Chipotle speaks

When Chipotle executives speak, other restaurateurs snap their heads to listen. Here to save them a little neck strain are the pearls from management’s conference call Wednesday with Chipotle investors:

Co-CEO Steve Ells, on the first ShopHouse Southeast Asian Kitchen:

While we're still working to perfect the concept, it reminds me very much of the first Chipotle when it originally opened. Many current customers aren't quite sure how the system works or what to order when they first come in and sometimes have issues with flavor combinations or the level of spice in their food. But they like it and from the very beginning, you see that the customers are coming back, week after week.

Ells, on Obamacare:

We, today, have a limited insurance program that we offer our crew. Most of our crew chose not to pick that up. And so we would go from very few of our crew being involved in the voluntary program to us being required to provide insurance to all of our employees. So it would be pretty significant change to our business

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Co-CEO Monty Moran, on Chipotle’s Restaurateur management development program (where managers get a big bonus for hiring employees who then become managers):

This GM taught all of us a lesson: She came from a Restaurateur store herself and had a strong vision for what a winning team looked like. Weeks before her new store opened, she spent days on the sidewalk in front of her new restaurant, interviewing candidates for crew positions…Once she had selected her team, she trained each of them in an existing Chipotle and then invited all of them to her apartment to explain to them her vision for her restaurant and to watch videos from the 2010 All Managers Conference to be sure that each of these people understood Chipotle's unique culture. She made a commitment to each of them to help them grow and carefully described exactly how they would be able to become managers and future leaders at Chipotle themselves. At the same time, she secured a commitment from each of them to devote themselves fully to becoming part of the Restaurateur store very quickly.

Moran, on seasonal changes in traffic:

Our peak hour transactions are sort of more in the 100 range during the winter months. And during the summer months, it's historically gotten up sort of more in that 110 to 115 range…Obviously, with this coming spring and summer season, we hope to set some new records in those areas because of our new emphasis

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Ells, on menu development:

One of the reasons that we continue to grow so strongly is because we continue to improve our core offerings, which is what people come for. We have experimented here and there with a new menu item. We've tried soup. We've tried chili. We've tried smaller menu items, single taco, things like this. But it seems that people keep coming back for their chicken burrito or their barbacoa tacos or whatever it is that they've landed on.

Bonus tidbit:

Brown rice, one of the chain's most recent menu additions, now accounts for about a third of all rice served by the chain.

Chipotle to try a new design, development strategy

Chipotle’s menu tweaks drew Balloon Boy-scale coverage when the burrito chain previewed them last spring. But changes in the concept’s design and development strategy are slipping past almost without notice. And that’s surprising, given how the concept is really tinkering with its DNA this time.

Officials disclosed plans yesterday to revamp the layout of stores to reduce energy consumption, crewmember motion, and construction costs. New stores will also have less stainless steel and more tiling in their kitchens, a switch that will ease cleaning operations, the execs said.

At the same time, the chain will broaden its development criteria to include what co-CEO Monty Moran characterized as “Tier 2 trade areas,” or locations with lower but acceptable traffic and enticingly low development costs. Because the so-called Model A restaurants will be less expensive to build, they can provide a better return than conventional sites, even with a lower sales volume, he explained.

He indicated that as many as 30 of those second-tier sites could be developed during 2010, or roughly one-fourth of all the locations that come on-line. CFO Jack Hartung said that mix would lower the average cost of new sites to $850,000 each, from the current $900,000.

Part of that rollback, Hartung indicated, will be generated by changes in the standard format and design of stores.

Founder and co-CEO Steve Ells explained that Chipotle wants to get back to what it was when he launched the concept.

“Our earliest restaurants were generally smaller, simpler and very efficient,” he told financial analysts during a conference call. “As we grew, our restaurants became larger, more architecturally complex, and in some instances less efficient than before.” Now, he said, it’s back to the future.

The layout of units will be revamped “to suggest a flow in the restaurants rather than physical barriers,” he said.

Ells didn’t explain how that would be achieved, but did offer that workstations would both be expanded and set up to eliminated wasted action on the part of employees. He did not say if those adjustments would reduce labor costs.

Definite savings would come from changes in lighting, equipment, and construction materials, he noted. For instance, the chain is switching to a “European-style plancha, which is a flat-top grill,” instead of using a griddle, Ells explained. The device is also smaller than the equipment it replaced, which in turn enables a smaller vent and HVAC system to be used, the CIA grad suggested.

