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  • In 2016, Chipotle reported that its profits had fallen

  • 95% after a series of food safety issues that sickened

  • hundreds of people and sent its stock price plunging.

  • E. coli outbreak that caused Chipotle restaurants to shut

  • down. Investors aren't the only ones steering clear of

  • Chipotle. I mean, it just keeps happening to Chipotle and

  • nobody else. Even if it's not associated with their food this

  • time...it's happened again.

  • They've had to close the store because customers get sick.

  • It had lost customers' trust and Wall Street's adoration.

  • Its future was uncertain.

  • Would Chipotle ever be able to return to its high-growth days?

  • But the Mexican-style food chain has come back from the brink

  • with the help of a new CEO.

  • Consumers are once again returning to the place that

  • popularized burritos the size of a baby and helped the avocado

  • become one of America's favorite fruits.

  • Analysts say that its food safety woes are now firmly in the

  • past, and its stock hit a new record in July 2019 and has kept

  • climbing, peaking at $857.90

  • on September 9th. Now, there's just one question for the

  • chain. How can it keep soaring and avoid another fall?

  • Chipotle was never supposed to take off.

  • Its founder, Steve Ells, only started the restaurant to make

  • some quick cash to pay for his real passion

  • project...launching his very own fine dining restaurant.

  • Ells got the idea for Chipotle from his time in San Francisco,

  • where he was working as a line cook for celebrity chef

  • Jeremiah Tower.

  • The Mission District in the California city is known for its

  • taquerias. That's also where the Mission burrito was invented.

  • The burrito is oversized, stuffed with rice and other

  • ingredients, and wrapped in foil.

  • Sound familiar? With a loan from his dad, Ells moved to

  • Colorado and opened the first Chipotle Mexican Grill near the

  • University of Denver campus in 1993.

  • I think one of the most amazing things about Chipotle is that

  • the stores today don't look that different from the original

  • location by the University of Denver.

  • Really, the structure is very much the same, customized,

  • assembly line process, very simple but aesthetically pleasing

  • locations.

  • Chipotle's now quintessential minimalist layout wasn't a

  • deliberate design decision.

  • It came from a need to be cheap.

  • In that very first Chipotle, the table bases were pipes and

  • the counter where you paid was made from barn metal.

  • Ells kept the menu and operations simple because Chipotle was

  • still his backup plan.

  • Chipotle

  • became profitable within a few months and Ells was able to

  • quickly repay his father's loan.

  • A year and a half after opening his first restaurant, Ells

  • opened a second, then a third in 1996.

  • In the early days, your options for Mexican food were so

  • limited and so to see this assembly line burrito company come

  • up and out of nowhere.

  • Yeah, it was amazing how quickly word spread among the Denver

  • market and how quickly this company really rose to prominence,

  • at least in Denver during the mid-nineties.

  • He kept going with additional funding from his dad and small

  • business loans. Then he got a little help from a name you

  • might recognize: McDonalds.

  • Under the leadership of longtime CEO Mike Quinlan, the fast

  • food giant started investing in Chipotle in February 1998.

  • Three years later, it was Chipotle's majority stakeholder.

  • The investment helped McDonald's branch out of burgers and

  • diversify its business.

  • It also helped the fast-food chain compete directly with a

  • rival on the rise:

  • Taco Bell. The money from McDonald's helped Chipotle expand

  • across the United States.

  • Most restaurant chains, including McDonald's, turn to

  • franchising for quick and widespread growth.

  • But Chipotle didn't want to.

  • Handing over the operations of its restaurants would have also

  • mean handing over some of its profits.

  • Ultimately, pressure from McDonald's led Chipotle to franchise

  • a few restaurants to several McDonald's franchisees at the end

  • of 2002.

  • In January 2006, the burrito maker went public.

  • Chipotle's IPO gave McDonald's the opportunity to refocus on

  • its core brand at the time.

  • McDonald's was in the middle of a turnaround after years of

  • turbulence that started soon after it initially invested in

  • Chipotle. After the IPO, McDonald's started selling off its 91

  • % stake in Chipotle.

