The Wayback Machine - https://web.archive.org/web/20090708033033/http://www.rockymountainnews.com:80/news/2006/dec/23/chipotle-founder-had-big-dreams/

Go to the mobile version of this Web site.

Login | Contact Us | Site Map | Paid archives | Electronic edition | Subscription Questions | Extras

Chipotle founder had big dreams

Published December 23, 2006 at midnight

Text size  

Steve Ells strode into his corporate conference room dressed in dark blue jeans and metallic-adorned urban sneakers. He folded his spare body into a swivel chair, then started with surprise.

"My God this chair is huge!" he exclaimed, sizing up its wide seat. "I hope nobody in this company is big enough to fit in this chair."

He resettled into a smaller chair. "That's better."

Steve Ells is a perfectionist. He founded Denver-based Chipotle Mexican Grill 13 years ago on the premise of making a flawless burrito out of humble ingredients cooked beautifully.

Ells' vision and quest for excellence earned him the Rocky Mountain News Business Person of the Year Award for 2006, voted by the paper's business news staff.

His hard work, vision and exacting standards have made the firm a national home run. Chipotle went public in January this year, and the stock price exactly doubled to $44 on opening day. Now Ells, with an annual salary of $870,000, heads a company worth $1.8 billion. It has more than 540 Chipotle stores in 25 states and more than 14,000 workers.

When Chipotle closed its first day of trading, Ells' million-plus shares were worth about $45 million. Since then, he's sold 90,000 shares for about $4.75 million. But with Chipotle's run-up to $55, he's sitting on a stake now worth just under $51 million.

For the past three years, Chipotle's same-store sales have grown between 10 percent and 13 percent a year, far ahead of competitors.

Why so successful?

"It's difficult to crystallize," RBC Capital Markets analyst Larry Miller said. "It's a really simple concept: The food is high quality, it's executed well, it's trend-right and it's timely."

Miller believes Chipotle could nearly quadruple to 2,000 stores. The stock closed at $55.46 a share on Friday, up 152 percent from its initial offering price of $22.

"I'm not a good multitasker," Ells said. "And I don't think fast-food restaurants are good multitaskers, either.

"In-N-Out Burger serves awesome burgers because they make burgers and fries and drinks, and that's it," he added. "We aspire to be that good in 50 years."

Ells is now designing a better tortilla warmer. He noticed his stores' current presses heat the giant flour tortillas unevenly. There's room for improvement.

"Steve is tremendously interested in making positive changes, even if small," said Chipotle President Monty Moran. "He won't stop until our food is the best in the world."

Ells cooked as a hobby first

Ells' high school friends say he was more interested in beer and fast cars than academics as a kid.

Cooking found Ells - or he found cooking - while he was attending the University of Colorado. He hosted Saturday night dinners for friends. They were not burger fests. Rather, he'd serve braised pork or authentic Cesear salad with anchovies.

Moran was among those early guests. He remembers tagging along with Ells to a Safeway on a pre-dinner trip. "What are we having tonight?" Moran would ask, thinking recipes.

"Whatever looks good," was Ells' answer - he never used a cookbook.

Ells would pick up a kohlrabi or a squash or a leek. Silence was required. Ells would stare hard at the vegetable. Then, if it passed his standards, he put it into his cart.

The entire trip took 14 minutes, Moran recalls, and they left the store with the exact quantities to feed 10 guests, no more or less. The results were delicious.

Once cooking found Ells, he found himself at the Culinary Institute of America in Hyde Park, N.Y. Then he took a job as a line cook at Stars in San Francisco.

It was the heyday of California cuisine, and Stars was one of the movement's epicenters. Ells soon dreamed of owning a restaurant.

Meanwhile, living the life of a $12-an- hour line cook, Ells dined on giant burritos at taquerias in the Mission District.

He remembers eating a carnitas burrito at Zona Rosa when he saw, and began to think about, the long line of hungry people. He saw that just a few workers were dishing up beans, rice and guacamole.

"I remember jotting down on a napkin at that moment how many people were going through the line, how quickly, and I thought, they probably have this much in sales, the food costs might be X - a good little business," he said.

These were uncharacteristic thoughts, Ells said, because he had never taken a business class or looked at a business plan in his life. Nonetheless a plan formed. Ells would open a taqueria and make enough money to build a fine dining restaurant.

He went home, phoned his father - a highly successful pharamceutical executive - and asked for an investment.

"He was sort of, 'Steve, settle down, what's all this?' I had come up with a lot of ideas in my day. He was finally satisfied I had gone through school and then college and was working at a nice restaurant . . . and now, as he put it, 'to sling burritos.' "

"He didn't really understand the grand plan," Ells said. "At that time, I didn't really understand the grand plan either. I just knew that it felt right."

