Chipotle's Chef Has His Payday

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In 1993, Steve Ells opened Chipotle Mexican Grill, a "fast casual" eatery that served up made-to-order burritos and tacos to students at the nearby University of Denver campus. On Jan. 26, Chipotle (CMG) started trading as a public stock and promptly served up millions of dollars to Ells [see BW, 11/28/05, "Chipotle's Jalapeno Of An IPO"].



In the hottest IPO on the New York Stock Exchange since Martha Stewart Living Omnimedia (MSO) went public in 1999, Chipotle shares doubled in their first day, closing at $44. Just last week, the Denver-based company had set an initial target price of $15.50 to $17.50. With 1 million shares, plus stock options, Ells saw his worth jump to more than $44 million in one trading session [see BW Online, 1/26/06, "A Crop of IPOs Standing Tall"].



The chairman and chief executive of Chipotle isn't the only big winner. McDonald's (MCD), which in 1998 bought a 91% stake in Chipotle in 1998, retains 69% of the stock and 88% of shareholder voting rights.



Ells, 40, has come a long way. A 1990 graduate of the Culinary Institute of America, Ells cooked for two years at Stars, an acclaimed restaurant in San Francisco. He then returned to Colorado with the aim of opening a high-end place of his own. Chipotle [pronounced chi-POAT-lay] would be his "cash cow" to underwrite it. Instead, the burrito joint, named for a dried pepper, became one and then two and then four. Now, the chain boasts 489 outlets and an estimated $600 million in annual sales. This year, it will open at least 80 more.



Only hours after the first Chipotle shares were traded, Ells talked from the NYSE to BusinessWeek Senior Correspondent Michael Arndt. An edited transcript follows:



How will things change now that Chipotle is a publicly traded company?



The only change is you're going to see us getting better. The key area is food with integrity, better quality raw ingredients. And better quality means better tasting. All of our pork today is naturally raised, as is about a half of our chicken and about half the beef. That means animals raised on all-vegetarian diets with no antibiotics and no growth hormones. We think we can be at 100% in all of our restaurants in a couple of years.



McDonald's has changed its menu significantly, and successfully, in the last few years, by adding new sandwiches and salads. Are you going to expand your menu, too?



No. We've had the same basic menu for 13 years. The exception might be the salad, which we added last summer. But that is really just recutting of romaine lettuce.



We notice that by continuing to improve our core menu, through foods with integrity, that we satisfy the customer. And the thing about Chipotle is customers have a big choice in putting different ingredients together. This offers much more variety than you could achieve by adding a new menu item here or a limited-time offer there.



You've got three franchisees today. Are you planning to franchise more of your restaurants as you expand?



No. That's not going to be a key part of our strategy in the short or even mid-term. But we might use franchising to enter markets where perhaps we could have only two, three or four restaurants.



What do you lose by leaving the McDonald's fold?



We operated pretty much autonomously throughout, so separating from McDonald's is not going to have any impact; you're not going to see any big difference. The only exception to that is that we piggybacked with McDonald's on our supply deal with Coca-Cola (KO). But we think Coke will be very competitive in repricing with us.



When you set out, did you ever think Chipotle would become this big?



I never had any intention of creating a national chain. I designed Chipotle to be very simple and straightforward to run, so I could stand back and it would just generate cash-a cash cow. But as it turns out, that was the key to being able to roll the thing out into a national chain.



How often do you cook today?



In terms of work, I go around and hang out with the cooks at Chipotle quite often -- I'm not far removed from that. But it's a very special day when I get to spend the entire day cooking and serving food to friends in my house. Maybe once or twice a month and usually on a Sunday.



What are you making for your guests? Burritos?



It's getting simpler and simpler. There is nothing like a good roast chicken.



Did you ever think Chipotle would make you this wealthy?



I'm not thinking about it that way. People often say to me, "You must be very excited by what you've achieved." And I always say that I'm very proud of what we've accomplished. But what I'm really excited about is that can provide Americans access to these great-quality raw ingredients. It's fun and very important to make this available to the masses.



Are you ever going to fulfill your dream and open your own fine-dining restaurant?



That's probably for somebody else. If I want to do good in this world, it's by making available food with integrity on a mass scale.