Chipotle has proved its mission-focused brand can pull in diners. It just hasn't demonstrated the leadership necessary to grow the brand beyond its current size.
— Jason Clampet
Nearly 25 years ago, Steve Ells founded Chipotle Mexican Grill Inc., infusing it with a culinary cachet that was largely absent in the fast-food industry.
It worked, with Chipotle growing into a powerhouse that drew a generation of customers eschewing traditional restaurant chains like McDonald’s.
But it turns out Chipotle might have to be run a bit more like McDonald’s and the other fast-food stalwarts. Ells, a 52-year-old trained chef, announced Wednesday that he was stepping down as chief executive officer, as the company struggles to mount a comeback from a food-safety crisis that has battered its brand and stock price. His replacement, industry analysts say, could be an experienced manager from a large dining chain — the same ones that Ells knocked during Chipotle’s rise.
“You really need somebody who understands fast food,” said Doug Ehrenkranz, a managing partner with executive search firm Boyden. “There’s no room for on-the-job training.”
Chipotle’s shares jumped on the news that Ells was leaving, a sign that investors are hopeful new leadership can help end the malaise that has swirled around the 2,350-store chain. Its current plight is a big comedown from its glory days. For years, with its sales and stock price soaring, Chipotle held itself up as a new standard-bearer in fast food.
The chain’s popularity stemmed from burritos and guacamole made with natural and fresh ingredients, sometimes sourced from local farms. McDonald’s Corp., the world’s largest restaurant company, was an early investor in Chipotle, but Ells downplayed that connection as the chain he created thrust the new fast-casual industry into the spotlight.
Ells had to navigate a minefield of problems over the past two years, beginning with a string of foodborne-illness outbreaks. Norovirus, E. coli and salmonella contaminations sickened about 500 diners between July and December of 2015. Last year, one of the company’s top four executives was arrested on cocaine charges. Mark Crumpacker, who led marketing efforts since 2009, returned to work in September 2016 after completing a rehabilitation program.
The Denver-based company also lacked an operations chief during a time when its food-safety protocols were under fire. Ells’s previously had a co-CEO, Monty Moran, who was more focused on day-to-day operations. But Moran departed that role in December 2016, leaving Ells in sole control.
While the company had begun to restore its reputation in the past year, a norovirus incident in Virginia and a viral video of mice at a Dallas location sparked a fresh round of negative headlines. Those incidents renewed fears about the inability of the company’s management to lead the turnaround, particularly after Ells had vowed to make his restaurants the safest in the industry.
“That was a foolish thing to say,” said Michael Halen, an analyst at Bloomberg Intelligence. “This thing has been botched since the first outbreak.”
The fresh round of bad news this summer overshadowed a marketing push that featured RZA of the Wu-Tang Clan. An effort to drive sales with a new queso dip has also fallen flat, with customers complaining about the product on social media. Those missteps increased pressure on Ells as the company’s turnaround languished.
The next leader of Chipotle will have to walk a fine line — fixing basic operations on one hand, while also trying to restore the brand power that once pushed the company’s stock price north of $700. That means sticking with better ingredients and sourcing standards, while also continuing to build new restaurants and making sure the company has access to the supply of premium chicken, pork and beef it needs to serve up burritos.
“They have to find somebody who continues to support the philosophy of the food,” said Darren Tristano, a restaurant industry analyst. “I think the customer believes in it. What they’re lacking is trust.”
©2017 Bloomberg L.P.