McDonald’s helped finance Chipotle Mexican Grill’s expansion from a Colorado burrito chain into a national restaurant business between 1998 and 2006. Chipotle grew to hundreds of locations during the relationship while retaining a format built around a limited menu and customized orders assembled at the counter.
The partnership combined McDonald’s capital and operational resources with a restaurant concept developed by founder Steve Ells. Chipotle went public in 2006, and McDonald’s disposed of its remaining ownership interest that October.
From a Denver burrito shop to national expansion
Ells opened the first Chipotle in Denver in 1993 after attending the Culinary Institute of America and working at Stars in San Francisco. The city’s Mission District taquerías inspired his use of large flour tortillas wrapped around customers’ chosen fillings.
Ells said he initially intended the burrito shop to generate money for a fine-dining restaurant. His father financed the first location, a converted ice cream shop near the University of Denver. Additional restaurants followed as Ells concentrated on expanding Chipotle.
The menu offered a small number of main dishes with combinations of meats, beans, salsas and other toppings. A serving line allowed customers to choose ingredients as employees assembled their meals, making customization part of the counter-service format.
McDonald’s began investing in 1998. In an April 2006 announcement, McDonald’s said Chipotle had grown from 16 restaurants when it first invested to more than 500 locations across the United States. Chipotle’s annual report recorded 489 restaurants at the end of 2005, before its initial public offering.
In a 2007 account of the company’s development, Ells said McDonald’s had invested about $360 million over seven years. He also said McDonald’s allowed Chipotle to retain its own operating approach rather than imposing the burger chain’s brand or methods.
A focused menu and ingredient-sourcing strategy
Chipotle described benefits from the relationship beyond financing. Its 2005 annual report identified McDonald’s real estate expertise, distribution network, accounting services and insurance arrangements among the resources available to the growing chain. Chipotle also said the relationship helped it obtain favorable pricing or service levels from some suppliers.
In 2014, Mark Crumpacker, then Chipotle’s chief marketing officer, described McDonald’s involvement as largely hands-off, with early assistance concentrated on real estate, logistics and supply-chain matters. He said McDonald’s had not influenced Chipotle’s food or restaurant experience.
Chipotle’s operating model differed from the franchise systems used by many large restaurant chains, although it had not always avoided franchising. Its 2005 annual report listed eight franchised restaurants among its 489 locations. By 2011, the chain had 1,150 company-owned restaurants in 38 states.
Ingredient sourcing became a central part of Chipotle’s “Food with Integrity” positioning. The company promoted standards covering animal welfare and farming practices. Its 2005 annual report acknowledged that naturally raised meat and sustainably grown vegetables cost more, and that available supplies could constrain the sourcing program.
Crumpacker said in 2014 that Chipotle spent more on ingredients than competitors and performed much of its cooking by hand in restaurants. He attributed its appeal partly to consistency and changing consumer preferences. Those explanations represented the company’s assessment of its business.
The 2006 separation and the early-2015 comparison
McDonald’s announced in April 2006 that it intended to complete its separation from Chipotle by the end of that year to concentrate on its core brand. Then-chief executive Jim Skinner said attracting more customers to McDonald’s offered the company its greatest opportunity for long-term profitable growth.
The exit followed Chipotle’s January 2006 initial public offering. McDonald’s sold shares in that offering and a secondary offering in May, then disposed of its remaining interest through an exchange offer completed in October.
By early 2015, Chipotle’s market value was reported at approximately $22 billion. McDonald’s was entering the same period after reporting a 1% decline in global comparable sales for 2014.
On January 28, 2015, McDonald’s announced that Don Thompson would retire as president and chief executive effective March 1, with Steve Easterbrook appointed to succeed him.