“Over the years, we went through a 10-year period of double-digit comps, and as we saw our volumes go up, we needed to react to those volumes,” he told the portfolio managers participating in the call. “So as we built new restaurants, we built them bigger. We were cooking a lot more chicken and steak on the grill, so we got a bigger grill. In order to accommodate that bigger grill, you have to have a bigger hood. In order to have a bigger hood, you have to have more make-up air and have a larger air conditioning unit on top. In order to do that, you have to have more power coming to the building.”

He also noted the changeover to white tiles in the kitchens. When the new facings were first tested, some bloggers said the surface switch would make stores more eco-friendly, since tiles are easier to recover and reuse than stainless steel. But Chipotle execs didn’t mention any green advantages, other than the cash that would be saved overall with the new design.

Analysts on the call pressed Ells about the change, perhaps out of shock. Design has been hailed by Chipotle as an integral part of the concept. Indeed, any die-hard Chipotle follower knows that a design specialist was one of Ells’ first hires when he was building a team, and the look of stores is often cited as a key part of the chain’s character.

The stockpickers also voiced some concern about the new siting strategy. As Moran acknowledged, Chipotle has traditionally sought out locations that provide high visibility to a heavy stream of passers-by. Those developments were expensive, but the units would open to instant success, with “superior returns” from sales topping $1.3 million a year, he said.

Are you worried that these second-tier stores might siphon sales away from units in primo locations?, one analyst asked.

If anything, this approach will allow the chain to expand into more unfamiliar markets, lessening the chances of cannibalization, Moran said.

The analysts seemed more comfortable with Chipotle’s plans to expand abroad, another departure of sorts for the brand. Its one market outside of the United States at present is Toronto. But Ells said a restaurant will be opened in London during the second quarter of 2010.

A transcript of the conference call was made available by the SeekingAlpha financial information service.

This just in

Here’s a quick sampler of news tidbits that might have slipped past you this Monday. Indeed, they seem to have escaped attention by the restaurant industry in general, which is strange, given the surprise they pack. And that surprise isn’t going to be regarded by all as pleasant.

Chris Sullivan is building another chain. The co-founder of Outback Steakhouse and an icon of the business is a partner in a fledgling casual-dining chain called Café Caturra, the Tampa Bay Business Journal reported Friday. A spokesperson for OSI Restaurant Partners, the current parent of Outback, describes Sullivan’s role as being “more of a mentor” for the Richmond, Va.-based start-up. But the article suggests his participation is more extensive than that.

Chipotle pushes “Food, Inc.”, the controversial documentary about factory farming and the ills ascribed to it, including E. coli outbreaks. Chipotle is sponsoring free airings of the movie in 32 cities, and units are also urging patrons to see the flick. The burrito chain said it add a bonus feature to the DVD of the film when it’s released later this year to highlight Chipotle’s commitment to sustainable agriculture.

Terms of the promotional arrangement weren’t revealed.

In years past, a mob of noose-wielding restaurateurs would have formed if one of their own had supported sharp criticism of the food served in their establishments. Chipotle suggests it’s supporting the flick in a classic show of capitalism, albeit from a unusual vantage point. “I hope that all our customers see this film,” said Chipotle founder and co-CEO Steve Ells. “The more they know about where their food comes from, the more they will appreciate what we do.”

In any case, the chain is bravely taking a different stance in the ongoing debate over how the nation’s feeders—the very food supply system—may be contributing to major societal ills.

Jason’s Deli goes on the road with a health message. Chipotle’s claims about the purity and sustainability of its food are well known to the general public. Indeed, “Food with integrity” is a key marketing message.

Lesser known, probably, is the pure-foods stance of Jason’s Deli, the 200-unit southern chain (as compared with Chipotle’s 800-plus stores). It can’t crow as loudly about its extensive use of organic ingredients, and its efforts to reduce the salt, fat and calorie content of its fast-casual fare.

Now Jason’s is going on tour to spread the word about the importance of consuming such fare—not to consumers, but to school-board officials, academics and even fellow restaurateurs. Execs are traveling the country to meet with educators in 14 nations for a discussion of food’s impact on health, according to a news report last week in The Packer, a publication for the food industry. In addition, “We’re trying to get restaurants interested in cleaning up their menus,” Jason’s co-owner Rusty Coco told The Packer.

The same posse that might’ve formed for Ells in bygone years would no doubt have had Coco’s name right below his.

