Chipotle - The Rise and Fall...And Rise Again

[Music] a chipotle is a smoked hot chili pepper commonly used in mexican cooking but much more applicable here it's the name of the second largest chain of mexican restaurants behind only taco bell they currently have over 2 500 locations located across every contiguous u.s state there's over 400 of them in california alone the reason i'm talking about chipotle today is because the last five years for them have been outrageously eventful possibly more so than any other restaurant within that span they have experienced a significant decline in both sales and reputation you may remember all these foodborne illness outbreaks linked to their restaurants but they've made what i would consider to be a full recovery by almost any measure they're actually doing better right now than ever before the simplest most impactful representation of this would be their stock price in august of 2015 chipotle stock was trading at a then high of almost 750 within months of that it was almost cut in half to the 400 range that was directly following the big outbreak leading to early 2018 when it was trading at around 250 dollars and now today it is approaching 1200. i told you that is an eventful five years so today i want to take a look at the rise and fall and rise again of chipotle you know compared to most food chains of this size chipotle is surprisingly new i am actually older than chipotle because it only goes back to 1993 when steve ells opened the first location in denver now steve ells has been passionate about cooking and food for practically his entire life when he was young i can't imagine he was unlike remy from ratatouille just talking about cooking and trying to discover new flavor combinations he ended up going to culinary school and by the age of 25 he was living out his dream by working for a respected chef at a high-end restaurant again much like remy but that's where the comparisons end because steve ells came up with a solid idea for a new restaurant he took note of all the taco and burrito restaurants in his area and figured that he could do the same thing but a more high-end gourmet version of it he took out a loan and convinced his father to invest a considerable amount of money and used it all to open the first chipotle in the summer of 1993 near the university of denver things weren't the best at first he had converted it from an old 800 square foot ice cream shop so the size and the layout weren't ideal but there was enough good to outweigh the bad he would come up with his own fancier twist on the ingredients serve them in higher quantities chipotle has always been known for their larger burritos but he was still able to keep the prices under control all the main items were under five dollars in fact his unique balance of quality and pricing made him somewhat of a pioneer in the now popular industry of fast casual dining it's basically trying to find the happy medium between fast food and casual dining and chipotle was one of the earlier ones to do it in the words of stevels i wanted to show that food that was served fast did not have to be a typical fast food experience in the following years he found additional investors and was able to subtly expand chipotle into a chain of locally popular restaurants in the denver area then in early 1998 when there were about 14 locations mcdonald's became involved when they bought partial ownership of chipotle it was a minor stake at first but by 2005 they had become 90 percent owner of it though steve ells did remain in charge as chipotle's ceo as you would imagine this is when their expansion was taken to that next level it is not hard to see how having a fast food giant like mcdonald's behind them would be helpful for their business aside from the actual money that mcdonald's provided they were useful in selecting which areas they should open new restaurants at a strong distribution system that could be utilized they were helpful in securing better suppliers there were more advantages than i can even mention here but in early 2006 when the chipotle chain had grown from 14 to about 500 locations with mcdonald's involvement mcdonald's no longer wanted to be involved they instead wanted to focus their attention on their core mcdonald's brand and really it doesn't seem like the two are getting along very well obviously the two brands are different and because of that it doesn't appear that the managers from the two ends ever shared the same vision for chipotle considering how much the brand has exploded since i can't imagine mcdonald's is too happy with that decision but at the time those reasons were motivation enough for them to sell their steak in chipotle to the public meaning by the end of 2006 chipotle was completely free for mcdonald's trading independently on the stock market and from there chipotle continued growing i think faster than anyone could have predicted probably one of the bigger reasons for it would be their emphasis on fresh ingredients and as they put it food with integrity what they mean by that is over the years they had grown increasingly concerned with where their food comes from i recommend that you look more into the details of it but they became known for their fresh responsibly sourced ingredients to best show their success over this time i'm just going to show you some of the key figures from their first 10 years apart from mcdonald's that 2006 ipo priced the stock at 22 dollars per share which had gone up to 42 dollars at the end of the first day of trading from there there were some ups and downs but by 2015 it was over 700 when looking at their number of locations it had consistently increased to over 2 000 when you're opening so many new locations like this you have to be careful of your comparable store sales because it wouldn't make sense to open so many new restaurants if the existing ones were losing sales and amazingly even though they had quadrupled in size over that 10-year span that was never an issue for chipotle their comparable store sales growth remained positive during this time it seemed like no matter how many they opened it was never enough because the demand was always there it may have been too high in fact because one of their