ANNUAL REPORT 2016 1
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Philosophy History Timeline Founder SWOT Career Path Board New Investment
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ur philosophy with regard to the compensation of our employees, including our executive officers, is to reinforce the importance of performance and accountability at the corporate, regional and individual levels. We strive to provide our employees with meaningful rewards while maintaining alignment with shareholder interests, corporate values, and important management initiatives. In setting and overseeing the compensation of our executive officers, the Compensation Committee believes our compensation philosophy to be best effectuated by designing compensation programs and policies to them.
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hipotle Mexican Grill was founded by Steve Ells in 1993 and based in Denver, Colorado. The name Chipotle derives from the Mexican Spanish name for a smoked, dried jalapeĂąo chili pepper. Founder Steve Ells attended the Culinary Institute of America in Hyde Park, New York; afterward, he became a line cook for Jeremiah Tower at Stars in San Francisco, California. In 1993, Ells took what he learned in San Francisco and opened the first Chipotle in Denver, Colorado, near the University of Denver campus using an $85,000 loan from his father.
success every year. By 2016, Chipotle was operating more than 1,900 restaurants, including 17 Chipotle restaurants outside the US, 11 ShopHouse Southeast Asian Kitchen restaurants, and the company is an investor in an entity that owns and operates three Pizzeria Locale restaurants. In late 2015, there were a series of E-coli outbreaks at various Chipotle Mexican Grill restaurants, including 11 Chipotle restaurants in Washington and Oregon.
The Centers for Disease Control and Prevention (CDC) reduced the number of cases connected to Chipotle from 50 Ells and his father calculated that the store would need to sell to 37 cases on November 18, 2015 (with 24 in Washington 107 burritos per day in order to be profitable; however, one and 13 in Oregon). This reduction of nearly 25% was based month, the original restaurant was selling over 1,000 burritos upon more sensitive testing which revealed the cases were a day. Ells had originally planned to use funds from the first not related to Chipotle. The CDC has informed Chipotle that Chipotle in order to open a fine-dining restaurant, but instead it identified six additional cases in which initial testing matches focused on Chipotle Mexican Grill when the restaurants saw the E. coli strain.
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RESPONSIBLY RAISING THE BAR
FARMS
ON THE FARM
We believe that small farms come in many sizes, that it's more about what you do than how big you are. Our suppliers share many of our values. Here are two to chew on.
We develop close relationships with many of the farmers, ranchers, and other suppliers who produce the ingredients we serve every day.
We partner with farms that prioritize the long-term health of their land.
ANIMALS
We think that animals raised outdoors or in deeply-bedded pens are happier and healthier than those raised in confinement. With our suppliers, we take a firm stand on two things.
We're serious about pasture-raised animals that have room to be animals.
There's no place for nontherapeutic antibiotics and synthetic hormones on the farms that produce our ingredients.
ENVIRONMENT 7
Third store opens.
1996
Ells launched the first concept.
1993
Using an SBA loan. To fund more growth. Ells then creates a board of directors and raises an additional $1.8 Million.
Within one month, the store is selling more than 1,000 burritos per day.
Using the cash flow of the first restaurant.
1995
The second store opens. 8
McDonald’s has become Chipotle’s largest investor
2001 McDonald’s invested approximately $360 million into Chipotle, and took out $1.5 billion. McDonald’s had attempted to get Chipotle to add drive-through windows and a breakfast menu, which Ells resisted.
The investment from McDonald’s allowed the firm to quickly expand, from 16 restaurants.
1998
McDonald’s invests $360 Million into Chipotle
The stock rises 100% in the first day. McDonald’s fully divests from Chipotle.
2006
Chipotle goes public. 9
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s a chef, nothing is more important to me than serving my guests food that is safe, delicious, and wholesome. From the beginning, all of our food safety programs have met or exceeded industry standards. But recent incidents, an E. coli outbreak that sickened 52 people and a norovirus outbreak that sickened approximately 140 people at a single Chipotle restaurant in Boston, have shown us that we need to do better, much better. The fact that anyone has become ill eating at Chipotle is completely unacceptable to me and I am deeply sorry. As a result, we are committed to becoming known as the leader in food safety, just as we are known for
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using the very best ingredients in a fast food setting. I want to share with our customers specifics about some of the significant steps we are taking to be sure all of the food we serve is as safe as it can be. To achieve our goal of establishing leadership in food safety, we collaborated with preeminent food safety experts to design a comprehensive food safety program that dramatically reduces risk on our farms, throughout the supply chain, and in our restaurants. The process began with a farm-to-fork risk assessment of every ingredient and all of our restaurant protocols and procedures. Throughout our supply chain, we are implementing high-resolution sampling and testing of many of our ingredients
to prevent contaminants, including E. coli, from getting into our restaurants. Testing of this kind is unprecedented in the restaurant industry because of the large number of samples tested. We are also working with our supplier partners to further enhance their food safety programs and operations. We have also designed many improvements within our restaurants to ensure our food is as safe as possible. This includes the introduction of additional microbiological kill steps to eliminate microbial risk. Additionally, we are rolling out new sanitation procedures in our restaurants and implementing additional food safety training for all of our restaurant
employees. More information about these changes is available at chipotle. com/foodsafety. In the end, it may not be possible for anyone to completely eliminate all risk with regard to food (or from any environment where people congregate), but we are confident that we can achieve near zero risk. Chipotle is an incredibly focused company.
incredible journey and we are not going to shy away from this new challenge. I’d like to take this opportunity to apologize on behalf of all of us at Chipotle, and to thank our loyal customers who have stood by us through this difficult time.
