So let’s look at what Chipotle has done right and
how it’s changed the restaurant business.
Chipotle may not have fired the first shot in the fast casual
revolution, but the fresh Mexican chain is certainly the most famous of
the founding fathers. Launched by Steve Ells in a space near the
University of Denver in 1993, the restaurant grew quickly, opening its
second location in 1995 and continuing its expansion — first with a loan
from Ells’s father and later with a $1.8 million Small Business
Administration loan. Ells, who had no business background, had clearly
tapped into an unmet need among diners for healthful, fresh Mexican
cuisine, and the Chipotle brand began to take shape: sustainably sourced
ingredients, a simple menu, and impeccable quality.
In 1999, Ells opened his first restaurants outside of Colorado, but
it was interest from McDonald’s Corporation that was the magic bullet
for the company’s growth. The fast-food titan first approached Ells in
1997 and became a minority investor a year later. Contrary to popular
belief, McDonald’s did not buy Chipotle but did become its largest
investor, sinking more than $360 million into the chain over seven years
and helping Chipotle make use of its proven distribution system. By
2005 the chain had more than 500 company-owned restaurants, and in
January of 2006 it made its initial public stock offering (IPO), the
stock doubling in value on the first day of trading.
In 2006, McDonald’s divested itself of its Chipotle holdings, earning
about $1.5 billion on its investment. Today, the company has
restaurants in 38 states and Canada, was the third-fastest-growing
restaurant chain in 2010 according to Nation’s Restaurant News, and was
ranked as the best fast-food Mexican chain in 2011 by Consumer Reports.
Most recently, the company hired award-winning chef Nate Appleman to
create new menu items and spearhead the creation of a new fast casual
Asian concept restaurant, ShopHouse Southeast Asian Kitchen, which
opened in Washington, D.C., in the summer of 2011.
In my humble opinion, Chipotle was simply in the right place at the
right time with the right product. But this does not mean that their
success has been due to pure luck. You can have the right place, time,
and product going for you, but you have to know how to leverage
them. True, the company was not the first “Fresh Mex” concept, the
first burrito player, or the first creative brand builder. But they knew
how to grab the gold when the opportunity came. Having watched the
mistakes of their predecessors, they were able to develop an in-store
and external brand that tapped into what their customers cared about:
freshness, quality, sustainability, a sense of humor, and above all, a
sense that they were breaking out of the “slightly more upscale fast
food” mold of chains like La Salsa and Baja Fresh.
Among other things, Chipotle’s success is another nail in the coffin
of the “first mover advantage.” There have been many companies and
people in history who have come late to the dance and yet prevailed as
the leader in their industry. It’s not always the first mover who winds
up “owning” the category; another player who enters the market later and
takes advantage of the pioneer’s mistakes often rises to the top.
