came to him in 2001, when Chipotle began buying pork from Niman Ranch, an Oakland, California-based company that sells only free-range, naturally raised pork from independently owned farms.

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