Afterward, he became a line cook for Jeremiah Tower at Stars in San Francisco. There, Ells observed the popularity of Our menu has remained virtually the taquerĂas and San Francisco burritos unchanged for the last 22 years and we in the Mission District. In 1993, Ells took only have 64 ingredients in our food. what he learned in San Francisco and Rest assured that we have looked at opened the first Chipotle Mexican Grill each of these ingredients, where they in Denver, Colorado in a former Dolly come from and how they can be made Madison Ice Cream. even safer. I believe our restaurants are safer today than they have ever Steve Ells been. The last 22 years have been an Founder, Chairman, and Co-CEO
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Strengths
Weaknesses
Opportunities
Threats
-Innovation: “Food with a little more integrity� & first movers in fast-casual segment -Strong management team: managers get incentives for hiring quality people -High-profile locations:Urban and easy access -Reputationmanagement: Pay employees more than average for fast food industry -Quality of food: all natural ingredients and healthy.
-Availability of brand specific sourced food: Chipotle’s food is specified as organic and locally grown which is a positive to most people but where exactly is the food coming from, but more difficult to find suppliers and more. -Limited Menu: slim variety of food besides burritos, tacos and salads in their menu which is a negative downfall especially when other competing fast food restaurants have more variety of food.
-Best Economies of Scale: Horizontal and integration, ex: ShopHouse, Pizzeria Locale -Entering new markets: overseas & otherwise -Further expansion in the US Attitudinal change: consumers are more health-conscious -Offer new services: new food Long-term trend of specialty food chains commerce.
-Competition: both in direct (fast-casual) and fast-food restaurant segments -Increasing food prices: hurting company revenue -Lower cost competitors: McDonalds, Taco Bell etc. -Regulation: Chipotle had high employee turnover rate due to undocumented workers investigation and others.
Base Salary 11.6%
Base Salary 9.9%
Target AIP 12.4%
Equity Comp. 78.5%
Monty Moran Co-Ceo
Equity Comp. 80.2%
Crew
Kitchen manager
$36,000
$28,000
Target AIP 11.0%
$33,000
Base Salary 8.8%
Service manager
Apprentice
General manager
Restaurateur
$133,000
Equity Comp. 77.7%
$67,000
Jack hartung, CFO
$53,000
Steve Ells, Chairman & Co-Ceo
$125,000
Target AIP 9.9%
Restaurateur 2-4
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“FOOD WITH INTEGRITY”
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Mr. Ells founded Chipotle in 1993. He is CoChief Executive Officer and was appointed Chairman of the Board in 2005. Prior to launching Chipotle, Mr. Ells worked for two years at Stars restaurant in San Francisco.
Mr. Moran is our Co-Chief Executive Officer. He was appointed to this position on January 1, 2009, after serving as President and Chief Operating Officer since March 2005.
Mr. Baldocchi has been self-employed since 2000 as a financial consultant and strategic advisor for a variety of privately-held companies, with a specialization in multi-unit restaurant companies.
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Steve Ells Chairman and co-Chief Executive Officer
Montgomery F. Moran Co-Chief Executive Officer
Albert S. Baldocchi Director
John S. Charlesworth Director
Mr. Charlesworth is currently the sole owner/ member of Hunt Business Enterprises LLC and EZ Street LLC. Before retiring in 2000, Mr. Charlesworth worked for McDonald’s for 26 years.
Neil W. Flanzraich Lead Director
Neil Flanzraich has been a private investor since February 2006. He is also the Executive Chairman of Cantex Pharmaceuticals, Inc.
Stephen Gillett Director
Stephen Gillett is a senior executive leader at Google, working on moonshots, and an active adviser to Google Ventures. His diverse leadership experience spans across enterprise software, internet, retail, and consumer technology.
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hipotle Company opened ShopHouse Southeast Asian Kitchen during 2011 and now have a total of six ShopHouse restaurants, in Washington D.C. and the Los Angeles area. Chipotle also announced in late 2013 that they have invested in a company operating wa new fast casual Pizzeria Locale restaurant in Denver, Colorado, and that they plan to invest in and assist with the expansion of Pizzeria Locale in the future.
a small number of ShopHouse and/or Pizzeria Locale restaurants and a lot more. News of the Chipotle partnership was a surprise even to restaurant obsessives, but it also made sense. Chipotle co-CEO Steve Ells lived in Boulder throughout his high school and college years, and he opened the first-ever Chipotle restaurant in Denver in 1993. Over the last 10 years, Ells became a regular at Frasca, even holding the closing dinner there when Chipotle went public.
ShopHouse and Pizzeria Locale are new brands and they have lower brand awareness, lower sales and less operating experience than most Chipotle restaurants, and may not achieve the same restaurant economics as Chipotle restaurants. However, they have contributed substantially to Chipotle’s revenue growth, they opened 44 restaurants during the three months ended March 31, 2014. They expect to open between 180 and 195 restaurants in 2014, including
He has spent so much time at Frasca that local insiders whisper about whether he is an investor in the restaurant, a rumor that Stuckey and Mackinnon-Patterson deny in all. This summer, the company is growing two new fast-food chains for Chipotle loyalists hungry for more variety. ShopHouse serves Southeast Asian-style rice bowls and Pizzeria Locale serves gourmet pizza serve amazingly authentic pizza made the southern Italian way.
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