in 2016 Chipotle reported that its
profits had fallen 95% after a series of
food safety issues that sickened
hundreds of people and sent its stock
price plunging a coli outbreak that
caused Chipotle restaurants to shut down
investors aren't the only ones steering
clear of Chipotle I mean it just keeps
happening to to Chipotle and nobody else
even if it's not associated with their
food this time it's it's happened again
they've had to close a store because
customers get sick it had lost customers
trust and Wall Street's adoration its
future was uncertain would Chipotle ever
be able to return to its high-growth
days but the Mexican style food chain
has come back from the brink with the
help of a new CEO consumers are once
again returning to the place that
popularized burritos the size of a baby
and helped the avocado become one of
America's favorite fruits analysts say
that its food safety woes are now firmly
in the past and its stock hit a new
record in july 2019 and has kept
climbing peaking at eight hundred fifty
seven dollars and ninety cents on
September 9th now there's just one
question for the chain how can it keep
soaring and avoid another fault
Chipotle was never supposed to take off
its founders Steve ELLs only started the
restaurant to make some quick cash to
pay for his real passion project
launching his very own fine-dining
restaurant
ELLs got the idea for Chipotle from his
time in San Francisco where he was
working as a line cook for celebrity
chef Jeremiah Tower the Mission District
in the California city is known for its
tuk adea's that's also where the mission
burrito was invented the burrito is
oversized stuffed with rice and other
ingredients and wrapped in foil sound
familiar with a loan from his dad ELLs
moved to Colorado and opened the first
Chipotle Mexican Grill near the
University of Denver campus in 1993 I
think one of the most amazing things
about Chipotle is that the stores today
don't look that different from the
original location by the University of
Denver really the the structure is very
much the same customized assembly line
process very simple but aesthetically
pleasing locations
Chipotle is now quintessential
minimalist layout wasn't a deliberate
design decision it came from a need to
be cheap in that very first Chipotle the
table bases were pipes and the counter
where you paid was made from barn metal
ELLs kept the menu in operations simple
because Chipotle was still his back-up
plan
Chipotle became profitable within a few
months and ELLs was able to quickly
repay his father's loan a year and a
half after opening his first restaurant
ELLs opened a second then a third in
1996 in the early days your your options
for Mexican and food were so limited to
so to see this you know assembly line
burrito company come up and out of
nowhere you know he was amazing how
quickly word spread among the Denver
market and how quickly this this company
really rose to prominence at least in
Denver during the mid 90s he kept going
with additional funding from his dad and
small business loans then he got a
little help from a name you might
recognize McDonald's under the
leadership of longtime CEO Mike Quinlan
the fast-food giant started investing in
Chipotle in February 1990
three years later it was Chipotle's
majority stakeholder the investment help
McDonald's branch out of burgers and
diversify its business it also helped
the fast food chain compete directly
with a rival on the rise
Taco Bell the money from McDonald's
helped Chipotle expand across the United
States most restaurant chains including
McDonald's turned to franchising for
quick and widespread growth but Chipotle
didn't want to handing over the
operations of its restaurants would have
also meant handing over some of its
profits ultimately pressure from
McDonald's led to boat late to franchise
a few restaurants to several McDonald's
franchisees at the end of 2002 in
January 2006 the burrito maker went
public
Chipotle's IPO gave McDonald's the
opportunity to refocus on its core brand
at the time McDonald's was in the middle
of a turnaround after years of
turbulence that started soon after it
initially invested in Chipotle after the
IPO McDonald's started selling off its
ninety one percent stake in Chipotle by
the end of 2006 it no longer owned a
piece of Chipotle just eight months
after McDonald's sold its stake in
Chipotle the burrito chain killed the
franchise model and took back control of
all restaurants the investment had paid
off for McDonald's investors loved
Chipotle and the economy was booming by
2007 its annual sales were more than a
billion dollars then the recession hit
like most restaurants Chipotle felt it
in 2009 it held the second largest
market share 11 percent of the entire
latin-american limited service
restaurant industry according to Euro
monitor yet the company had its slowest
year ever of same store sales growth
that year and its stock tumbled in 2009
Chipotle decided that it needed a change
besides building the company ELLs didn't
have any business experience the company
promoted monte moran its chief operating
officer to serve as co-ceo alongside
ELLs
well obviously steve was the visionary
for Chipotle and had a very much a
culinary back but I
Montee brought more of a traditional
