Chipotle: Fast Food with 'Integrity'

Steve Ells, founder of the red-hot Mexican-food chain, on his aim to make the focused menu as all-natural as possible, and why it's worth the expense

Steve Ells, founder and chief executive of Chipotle Mexican Grill (CMG), is not a man on a mission. He's actually on two of them: one, to run the hottest fast-food chain in the nation; two, to offer what he terms "food with integrity" to the mass market.

The innovative restaurateur, who has done to traditional Mexican food what California Pizza Kitchen (CPKI) did earlier to Italian, is unquestionably succeeding when it comes to his business aims. His Denver-based company, spun off from McDonald's (MCD) last October after eight years as a subsidiary, reported on Feb. 15 it earned $41.4 million in 2006 on $882.9 million in revenue. That's up from $37.7 million in net earnings in 2005 on sales of $627.7 million. More impressive, its same-store sales rose 13.7%, its ninth straight year of double-digit increases.

Chipotle shares were priced at $22 apiece in January, 2006, when McDonald's sold a minority stake in an initial public offering. The stock closed on Feb. 15 at $61.30.

Au Naturel

When it comes to feeding America better food, though, Ells is further behind. Ells would like Chipotle, and every restaurant for that matter, to be using only natural ingredients. Ideally, each kitchen would prepare sauces from scratch with pesticide-free vegetables and spices, for instance, rather than buy ready-made sauces that come with preservatives and artificial flavors and colors.

Today, all of the pork Chipotle sells in its burritos and tacos comes from hogs raised naturally on family farms, without antibiotics or hormones. But while Chipotle uses fresh avocados, tomatoes, and peppers, almost none of its produce is organic. It's simply too expensive, says Ells.

Chipotle's menu isn't necessarily low-calorie. Each 13-inch flour tortilla, the size used to wrap a burrito, packs 330 calories alone. That's more than the 300 calories in a McDonald's cheeseburger. "You certainly could argue that Chipotle doesn't have as much leafy greens in it as it probably needs to," Ells concedes.

His dual objectives may be complementary, however. As Chipotle grows—the 573-unit company is opening a new location every four days—it gains clout with suppliers. It didn't pay for Bell & Evans, for example, to supply Chipotle with all-natural chicken thighs when Chipotle had fewer than 200 outlets five years ago. It does today.

Though Ells has run Chipotle since 1993, when he opened a cramped outlet in a Denver storefront, he does not see himself as a suit. After majoring in art history at the University of Colorado, Ells trained at the Culinary Institute of America. Today, Chipotle employs more than 15,000 people. Ells points out, though, that he has never taken a course in business or marketing.

Sitting in an exposed-brick conference room in Chipotle's headquarters, not far from his office cubicle, Ells talked recently with BusinessWeek Senior Correspondent Michael Arndt. Ells, 41, was wearing blue jeans, a black zippered fleece over a white T-shirt, and salsa-red Vasque running shoes. An edited transcript follows:

This is a generalization, but do you sense that Americans care more about what they eat today?

Yes. The thinking is changing. It has to change.

Why?

People understand that as a country, we are not as healthy as we should be, that a lot of our health issues are probably related to diet, and that we could be a lot healthier and happier if we just ate the right foods.

Whenever I go into a Whole Foods (WFMI) anywhere in the country, the parking lots are packed, the checkouts are packed. People all over are loving what I would say is this reinvention of the grocery store. What a great atmosphere it is inside, first of all. And you're bombarded with great quality food: sustainably grown produce, humanely raised meats. Awesome stuff.