Steve Ells: 'wrong' approach to quick service works out right for Chipotle Mexican Grill founder

Nation's Restaurant News, Jan 27, 2003 by Bret Thorn

Most quick-service restaurant operators are likely to tell you that, in their segment of the industry, you want bright decor, low prices, very eye-catching signage and standardized food with an accessible flavor profile. Oh, and it wouldn't hurt if you picked a name for your restaurant that people actually could pronounce.

That's what they told Steve Ells when he talked to them about opening a burrito shop.

"Basically, everything I was doing was 'wrong,' "says the founder and chief executive of Chipotle Mexican Grill.

"They said: 'Well, no, people don't want to sit on plywood chairs at stainless-steel tabletops. You can't have every customer go through a line and customize the burrito.' The price point was too high, the portion size was too large, the spice level was too intense."

But with 230 units and estimates by Nation's Restaurant News that the chain has more than $150 million in annual sales, Ells must have done something right, and in the process he has helped to define the growing fast-casual restaurant segment.

You're also not really supposed to take your degree from The Culinary Institute of America and two years' experience in the kitchen at Stars, Jeremiah Tower's fine-dining landmark in San Francisco, and use them to open a burrito shop.

But Ells credits the success at Chipotle in part to his experience at Stars.

"Under Jeremiah Tower and [chef] Mark Franz, I really learned how to taste and really learned how to cook," he says.

It was also at Stars that Ells came to understand the importance of bold flavors and great ingredients and cooking techniques. He also learned to appreciate an open kitchen.

"When someone walks in the door of Chipotle, they see the excitement about the kitchen and this was something that was really driven home for me at Stars," he says. "The whole loud, energetic atmosphere really rubbed off on me."

But the sudden epiphany that evolved into Chipotle actually happened quite a bit farther down-market. Ells was at one of the ubiquitous burrito restaurants in San Francisco -- Zona Rosa, on the corner of Haight and Stanyan.

"I was just sort of noticing how many people were going through the line and getting their burritos... and all of a sudden I thought, 'If I could really sex up this burrito, do something different with the ingredients and open a little place, this could be a lot of fun.'"

His father didn't initially share his enthusiasm, but a week later Ells tried again and convinced him, after writing up a one-page business plan, to invest $85,000, part as an equity investment, part as a lan. about a year later the first Chipotle opened in Denver on the corner of Gilpin and Evans, the site of an old Dolly Madison ice-cream shop.

He grabbed a paper napkin and tallied the number of people buying $5 burritos, food and labor costs, called his dad at home in Colorado and told him he wanted to open a burrito place.

The menu--not actually Mexican, but more Ells' own invention--pretty much has stayed the same since then, but the concept has evolved and Ells says he has learned to get better product, although he doesn't call it that.

"At Chipotle we buy food and raw ingredients," he says. "We don't call it 'product.' I'm not sure I know what 'product' is, nor do I care to know."

Nearly 10 years after opening, Ells says Chipotle is enjoying double-digit comparable-store-sales growth. "We continue to excite new customers, and regular customers come and see us more often and they don't come for the next new gee-whiz, splashy menu item." The menu doesn't change, so Ells says the growth is due to the fact that the quality of the food keeps improving.

Along those lines, in 2001 Chipotle did something else that fast feeders aren't supposed to do. The company switched from commodity pork to much more expensive "free-range" pork from family-owned farms in the Midwest.

"The taste has so much more depth and character," Ells says of the pork. "There's a lot of the dark, succulent meat that you just don't get from factory-raised hogs" and that American consumers aren't supposed to like, anyway.

To pay for the pork, the price of the carnitas burrito was increased by a dollar, from $4.50 to $5.50, something else that low-end restaurants aren't supposed to do. But since the change, Ells says, sales of the carnitas burritos and tacos have risen by 400 percent.

"This tells me that people really do care about great-quality ingredients," Ells says, and that they're willing to pay more for them.

Jeremiah Tower says he doesn't actually remember Ells from his days at Stars, which he thinks is a shame: "Obviously, I should have seen his talent as an entrepreneur and made him managing partner," he says.

Chipotle's success did catch the attention of McDonald's Corp., however, which took a minority stake in the company in 1998 and now owns nearly 90 percent of it.

Initially, the relationship with McDonald's simply meant that the quick-service burger giant would fund Chipotle's expansion, but the burrito chain has been able to avail itself of its powerful owner in other ways, too. However, Ells emphasizes, "rather than McDonald's pushing its resources on Chipotle, we pull it as we see appropriate."