  • By the end of 2006, it no longer owned a piece of Chipotle.

  • Just 8 months after McDonald's sold its stake in Chipotle, the

  • burrito chain killed the franchise model and took back control

  • of all restaurants.

  • The investment had paid off for McDonald's.

  • Investors loved Chipotle.

  • And the economy was booming.

  • By 2007, its annual sales were more than a billion dollars.

  • Then the recession hit.

  • Like most restaurants, Chipotle felt it.

  • In 2009, it held the second largest market share, 11% of the

  • entire Latin American limited service restaurant industry,

  • according to Euromonitor.

  • Yet the company had its slowest year ever of same store sales

  • growth that year, and its stock tumbled.

  • In 2009, Chipotle decided that it needed a change.

  • Besides building the company, Ells didn't have any business

  • experience. The company promoted Monty Moran, its chief

  • operating officer, to serve as co-CEO alongside Ells.

  • Obviously Steve was the visionary for Chipotle and had a very

  • much a culinary background.

  • But I think Monty brought more of a traditional restaurant,

  • you know, background to the equation.

  • And sometimes with the right mix of personalities, you

  • can make a co-CEO model work.

  • Chipotle started thinking up other restaurant concepts with a

  • similar set-up. It created ShopHouse, an Asian-inspired chain.

  • Soon after followed Pizzeria Locale and Tasty Made.

  • If those names sound unfamiliar, it's for a good reason.

  • Chipotle has since abandoned them after they failed to catch

  • on. It came down to just competition and lack

  • of simplicity and lack of brand messaging when it came to

  • ShopHouse. Even when experimenting with offshoots, Chipotle

  • didn't abandon its core business.

  • Between 2009 and 2015, the company more than doubled its

  • global total store count.

  • New stores meant new customers.

  • Unlike Taco Bell or McDonald's, Chipotle wasn't relying on

  • value meals or limited time offers to get them.

  • Instead, Chipotle rolled out a series of ads in 2012 and 2013

  • about how its sources ingredients from sustainable farms, an

  • initiative it started in 2001.

  • Investors cheered for Chipotle's expansion and the stock, hit

  • $758 .61

  • a share in August 2015.

  • But it would be years before it soared that high again.

  • In October 2015, food safety officials linked Chipotle to an

  • E. coli outbreak that sickened people across 11 states.

  • It was not Chipotle's first brush with foodborne illness.

  • Earlier in 2015, the chain had already been linked to

  • norovirus and salmonella incidents.

  • But it caught the public's attention.

  • 22 customers were hospitalized.

  • The Centers for Disease Control traced 60 cases of E.

  • coli infection back to Chipotle.

  • In December, Boston health officials linked an area Chipotle's

  • to another foodborne illness outbreak.

  • At least 80 people had symptoms consistent with norovirus.

  • It started to seem like every time Chipotle reopened a store

  • after a food poisoning incident, it had to close another one.

  • Chipotle

  • co-CEO Ells apologized on The Today Show, but that wasn't

  • enough. Sales at Chipotle locations opened at least a year,

  • plunged. So did its stock price.

  • For the next few years, Chipotle shares were worth only a

  • little more than half of its all time high.

  • But more importantly, the incidents damaged Chipotle's

  • reputation with customers.

  • The company had long boasted about the quality of its

  • ingredients. Its meat was raised without antibiotics, its

  • produce was locally grown and organic.

  • Chipotle called this policy "food with integrity."

  • It had been part of its advertising and marketing for years.

  • Chipotle

  • sprung into action.

  • It changed its food safety protocols, it altered its sick

  • leave policy for employees, and it gave away many, many free

  • burritos. Still, despite its best efforts, revenue for

  • 2016 declined by 13%.

  • Same-store sales plunged by 20 %.

  • Amid Chipotle's troubles, Pershing Square Capital Management,

  • a hedge fund managed by investor Bill Ackman, took a 9.9

  • % stake in the company.

  • In September 2016, the news lifted the stock temporarily.