Ells quit his job, packed a U-Haul and drove to Colorado.

Getting investors on board

In 1992, Ells returned to Boulder and told everyone he knew about his Mexican restaurant. The pitch always started and ended with the food:

"It's going to be fast food, but it's not going to look fast foody," he recalls explaining. "It's going to have this great open kitchen where they are preparing awesome fresh food, chopping up cilantro." Ells makes slicing motions with his hands.

"Mixing that with rice, seasoning it with fresh citrus juice, grilling meats that had been marinated in chipotle chili adobo that are made from simmering the dried chipotle chiles and then pureeing them and adding fresh garlic and fresh oregano." His voice grows dramatic - "And making big pots of beans." He makes a round motion with his arms.

"And toasting the cumin seeds in the pan so they just start to smoke a little bit" - his hands rise, fingers flickering to imitate smoke - "and making new kinds of salsas like roasted chili corn salsa. . . ."

Ninety-nine out of 100 people didn't get it, Ells said. But one real estate broker did and helped him find an old Dolly Madison store near the University of Denver.

The 850-square-foot spot cost $200 a month to rent. Ells begged an $85,000 loan from his father and renovated the site himself, using hardware and odds and ends to make the place as honest as the food. The philosophy prevails: The restaurants don't hide the oriented strandboard in their tables, just like they don't hide their ingredients.

"I was terrified," he admits. "I had never had more at stake."

Chipotle opened on July 13, 1993. The first day's sales were $450, the second $800, and a few days later $1,000. Within six months sales grew to $3,000 a day.

Home run.

The terror never really subsided for the first few years. "There was a lot of anxious nervous energy about continuing to make it better," Ells said.

Within a year and a half, Ells opened a second restaurant on Colorado Boulevard and East Seventh Avenue and then a third in Littleton. Then a series of restaurants around Denver seemed inevitable.

No one was more surprised about the restaurants' smash success than Ells.

"I never heard him ever talk about building an empire," said Bill St. John, a former restaurant critic for the Rocky Mountain News. "He was just really pleased. He was a little boy chirping about the fact that he turned an old House of Pies A-frame into a Chipotle."

McDonald's cash fueled growth

McDonald's bought a majority stake in Chipotle in 2001. Chipotle now has more than 540 stores and 14,000 employees, a national stakehold fueled by McDonald's cash.

In October, McDonald's divested from Chipotle through a shareholder stock exchange, but the two companies were intertwined for eight years.

Some say Ells' family connections made the difference.

"There was a great deal of luck in being funded by McDonald's," St. John said. "It was one of those classic 'It helps to know people' kind of things."

But Pete Marczyk, whose gourmet grocery store was partly funded by Ells, bristles at the suggestions Ells' success was based on luck.

"Steve works hard, and he works smart," Marczyk said. "He's the guy who is the best at everything, and he makes it look easy. When you watch Glen Plake ski bumps, it's not luck."

Either way, Chipotle executives like to downplay McDonald's influence, citing Chipotle's "unique culture."

But it surely was a marriage of opposites.

The burrito chain doesn't sell coffee, cookies or breakfast. Fast-food restaurants periodically lower prices (think dollar menu), but Chipotle raised prices a dollar on its shredded pork burrito - and saw sales double.

The company pays workers "well above" minimum wage, although it won't reveal exactly how much, and has one of the industry's lowest employee turnover rates. Three years ago, it launched an innovative program to pay native Spanish speakers while they learn English and English- speaking workers to learn Spanish. (Chipotle says it complies with all the relevant federal and state laws to check workers' nationality and work status.)

At the same time, Ells' empire spends more money on ingredients than on labor, another reversal for the fast food industry.

Did McDonald's pressure Ells to expand and cheapen the menu?

"They probably did give me grief," Ells said. When McDonald's suggested adding coffee or cookies, Ells said: "We wouldn't do it better than anyone else. And I don't want anything to be part of Chipotle that wouldn't be the very best."

Ells says that six years ago, Chipotle became more than a business - it became a force of change.

That's when he met Bill Niman in Chicago, who introduced him to farmers who raise free-range pigs in the traditional manner of 50 years ago.

Today, most of the country's pigs are raised in confinement pens. They never see daylight and live side by side in a temperature-controlled environment.

This method allows pork producers to raise low-fat, low-cost pork - the other white meat - but animal activists say pigs pay a terrible price.

Niman Ranch hogs are raised in the open, able to run and roll in the mud. They put on more fat because of their exposure to the elements, and the pork tastes better.

Ells had an epiphany when he visited a Niman Ranch farm. Pigs are smart and cute, he said, but it's more than that.