biggest issues over this time was the fact that their lines were too long i know i'm not the only one who has waited far too long to get their chipotle but as far as problems go it's not the worst one to have considering they were opening more locations and selling more at each location their overall sales jumped from 800 million dollars to 4.5 billion over this time and every one of these years was profitable netting almost 500 million dollars in 2015 alone i don't know how any of this could have realistically gone any better it really did seem like they were unstoppable then the trouble started the first nationally reported story that got everyone's attention was in october and november of 2015 it was this terrible e coli outbreak in 11 different states that was connected to many of their restaurants 55 people got sick 21 of which were admitted to a hospital not surprisingly the public became very apprehensive about eating at chipotle then to make things worse had a terrible time right when everyone was scared in december of that same year they were linked to a norovirus outbreak that affected 136 people in boston for this one it looks like the manager at chipotle went against company policy and forced a sick employee to stay at work that person then helped pack an order for a college basketball team and that team ended up getting sick with the virus now these weren't the only outbreaks but they were the big ones that received what many would consider an abnormally high amount of media attention i'm sure that most of us saw the reports when it happened but what fewer people may realize is just how much the company was hurt by them the outbreaks occurred right at the end of 2015 so 2016 is where they saw the biggest impact that year their same store sales decreased for the first time and it was by 20 percent their overall sales decrease for the first time by about 600 million dollars which of course led to lower profits as well it also eventually led to the resignation of their founder steve ells as ceo in 2017 who as we've seen had been the head of chipotle from the very beginning then to complicate things even further when the public had them under a microscope looking for any kind of outbreak or breach in food safety it happened again in july of 2018 647 people got sick likely from eating out of chipotle in ohio the restaurant wasn't keeping their food at safe temperatures so that's probably what made everyone sick at that point i think the public had lost all of their patience with chipotle because this sort of thing just kept happening from 2015 to 2018 a combined 1100 people were sickened from these outbreaks and that led to a 25 million dollar federal fine in 2020 which happens to be the largest fine ever in a food safety case but like i've said they have already made a full recovery from it and are pretty much doing better than ever despite the outbreaks happening through 2018 2016 was really their only bad year and i have a few reasons behind this recovery the obvious one would be increased food safety measures i mean i would sure hope so they hired food safety consultants they're inspecting their restaurants more often all the stuff that you would pretty much expect following these types of incidents another factor would be strong marketing because they had to get the word out there about their food safety and their real ingredients they quickly launched their most expensive marketing campaign ever that included their first nationally broadcast commercials in five years they also hired a new ceo that's been making some big changes when steve ellis left he was replaced by brian nicol who was actually the ceo of taco bell before this some of his changes include moving their headquarters from colorado where it started out to california his hope is that it would shift the culture of the company and bring them closer to their competitors on top of this they've been introducing some new menu items such as their queso dip that actually took them a few attempts i realized that fast food places introduce new menu items constantly but it's uncharacteristic for chipotle whenever i go there i get the burrito bowl every single time i see it from the people around me too there's typically not much variety happening at chipotle definitely not when you compare to a place like taco bell so these few new menu items have been big and it appears that they've been working another factor would be their emphasis on online orders which now account for about a quarter of their total sales their new app and loyalty program have been effective you can now earn points that you could redeem for free meals deliveries coming from their app and their new chipotle lane have helped reduce the lines inside and maybe the most important part of their comeback has been a simple lack of outbreaks i know the bar said pretty low on that one but time has passed people have forgotten about them and they don't seem to be much of a factor anymore so people are less freaked out about eating there it's pretty clear that many people want to eat there so they're going to do it as long as there's nothing actively keeping them away let me know in the comments what you think of everything that's been happening with chipotle these have been crazy times but it's looking like they may have been able to isolate these troubles and put them in the past let me know if you think that's the case and i'm curious how have you felt about eating at chipotle what i mean is back when the outbreaks were happening were you apprehensive or did you stop going there altogether because based on these numbers it looks like that was the case for many people and if you were one of those people how do you feel about them today most have returned by now so what brought you back had enough time passed without an outbreak was it the chipotle rewards maybe it was the queso that did it and what do you see for the future of chipotle are they strong enough to continue growing or are they too big as it is i'd like to hear what you have to say thank you for watching [Music]

Channel: Company Man

Views: 1,351,490

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Id: drSLH1GmKmE

Length: 12min 6sec (726 seconds)

Published: Wed Aug 19 2020