Chipotle’s Growth Machine

Thursday, September 29th, 2011

Chipotle founder Steve Ells is extending their fast-casual formula into a new pan-Asian chain called… ShopHouse?

He has been involved in all phases of its construction, menu, and marketing. The two-story building in Washington evokes the classic urban shophouses of Southeast Asia, in which families run markets on the first floor and live upstairs. The imminent rollout will be curious. There will be no advertising, no official opening date. Signage will make no mention of the Chipotle connection. The registered website,, is virtually dark. The “soft” opening is of a piece with Chipotle’s preference not to make ShopHouse too big a deal. “We don’t even have a plan where we might open a second location,” Ells says.
The dishes: grilled steak with chili-jam marmalade, roast corn with scallions, Chinese broccoli, pickled vegetables — all served over brown rice, plus green papaya salad on the side. You could recognize the coriander, garlic, turmeric, and lemongrass. The carrots were stunningly bright (something about the pickling process), and the salad was an appealing mix of sweet, salty, spicy, and sour.

I didn’t realize how Chipotle got started:

Ells doesn’t have the typical CEO biography. He’s loved to cook since third grade. His mother remembers him playing with scrambled eggs relentlessly in the kitchen. Nonetheless, Chipotle (pronounced, like its smoke-dried jalapeño namesake, chi-POAT-lay) was pretty much an accident. After majoring in art history at the University of Colorado at Boulder, Ells attended the Culinary Institute of America. In 1990 he landed a job as a $12-an-hour line cook at Stars, the erstwhile San Francisco landmark whose Jeremiah Tower was an early celebrity chef. Ells wanted his own fancy place but had no capital. He figured he’d create a fast-food joint to generate cash flow with which to move up the food chain. Ells loved the little taquerías in the Mission District and decided to open one back in Colorado, where he’d grown up. With an initial $85,000 investment from his father, a former pharmaceuticals executive, he converted a Dolly Madison ice cream store near the University of Denver campus into a burrito shop called Chipotle, opening in 1993. He was 28 and had never studied business in his life.

His overstuffed, individualized burritos were an instant hit, and Ells was quickly able to stop chasing skeptical prospective customers down the street. (“Come back!” he’d plead.) In two years he opened more shops in Denver, which even today has the most Chipotles per capita. Along the way, Ells started bucking conventional fast-food wisdom. Horrified by the confinement conditions at factory farms, he started to use naturally raised livestock. He bought organic when he could and vowed to avoid products with hormones. Ells did so not because he necessarily thought customers appreciated it, but because it struck him as ethical. He’s nothing if not resolute in his convictions. “If you go to dinner at Steve’s house,” co-CEO Moran says, “he couldn’t care less what you want to eat. He’ll tell you what you want, and you’ll like it — and he’ll be right.”

Ells eventually abandoned his dream of starting his own high-end restaurant. Instead he settled into a life of empire building. The financial challenge was to expand outside Colorado, so he began to search for investors. In 1998 he sent a business plan to McDonald’s executives, who apparently liked what they read: Within three years McDonald’s owned a majority stake in Chipotle. Meanwhile Ells, with $360 million from McDonald’s at his disposal, expanded to over 500 outlets. Eventually Ells wanted out of the marriage. (Among other things, McDonald’s favored going global too quickly for Ells’ taste.) A deal was struck. In 2006, Chipotle went public; the stock price doubled its first day of trading on the New York Stock Exchange. In the end McDonald’s walked away with a profit of more than $650 million, and Ells was a rich man and free to run the company his own way.

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