"Until you see factory farming, it's not part of your thinking," he said. "As soon as I was exposed to that, I knew I didn't want to be a part of that. And I certainly didn't want my success to be part of that exploitation.

"And the pork tastes so much better."

Ells moved to using naturally raised pork exclusively. Yes, the carnitas burrito now costs $1 more, but the company sells twice as many. And every Chipotle that opens now allows another farmer to join the Niman Ranch collective.

Chipotle plans to open between 95 and 105 stores next year. It has continually exceeded Wall Street analysts' profit expectations and has a cultlike following with burrito-loving bloggers.

Ells stays silent on whether he'll remain with Chipotle forever. Monty Moran, Ells' college friend and now company president, said, "Steve is going to stay interested as long as he can continue to improve things.

"And despite the fact that we think we are pretty darn good, we think we have a whole lot of improving to do."

Chipotle timeline

1984: Ells graduates from Boulder High School

1988: Ells graduates from CU

1990: Ells graduates from Culinary Institute of America

1990-1992: Ells works for Jeremiah Tower at Stars restaurant in San Francisco

1993: Opens the first Chipotle Mexican Grill near DU

1995: Opens the second Chipotle on Colorado Boulevard and a third in Littleton

1996: Five more metro-area restaurants open

1998: McDonald's invests in Chipotle, becomes a minority stakeholder. Chipotle opens its first restaurant in Overland Park, Kan. - its first outside of Colorado.

1999: Chipotle opens first restaurants in Minneapolis and Columbus, Ohio, continuing expansion outside Colorado

2001: McDonald's becomes majority owner in Chipotle

2003: Chipotle opens in New York, on track to have 100 stores open

2005: Chipotle opens 500th restaurant in the United States

2006: Chipotle stock doubles in price on its first day of trading on the NYSE

Chipotle facts

Most popular burrito: Chicken, pinto beans, fresh tomato salsa and cheese

17 Items in the burrito bar

65,535 possible menu combinations

50,000 pounds: Amount of naturally raised pork sold by Chipotle each week

5 hours: Time it takes to cook carnitas, or shredded pork

2006 runners-up

Cal Marsella, executive director of RTD, who oversaw the opening of T-REX and its light rail, together with the naming of a master developer for Union Station.

John Karas, vice president for space exploration at Lockheed Martin, who was responsible for crafting the company's winning bid to land the $8.2 billion NASA contract to build a next-generation spacecraft for taking humans to the moon and ultimately Mars.

Erin Toll, director of the Colorado Division of Real Estate, who investigated home appraisers with the same vigor that she tackled kickbacks in the title insurance industry when she was deputy insurance commissioner.

Larissa Herda, CEO of Time Warner Telecom, which has posted strong revenue growth, has seen its stock price more than double in the past year and recently completed a half-billion-dollar acquisition that nearly doubles the company's markets from 44 to 75 nationwide.

Mark Falcone, founder and CEO of Continuum Partners LLC, which is likely to be part of the winning team for the $1 billion Denver Union Station development.

James Crowe, CEO of Level 3 Com- munications, which has acquired seven companies in the past 18 months and signed deals with popular consumer sites such as YouTube and MySpace.

Jeff Potter, CEO of Frontier Airlines, which survived the arrival of Southwest and the emergence of United from bankruptcy to turn two consecutive quarterly profits, make a big push into Mexico and increase flights in Denver by 20 percent this year.

Dick Notebaert, CEO of Qwest Communica- tions, which has posted three consecutive profitable quarters on its way to a profitable 2006.

Past winners

2005: Ralph Peterson CEO of CH2M Hill

2004: Leo Kiely president and CEO of Adolph Coors Co.

2003: John Hickenlooper Denver mayor

2002: Greg Stevinson president of Denver West Realty Inc.

2001, 1996: Charlie Ergen CEO of EchoStar Communications

2000: Sam Addoms Former CEO of Frontier Airlines

1999: Joe Nacchio former CEO of Qwest Communications

1998: Phil Anschutz founder and former chairman of Qwest Communications

1997: John Malone former CEO of TCI

Selection method

The Rocky Mountain News' Businessperson of the Year is selected through a simple process: Business editors and reporters make nominations.

Each staff member gets one ballot of all names and makes five selections. The list is then narrowed to the top five. For this list, voting is weighted, meaning that the person each voter likes the most gets a 5 and the person liked the least gets a 1. The results are tabulated, and the winner is announced.

or 303-954-5269

Comments

  • March 27, 2008

    11:26 p.m.

    Suggest removal

    tbird303 writes:

    Brilliant. Excellent execution and exceptional quality. Great job and best wishes for continued success.

    Tom Bird
    Denver, CO