restaurant you know you know background
to the to the equation and sometimes
with the right mix of the personalities
you can make a Co Co model were Chipotle
started thinking of other restaurant
concepts with a similar setup
it created shophouse an asian-inspired
chain
soon after followed pizzeria locale and
tasty made if those names sound
unfamiliar it's for a good reason
Chipotle has since abend in them after
they failed to catch on it came down to
just competition and lack of simplicity
and lack of brand messaging I think when
it only came to shop ass even when
experimenting with offshoots Chipotle
didn't abandon its core business between
2009 and 2015 the company more than
doubled its global total store count new
stores meant new customers unlike Taco
Bell or McDonald's Chipotle wasn't
relying on value meals or limited time
offers to get them instead Chipotle
rolled out a series of ads in 2012 in
2013 about how it sources ingredients
from sustainable farms an initiative it
started in 2001 investors cheered for
Chipotle's expansion and the stock hits
seven hundred fifty eight dollars and 61
cents a share in August 2015 but it
would be years before it soared that
high again in October 2015
food safety officials linked Chipotle to
an e.coli outbreak that sickened people
across 11 states it was not Chipotle's
first brush with foodborne illness
earlier in 2015 the chain had already
been linked to norovirus and salmonella
incidents but it caught the public's
attention 22 customers were hospitalized
the Centers for Disease Control traced
60 cases of e.coli infection back to
Chipotle
in December boston health officials
linked an area Chipotle to another
foodborne illness outbreak at least
eighty people had symptoms consistent
with norovirus it started to seem like
every time Chipotle reopened a store
after a food poisoning incident
it had to close another one Chipotle
co-ceo ELLs apologized on The Today Show
but that wasn't enough sales at Chipotle
locations open at least a year plunged
so did its stock price for the next few
years
Chipotle shares were worth only a little
more than half of its all-time high but
more importantly the incidents damaged
Chipotle's reputation with customers the
company had long boasted about the
quality of its ingredients its meat was
raised without antibiotics its produce
was locally grown and organic Chipotle
called this policy food with integrity
it had been part of its advertising and
marketing for years Chipotle sprung into
action it changed its food safety
protocols it altered its sick leave
policy for employees and it gave away
many many free burritos still despite
its best efforts revenue for 2016
declined by 13 percent same store sales
plunged by 20 percent amid Chipotle's
troubles Pershing Square Capital
Management a hedge fund managed by
Wester Bill Ackman took a nine point
nine percent stake in the company in
September 2016 the news lifted the stock
temporarily Ackman is known for building
a stake in a company and instigating
changes that will boost the company's
stock price ultimately in December 2016
Ackman was able to make a deal with
Chipotle management to name two
directors to the board
Chipotle hand-picked an additional two
independent directors just two days
before the board changes Moran had
stepped down as Co CEO and left the
board
Chipotle's founder was now the only one
steering the ship he was too much at the
center of everything whether or not it
was strategic positioning the
operational decisions of media and
investor relations he was trying to
cover it all instead of really bringing
in delegated expert talent that you
should start to have it late a little
bit later life stages of a business
that's a problem we've seen a lot with
Travis kalanick or or maybe Elon Musk
the company be viewed
ad campaign and rolled out to menu
additions chorizo and que so it was
hoping to find its footing again when
there was another food safety issue in
July 2017 a Sterling Virginia location
was tied to an outbreak of norovirus in
November 2017 nearly a year after ELLs
became the chains sole chief executive
he stepped down and Chipotle started
looking for its next CEO in this case at
least the board took their time to try
to find somebody
enter Brian nickel in March 2018 before
Chipotle nickel was chief executive of a
rival Mexican food chain Taco Bell at
Taco Bell he introduced popular
limited-time offers like nacho fries as
well as Taco Bell breakfast nickel also
pushed Taco Bell into the digital age
yeah as this company matures it was
always going to look a lot more like a
traditional quick service restaurant
company and that's why I think that's
somebody with that background like Brian
I think certainly helped you know
breathe new life into the company while
Chipotle poses a threat to Taco Bell the
inverse is not necessarily true fast
casual chains like Chipotle
appeal to more health-conscious
consumers who have a little extra cash
to burn the fast casual segments of the
restaurant industry is growing the
fastest on the other hand fast-food
chains such as McDonald's are largely
using price hikes to boost sales and
Chipotle was now betting that nickel
could do the same for them
nickels primary mission was to bring
back customers who left during the
foodborne illness scares so far nickel
