Chipotle Mexican Grill is the Bono of the fast-food business. Hardheaded financial analysts love it; do-gooders do too. "Chipotle has done a wonderful job of meeting people's sociological need to eat food that's healthy for the planet," says Dean Haskell, a senior VP at equity researcher Morgan Joseph. Bernard Rollin, a distinguished professor of animal sciences at Colorado State University, gushes about Chipotle's focus on hormone- and antibiotic-free meat that is humanely raised. Then he adds, "Have you eaten there? It's really good."
Good food wrapped in a socially responsible message has created legions of Chipotle fans -- and a superhot business. Acquired by McDonald's in 1998 when there were only 14 Chipotles, the company went public in 2006 with 500 stores and watched its stock rise from $22 to $110 in 18 months. The now-independent outfit is enjoying an 80% revenue run-up over three years, and by year's end, it will have 840 stores and top $1 billion in annual sales.
Chipotle has achieved these impressive stats by spurning fast-food orthodoxy. Workers make each burrito by hand, which leads to long lines of customers waiting far beyond the four-minute industry standard. Turns out, that's not a problem for many customers. "It's psychologically calming that they make the food right in front of you," says Tim Murphy, a Manhattanite found at a busy Chipotle at 9 p.m. on a Wednesday. "Because of that, you don't mind the 15-minute wait." Rather than depending on premade foods to speed up lines, the company continues to improve the efficiency of its service line, and of the 140 restaurants it'll open this year, 90% of them will be near other Chipotles, to soak up overflow.
Chipotle also avoids the frills that pad other chains' bottom lines. "Desserts and other sides are all profit for these chains," says industry analyst Clark Wolf. "The whole infrastructure's already there, so they can make a 90% margin on extras." But founder and CEO Steve Ells staunchly refuses to expand his menu beyond four options (burrito, burrito bowl, taco, salad). "We want to do just a few things better than everyone else," Ells says. "We just do things we think are right."
Chipotle's aggressive move to serve animal products from humane providers stems from that principle. The chain now serves only rBGH-free dairy products, and all of its pork meets its standards for hormone- and antibiotic-free, humanely raised meat, as does 80% of its chicken and 50% of its beef. That makes Chipotle the largest restaurant buyer of humanely raised meat.
Chipotle's stance on meat, as well as the company's iconoclastic view of the restaurant business, stems from Ells himself. First of all, he's an animal nut, not typical for a fast-food executive. (During our interview, he excused himself to walk his dog, Bailey, who accompanies him to Chipotle's Denver offices.) He's a slim guy with architect glasses who never planned to become a magnate of San Francisco -- style taquerias, until McDonald's approached him with a bundle of cash too good to refuse. A classically trained chef, he opened his first Chipotle in Denver in 1993 to raise money for a sit-down restaurant.
His epiphany about animal treatment came in 2000 when he visited some of his suppliers' farms and was appalled at the conditions. "If people know that the food is based on abusing animals, how satisfying can that dining experience be?" he asks. This year, Ells has committed to serving 52 million pounds of naturally raised meat, a 40% increase over 2007.
Ells's vision -- "We want to influence the supply chain in the United States," he says -- comes at a cost. It's difficult to buy 52 million pounds of the good stuff. Humane providers tend to be small and are already at capacity. Ells recently began retaining small suppliers in Canada, increasing his shipping costs. Chipotle has to pay a premium for Ells's passion, and so do his customers (the average burrito is now $6 to $7). "In an economic environment where the consumer is cautious about spending money," analyst Haskell says, "we're cautious about higher-cost concepts like this."
Surprisingly, Chipotle's answer may lie in the competition. Burger King and Wendy's, the No. 2 and No. 5 U.S. chains, respectively, recently began to explore humane-pork options. Their needs will likely create more supply options. "Chipotle is a major vector of change in its industry," says professor Rollin. Adds Wolf, the industry expert: "Restaurants at every level better hurry up and make sure there isn't poison in their food." He continues, "Chipotle makes great food and serves it. Genius!" Make better burritos, open more restaurants -- what a concept.