  • Ackman is known for building a stake in a company and

  • instigating changes that will boost the company's stock price.

  • Ultimately, in December 2016, Ackman was able to make a deal

  • with Chipotle's management to name two directors to the board.

  • Chipotle's hand-picked an additional two independent

  • directors. Just two days before the board changes, Moran had

  • stepped down as co-CEO and left the board.

  • Chipotle's founder was now the only one steering the ship.

  • He was too much at the center of everything, whether or not it

  • was strategic positioning, operational decisions, media and

  • industrial relations. He was trying to cover it all instead of

  • bringing in delegated expert talent that you should start to

  • have in the later life stages of a business. That's a problem

  • we've seen a lot with Travis Kalanick or maybe Elon Musk.

  • The company debuted an ad campaign and rolled out two menu

  • additions, chorizo and queso.

  • It was hoping to find its footing again when there was another

  • food safety issue.

  • In July 2017, a Sterling, Virginia location was tied to an

  • outbreak of norovirus.

  • In November 2017, nearly a year after Ells became the chain's

  • sole chief executive, he stepped down.

  • And Chipotle started looking for its next CEO.

  • In this case, at least, the board took the time to try to find

  • somebody. Enter Brian Niccol in March 2018.

  • Before Chipotle, Niccol was chief executive of a rival

  • Mexican-food chain: Taco Bell.

  • At Taco Bell, he introduced popular limited-time offers like

  • Nacho Fries, as well as Taco Bell breakfast.

  • Niccol also pushed Taco Bell into the digital age.

  • As this company matures, it was always going to look a lot

  • more like a traditional quick service restaurant company.

  • And that's why I think that's somebody with that background

  • like Brian certainly helped to breathe new life into the

  • company. While Chipotle poses a threat to Taco Bell, the

  • inverse is not necessarily true.

  • Fast-casual chains like Chipotle appeal to more

  • health-conscious consumers who have a little extra cash to

  • burn. The fast-casual segment of the restaurant industry is

  • growing the fastest.

  • On the other hand, fast-food chains, such as McDonald's, are

  • largely using price hikes to boost sales.

  • And Chipotle was now betting that Niccol could do the same for

  • them. Nicole's primary mission was to bring back customers who

  • left during the foodborne illness scares.

  • So far, Niccol has taken some tried-and-true methods from his

  • Taco Bell playbook to make that happen.

  • He even moved Chipotle's headquarters from chilly Denver to

  • sunny Southern California, right in the backyard of Taco

  • Bell's own HQ.

  • Chipotle

  • has also recruited several executives with Taco Bell

  • experience, like its chief marketing officer and the head of

  • its digital marketing.

  • Brian is one of the most talented people I've ever worked

  • with. We have a good rapport.

  • We were friends even outside of work, and so having the chance

  • to work with him again was a great opportunity and being on a

  • great brand like Chipotle, that opportunity was hard to pass

  • up. But Chipotle is still a different company from Taco Bell.

  • I think people associate Taco Bell and Chipotle as they're

  • both Mexican, but that's a lot of where the similarities end.

  • I think Chipotle is much more of a food brand, Taco Bell was

  • much more entertainment. I mean, we had to come out with

  • something every four to six weeks and Chipotle isn't that way.

  • Niccol has also leaned into the food delivery boom.

  • Chipotle struck a deal with third-party delivery service

  • DoorDash. We're lucky at Chipotle.

  • We have a very young consumer base, and that is, frankly, how

  • they want to consume food.

  • What we've been surprised with on delivery is how many new

  • customers have really come to Chipotle just for delivery.

  • And in March 2019, the burrito chain launched a loyalty

  • program. For every $125 customer spend, they earn a free

  • entree. Within four months, it grew to five million members.

  • The loyalty program also drives customers to Chipotle's app.

  • That lets the company learn more about them and cater its

  • strategy to what its patrons want.

  • Niccol has also tried to improve the experience for digital

  • customers. Stores have been adding second assembly lines for

  • digital orders, online order pick-up shelves, and Chipot-lane

  • drive thrus