🥑 “Guac costs extra. Is that OK?”

A true test of good Mexican food is guacamole, and Chipotle’s guac is pretty good. Well, at least good enough to help turn a former Denver burrito store into a $50 billion empire.

Today, we'll discuss Chipotle’s inspiring origin story and how founder Steve Ells created a national behemoth.

All this, and more, in just 4 minutes to read.

— Matthew

QUOTE OF THE DAY

"We want to make the old fast food model irrelevant. We want to make great ingredients and classic cooking techniques accessible to everybody.

Focus on just a few things, and do them better than anybody else.”

— Steve Ells

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CHIPOTLE’S ORIGIN STORY

Plan B

The Chipotle Mexican Grill Americans have come to love almost didn’t happen. It was plan B.

The year was 1993, and founder Steve Ells had recently graduated from the Culinary Institute of America in New York. He’d been working as a chef in San Francisco out of school, but something else was on his mind: He wanted to open a fine-dining French restaurant in his Boulder, Colorado, hometown. The costs were prohibitive, though, and he needed money he didn't have to start a high-end establishment.

Then Ells tried a burrito one day at a California taquería. He remembers the flavor being strikingly delicious. He knew a burrito assembly was fairly straightforward and repetitive, so he got thinking about plans to open a Mexican-inspired fast-food restaurant.

Ells, then only 28 years old, had never taken a business course. He didn’t write a business plan, but he asked his father for an $85,000 loan, or roughly $180,000 in today’s dollars. Ells had done the quick calculus: The burrito shop would help him raise enough money to launch his fine-dining French restaurant.

“I was just making this up as I went along,” Ells said on NPR’s “How I Built This” podcast in 2017, 24 years later. “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. I 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.”

Not bad for a backup plan, as Chipotle has more than 3,000 stores, all company-owned. It employs about 100,000 and sells more than 1.5 million burritos daily. Today, it posts a $53 billion market cap, as its stock price has appreciated about six-fold in the past five and a half years alone. It’s now sitting near all-time highs.

It all began with one burrito.

Rapid growth

Ells grew up reading cookbooks and articles. His mother served fresh vegetables and salads from their garden. Growing up, he knew what quality, fresh food tastes like. Like many visionaries, he wasn’t just savvy at business with the benefit of good luck. He was a foodie and professional chef with an upbringing that shaped his business.

Chipotle, whose name comes from the Mexican smoked and dried jalapeno chili pepper, opened its first store on July 13, 1993 – 30 years ago this month. Ells calculated that he had to sell 107 burritos per day to turn a profit. He didn’t know how customers would react to the new store in a remodeled ice cream shop near the University of Denver campus.

The store became an instant hit, selling over 1,000 burritos daily within a month.

“I think the sales the first day were probably $240 or something like that, and the next day, a little bit more, and the next day, a little bit more,” Ells said. “And we sort of, we got faster and more efficient. And word spread pretty quickly. And students got back to campus in September. And so that helped business a little bit.”

Within a year, Ells said he repaid his father’s loan. After 18 months, he opened a second Chipotle in Denver. The French restaurant remained Ells’ long-term goal, but he opened a third location in Denver in 1996, thanks to raising more capital, including another investment from his father. Focusing on “healthier” fast food, not greasy fries and burgers, also fueled Chipotle’s growth.

“Chipotle was wildly successful, and I thought, ‘well, let me open one more,’” Ells said. “I remember feeling a little guilty every time I opened a Chipotle. I felt guilty because I wasn’t following my true passion. But that eventually went away. And I realized that this is my calling.”

How so profitable?

Most restaurant-industry leaders will quickly remind you that the business is notoriously hard to find profits. Margins are low. Yet Chipotle grew fast in Denver and delighted shareholders for years largely because it has consistently posted thick profits.

Chipotle is known for its small, simple menu. There’s a benefit for the company: It helps reduce waste. The kitchen isn’t overwhelmed with dozens of permutations and options and doesn’t need to develop new offerings. At Chipotle, less has always been more.

“Our economic model allows us to invest a disproportionate amount in our food costs,” Ells said. “We have a very efficient system: customers go through a single line, the people who serve you are the ones who make the food, and our menu board is not cluttered.”

Chipotle also has no franchises, unlike big chains, giving management full, tight control of all operations. Chipotle would likely grow faster with franchises but risk losing control over suppliers, taste, and culture. It would simply be a different game than the one Chipotle’s interested in playing.

“So much of today’s food is based on the exploitation of animals and the environment,” Ells has said. “Yes, it’s cheap, but at what cost?”

Similarly, Chipotle leaders say you probably won’t eat a breakfast burrito there soon. While rumors have swirled around that it would open earlier for breakfast, Chipotle has repeatedly said it wants to stick to what’s worked: Consistent lunch and dinner. As the saying goes, if it ain’t broke, don’t fix it.

“When I started Chipotle, I didn’t know the fast food rules,” Ells said. “People told us the food was too expensive and the menu was too limited. Neither turned out to be true.”

Final thoughts

Ells’ determination and vision are a case study in building a great business. The chain hopes to double its stores to about 7,000 locations while improving its app and in-restaurant experience in the years ahead.

CFO Jack Hartung reflected on the company’s incredible story in its most recent earnings call last week. He joined in 2002 when the company was nine years old.

“I was bullish when I joined Chipotle,” he said, noting that the “delicious” rice struck him as a distinguishing factor. “It kind of blew my mind that you’ve got a young chef, who started this fast-casual restaurant company based on what fine dining restaurants do.”

For example, employees put in hours of prep work with fresh ingredients long before the restaurant opens. Quality guacamole and well-cooked rice also define its menu. Ells is no longer leading Chipotle, but his fingerprints are all over the company.

“If we really want to change the way Americans eat, we need to make delicious, sustainability-raised food accessible to everyone,” Ells said years ago. “I’m always tweaking, always trying to make it better, constantly moving the levers and dials.”

Dive deeper

Here’s Ells’ excellent, full interview on the “How I Built This Podcast.”

See you next time!

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