Sir Richard Branson, restaurateur. The mogul behind the various Virgin businesses—airlines, record stores, etc.—has quietly added a U.S. foodservice holding to his empire. The avid environmentalist is building a “farm-to-fork” eco-resort, Natirar, in Raritan, N.J., not far outside New York City (Natirar is Raritan spelled backwards).

The facility sounds as if it will be a Stone Barns-like complex, with fields growing the produce served in a restaurant on the grounds. The twist is the eco-minded cooking school also envisioned for the 90-acre complex.

It’s scheduled to open later this summer. Perhaps Chipotle could lend it a copy of “Food, Inc.,” with an intro from Jason’s.

Chipotle: 'Natural' may not be the hook it thought

Say it ain’t so, Steve. Chipotle’s use of natural ingredients was the example everyone cited to prove the consumer mainstream cared about more-wholesome foods. If a chain of more than 800 units could do it, and make a fortune in the process, couldn’t others? It was the reason chain execs across the spectrum were yelping out a “Yes I can!,” as if they were at a tent revival meeting.

But the spirit didn’t move customers as much as everyone might have thought, Chipotle co-CEO and founder Steve Ells admitted to financial analysts Wednesday evening. Consumers would hear the chain’s Food with Integrity marketing promise and fail to see the light.

“One of the things that we found in our research is that we have not been getting credit for the Food with Integrity initiative,” Ells explained. “People understand that Chipotle food tastes better. They don't necessarily associate higher quality ingredients, sustainably raised ingredients, with Food with Integrity…These kinds of things are important, we think, in how we source our food, but our customers tell us this is not the kinds of things that are important to them."

So, he said, the chain will downplay the integrity boast in a new campaign that breaks next month, themed “My Chipotle.” Ells explained that the campaign will tout variety, customization and flavor, with the latter attributed in part to “great quality raw ingredients.” He did not give any indication that the chain would actually downplay its use of natural foodstuffs, just the crowing about it.

The heart of the My Chipotle campaign, Ells said, will be a new website, MyChipotle.com, where patrons can testify about their love for the food. Customers will be invited to post pictures, videos and audio clips about their favorite items on the menu. Some of that material may then be used in television, radio or print ads, he said.

Among the other gems served up during the quarterly conference call was a quantification of culture’s impact on Chipotle’s finances. Co-CEO Monty Moran observed that a typical outlet of the chain employed a crew of 22 people in 2006, when unit sales average $1.5 million. Today, he said, the headcount is down to 19 staffers, but the per-store mean has jumped to $1.75 million.

The cause, he said, was a carefully cultivated culture that aims to put “our highest performers in the highest impact positions.” In the past year, Moran added, favorable customer comments have doubled, while complaints have fallen.

A thank-you to SeekingAlpha.com for posting a transcript of yesterday’s call.

What you won't read in the papers

Last week delivered a few indications the restaurant industry may be entering a recovery. Relief couldn't come too soon, given how the trade appears to be one moon howl away from snapping. A bunch of places have even forgotten they're supposed to charge for food instead of doling it out for a reminder of what customers look like.

In all the craziness, some urban myths have clearly taken hold. Here, as a public service, is a delineation of fact and fiction:

• There’s absolutely no truth to reports that T.G.I. Friday’s is giving away a restaurant franchise with every appetizer ordered this week. You have to buy an entrée, too, though they’re down to $1.


• Michelle Obama has not challenged Alice Waters to go hoe-to-hoe over who has the best organic string beans. Nor will Bo the Dog be trained to bite Waters in the onions. Or not as long as she shuts up about a First Garden.


• It’s a complete myth that restaurants’ latest promotion is giving customers the keys and asking them to lock up when they’re done gorging for free. Denny’s, however, declined to comment.


• Tao, pegged by Restaurants & Institutions as having sales in excess of $68 million a year, is not buying General Motors to replace valet parking with a car giveaway program.


• Steve Wynn is not relocating the state of Rhode Island into his restaurant-studded Encore casino as an entertainment feature. However, the governor of Maryland commented that he’s constitutionally obliged to do what’s financially best for constituents.


• Gordon Ramsay has not been serially watching “The Wrestler” in hopes of aping Mickey Rourke’s career comeback.


• Police discount reports that hundreds of seders were wrecked when college-aged participants insisted that Chipotle’s Steve Ells is really the prophet Elijah. They also wanted to know where the bitter herbs had been grown.