has taken some tried-and-true methods
from his Taco Bell playbook to make that
happen he even moved
Chipotle's headquarters from Chile
Denver to sunny Southern California
right in the backyard of Taco Bell's own
HQ Chipotle has also recruited several
executives with Taco Bell experience
like its chief marketing officer and the
head of its digital marketing Brian's
one of the most talented people I've
ever worked with we have a good rapport
we were friends
you know even outside of work and so
having the chance to work with him again
was a great opportunity and being on a
great brand like Chipotle and that
opportunity just was how it was hard to
pass up
but Chipotle is still a different
company from Taco Bell I think people
associate Taco Bell and Chipotle as
they're both Mexican but that's a lot of
where the similarities end I think
Chipotle is much more of a food brand
Taco Bell was much more entertainment I
mean we had to come up with something
every four to six weeks and chip away
isn't that way
nickel has also leaned into the food
delivery boom
Chipotle struck a deal with third-party
delivery service door - we're lucky at
can Chipotle we have a very young
consumer base and that is frankly how
they want to consume food what we've
been surprised with on delivery is how
many new customers have really come to
Chipotle just for delivery and in March
2019 the burrito chain launched a
loyalty program for every $125 customers
spend they earn a free entree within
four months it grew to five million
members the loyalty program also drives
customers to Chipotle's app that lets
the company learn more about them and
cater its strategy to what its patrons
want nikhil has also tried to improve
the experience for digital customers
stores have been adding second assembly
lines for digital orders online order
pickup shelves and chipotle n-- drive
throughs for digital orders these
additions are meant to bring Chipotle's
trademark efficiency to off-premise
dining these investments have helped to
grow Chipotle's digital sales in its
second quarter of 2019 digital sales
nearly doubled they made up 18 percent
of total sales in the quarter under
Nicol Chipotle has also been testing new
food items to expand its limited menu
fast food chains like Taco Bell
regularly roll out new limited-time
items to drive traffic as chief
marketing officer and then chief
executive of Taco Bell Nikhil regularly
oversaw the creation of new menu items
but Chipotle is different before Nikhil
it rarely made additions to its menu
customers could return and order their
usual without thinking twice
but now Chipotle wants you to think
about changing up your order we're not
gonna be launching you know five
products a year or six products a year
but we will sprinkle things in to bring
news to bring interest and it just kind
of freshen up things but we have no
intention of really expanding our menu
in any big way the chain launched carne
asada another steak protein option in
September 2019 for a limited time
it's the chains first new protein in
three years it also happens to cost 50
cents more than steak its most expensive
protein and it's working on a
replacement for its queso which launched
in 2017 to tepid reviews even after
tweaking the recipe it still wasn't a
hit the chain began testing a queso
blanco in several markets in July it's
expected to launch the cheese dip
nationwide in 2020 Nichols initiatives
are paying off for Chipotle
despite a foodborne illness incident in
Ohio and 2018 that sickened hundreds the
company finished the year up 49 percent
making it one of 2018 s top performing
stock Chipotle's market share in the
Latin American limited service
restaurant industry also grew to twenty
two point four percent in 2018 according
to Euro monitor it remained in second
place but it managed to steal share from
other chains and independently owned
restaurants redemption came in july 2019
when the stock hit an all-time high
surpassing the record it's set way back
in 2015 the stock went on to climb even
higher but as October 2019 started
shares were up a whopping 88 percent
over the past 10 months but so much love
from investors puts even more pressure
on Chipotle with a single share of
Chipotle worth more than eight hundred
dollars the company has to answer one
question where does it stock go from
here compared to the stocks of other
restaurant companies like McDonald's
Starbucks and Yum Brands shares of
Chipotle are pricey in October 20 19 to
Polly had a forward price-to-earnings
ratio of 46 Starbucks had the next
highest price to earnings ratio of 27
chip oat lay has nearly 2,500 locations
in the US it's
it can add even more the company also
has a limited international footprint
with only 39 stores open outside of the
u.s. nickel told analysts on Chipotle's
third quarter conference call that the
company could accelerate expansion in
Canada if that business improves outside
of North America however expansion will
likely be slower Nikhil said that
Chipotle is in the earlier innings in
Europe as for stores that already exist
its focus is on digital and delivery to
drive sales growth according to Deloitte
customers tend to spend 20% more on
online orders now all Chipotle has to do
is live up to investors high
expectations
[Music]