Using an $85,000 loan from his father, founder and co-CEO, Steve Ells, opened the first Chipotle Mexican Grill (CMG) restaurant in Denver, CO in 1993 with the idea that he wanted to change the way people thought about and ate fast food. His venture sought to combine the friendly service, distinctive interior design, and food quality of full-service restaurants with the speed and convenience of fast food eateries. This type of restaurant has now come to be known as fast-casual. Other fast-casual restaurants include Panera Bread (PNRA), Five Guys, and Boston Market.
The appeal of Chipotle is its “high-quality raw ingredients, classic cooking methods and distinctive interior design.” The company’s approach is guided by what it calls “Food With Integrity”. It looks to find the highest quality ingredients. This means that they are grown or raised with respect for the environment, animals and the people who grow or raise the food. To help ensure freshness, Chipotle attempts to find only locally grown/raised ingredients for its restaurants.
Chipotle Mexican Grill restaurants have a focused menu, offering only a few choices, which can be made to order in numerous ways. The menu consists of burritos, burrito bowls (a burrito without the tortilla), tacos, and salads. Customers can choose between four different meats, two types of beans, and a variety of extras, including salsas, guacamole, cheese, and lettuce. The food is laid out in front of the customers and is prepared in an assembly line manner, with the patron choosing his or her ingredients along the way. This business model has worked out well for the company thus far, leading it to operate roughly 1,200 restaurants with 27,000 employees.
Since going public, the growth of Chipotle has been explosive. From 2006 through 2011, revenue has grown by an average annual rate of 22.5%, while earnings have risen by a whopping 39.5% per year. In 2011, revenues were $2.27 billion and earnings were $214.9 million ($6.88 a-share, excluding non-recurring losses). Mostly concentrated in the United States, there are two restaurants in Toronto and London, with a Paris-based restaurant opening soon. Additionally, the company has its eyes set on the German market in 2012, as it hopes to continue its steady international growth.
Confident in his business model and “Food With Integrity” ideal, Steve Ells was interested in attempting to duplicate his success; this time, with a different type of cuisine. “Chipotle's success is not necessarily about burritos and tacos, but rather about serving great, sustainably raised food that is delicious, affordable, and convenient.” And so, ShopHouse Southeast Asia Kitchen (“ShopHouse”) was born.
The idea behind Southeast Asian cuisine came from Chipotle’s director of concept development, Tim Wildin, who was born in Thailand. After listening to Mr. Wildin’s proposal, Mr. Ells gathered a small team to travel to Bangkok, Singapore, Kuala Lumpur, Malaysia, and Vietnam to research the concept and menu. The Shophouse name was chosen due to the prevalence of this architectural style throughout Southeast Asia. A shophouse is a type of building in which a business establishment is on the ground floor, while the upstairs houses the entrepreneur’s family.
The first restaurant opened its doors in September in Washington, D.C., and to this point, has been a huge hit. “At ShopHouse, there’s a line out the door every day,” Mr. Ells said in an interview with Bloomberg News in early January. Consistent with the Chipotle operating style, in this new restaurant, customers walk up to the counter and see the fresh food laid out in front of them. Moving along the service line, they are able to customize their meal. Patrons can order a bowl or banh mi (sandwich). The bowls consist of rice or noodles, choice of meat or tofu, vegetables, sauces, garnishes, and crispy toppings. And a banh mi is made from freshly baked bread, filled with a choice of meat or tofu, green papaya slaw, crushed peanuts, and herb salad.
The company chose the District of Columbia to debut its ShopHouse concept, versus New York City where the developers are all based, because it believes that D.C. is a better proving ground. “There are just hundreds of restaurants in New York City that aren't great, but last,” said Mr. Wildin, noting that in New York City any mediocre restaurant can survive simply due to the city's high population density. Conversely, the company considers Washington D.C. a better test of staying power due to its lower population density and growing food scene.
As a result of the first ShopHouse’s success, the company recently announced plans to open its second location in the Washington D.C. area; however further expansion may take some time. Its namesake restaurants will continue to monopolize management’s efforts. In 2012, Chipotle hopes to open 155 to 165 Mexican grill restaurants, the most in its history in a given year. “While domestic is our main area of growth, ShopHouse and international are ways to sort of seed potential for the future,” Mr. Ells said.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.