I have spent a lot of time thinking about how Chipotle manages to consistently make the world’s best burritos. Chipotle has been a big part of my life since I first discovered the chain when I was in high school. A lot has changed since then – cities, jobs, relationships, my hair color– but Chipotle’s guacamole and salsa-laden goodness has been there for me through all of it. And now that I’ve taken TOM, I finally understand where the magic inside that silver wrapper comes from: the tight alignment of their business model and operating model!
First, their business model: Food with Integrity. What does that mean, you ask? Fast, affordable, high-quality food. They are committed to sourcing the best ingredients they can find and preparing them by hand. In the CEO’s words, they deliver “fresh, local, sustainable ingredients, cooked with classic methods in an open kitchen where the customer can see everything, and served in a pleasing environment.” See – he can’t even explain their strategy without getting into their operating model!
Chipotle has been so successful at scaling their business and operating model that they have created an entire new segment of the market: Fast Casual. And they manage to generate 25 to 26% margins, among the highest in the fast food industry. Here are some of the critical elements of their operating model that allow them to deliver that consistently across their 1,700 locations:
Menu: Chipotle has a very streamlined menu with just four items – burrito, burrito bowl, tacos, and a salad. For each, there 5 different choices of protein, 2 types of rice, 2 types of beans, and 9 different kinds of salsa and toppings that customers can choose from. As a result Chipotle only has to stock 24 ingredients, which keeps costs, complexity, and waste down. But customers are still able to create more than 1,620 different combinations – a win / win if you ask me!
Production: Food is prepared in an assembly line. There are typically 3 team members staffed at different points on the line – the first toasts tortillas and adds rice and beans, the second adds the proteins and salsa, and the final station adds toppings. By breaking up labor this way Chipotle is able to match cycle times, thus mitigating bottlenecks and keeping the line moving. As a result, Chipotle can fill as many as 300 orders per hour in top performing locations – that’s a burrito every 12 seconds!
Furthermore, the customer walks down the line as their food is being prepared. This allows the customer to give the relevant Chipotle team member the information needed to complete that part of their order. As a result, Chipotle don’t need any fancy system to manage or track information systems – even more efficiency and cost savings! Don’t believe me? Ask this guy:
Limited service: Customers order at the counter and bus their own tables, which eliminates the need for extra labor to serve customers and helps keep costs down.
Close Relationships with Suppliers: High quality, responsibly produced ingredients are core to Chipotle’s business models. They don’t use ingredients that include GMOs, which are found in 80% of conventionally processed food, so have developed a rigorous selection and screening process to find suppliers that comply with their strict requirements. There are not very many suppliers that meet their requirements, so they are at a high risk of supply chain disruptions. To mitigate that risk and ensure consistency of supply, Chipotle spends considerable resources to build longstanding, collaborative relationships with suppliers.
Also, it turns out, Chipotle even has a TV Show. That’s not relevant to their business nor operating model, but a fun fact I learned while researching this project. With, I’m off to Chipotle for some dinner!