WEBVTT 00:00:00.000 --> 00:00:02.879 Welcome to the Deep Dive. We're the show that, 00:00:02.879 --> 00:00:04.799 you know, extracts the essential knowledge from 00:00:04.799 --> 00:00:06.580 your source material, giving you the ultimate 00:00:06.580 --> 00:00:09.580 shortcut to being well -informed. And today, 00:00:09.699 --> 00:00:12.720 we are immersing ourselves in the paradox of 00:00:12.720 --> 00:00:15.900 the fast casual king, Chipotle Mexican Grill. 00:00:16.059 --> 00:00:18.100 We're talking about the mission burritos, the 00:00:18.100 --> 00:00:21.660 made -to -order bowls, and this incredible, almost 00:00:21.660 --> 00:00:24.780 paralyzing tension at the core of their entire 00:00:24.780 --> 00:00:26.920 business model. We have a really fascinating 00:00:26.920 --> 00:00:29.179 set of sources today for anyone who wants to 00:00:29.179 --> 00:00:32.039 go far beyond just the menu. We are diving into 00:00:32.039 --> 00:00:34.640 a brand that basically became synonymous with 00:00:34.640 --> 00:00:37.359 fast casual. That's that crucial segment that 00:00:37.359 --> 00:00:39.579 promises high -quality ingredients, customized 00:00:39.579 --> 00:00:42.479 orders, and speed. It sits right in that gap 00:00:42.479 --> 00:00:44.920 between traditional fast food and a polished 00:00:44.920 --> 00:00:47.460 sit -down restaurant. And Chipotle, founded way 00:00:47.460 --> 00:00:50.820 back on July 13, 1993, was really one of the 00:00:50.820 --> 00:00:53.859 first chains to truly master that identity. So 00:00:53.859 --> 00:00:55.689 our mission today is to dissect the incredible 00:00:55.689 --> 00:00:57.630 corporate and logistical struggles that come 00:00:57.630 --> 00:01:00.350 up when a company founded on this principle of 00:01:00.350 --> 00:01:02.289 food with integrity. A huge part of their brand. 00:01:02.450 --> 00:01:05.950 Huge. Sourcing fresh, whole, often ethically 00:01:05.950 --> 00:01:09.450 raised ingredients. Tries to expand over 4 ,000 00:01:09.450 --> 00:01:13.060 global locations. With a target of 7 ,000. I 00:01:13.060 --> 00:01:16.000 mean, how do you scale that artisan quality into 00:01:16.000 --> 00:01:18.579 a massive industrial operation? We're going to 00:01:18.579 --> 00:01:20.620 track the corporate battles, the massive food 00:01:20.620 --> 00:01:23.739 safety crises, and the radical, almost futuristic 00:01:23.739 --> 00:01:26.879 solutions like robotics that they're now using 00:01:26.879 --> 00:01:29.319 to solve these systemic problems. It's a really 00:01:29.319 --> 00:01:32.420 compelling case study in whether an idealistic 00:01:32.420 --> 00:01:35.159 concept can even survive that kind of hyper growth. 00:01:35.439 --> 00:01:37.319 And, you know, before we really begin our journey 00:01:37.319 --> 00:01:39.519 into that first Denver kitchen, let's start with 00:01:39.519 --> 00:01:41.659 the name itself. Chipotle. It comes from the 00:01:41.659 --> 00:01:44.260 Nahuatl word chilpocle. Chilpocle. Yeah. And 00:01:44.260 --> 00:01:46.480 it describes a smoked and dried jalapeno chili 00:01:46.480 --> 00:01:48.980 pepper. That name itself kind of anchors the 00:01:48.980 --> 00:01:51.420 brand to a sense of tradition and culinary authenticity. 00:01:51.719 --> 00:01:53.819 And that's a concept that the company has repeatedly 00:01:53.819 --> 00:01:55.939 fought and sometimes, you know, very unsuccessfully 00:01:55.939 --> 00:01:58.260 to protect against the demands of high finance 00:01:58.260 --> 00:02:01.260 and scalability. The origin story is just so 00:02:01.260 --> 00:02:04.000 essential here because it explains why all the 00:02:04.000 --> 00:02:08.129 conflicts later on became so, so acute. The founder, 00:02:08.250 --> 00:02:10.990 Steve Ells, he wasn't a business school grad 00:02:10.990 --> 00:02:14.430 focused on operational efficiency. He was a serious 00:02:14.430 --> 00:02:17.250 chef. Absolutely. He trained at the prestigious 00:02:17.250 --> 00:02:19.830 Culinary Institute of America. And then he went 00:02:19.830 --> 00:02:22.289 on to work as a line cook at Starz, which was 00:02:22.289 --> 00:02:25.169 this famous San Francisco restaurant run by Jeremiah 00:02:25.169 --> 00:02:27.289 Tower. And it was during his time there in the 00:02:27.289 --> 00:02:30.129 Bay Area observing the sheer democratic popularity 00:02:30.129 --> 00:02:32.449 of the local taquerias in the Mission District. 00:02:32.689 --> 00:02:35.270 Right. That speed, the customizability. That's 00:02:35.270 --> 00:02:37.120 when he realized he could apply. kind of fine 00:02:37.120 --> 00:02:39.340 dining approach to fast food. He took that whole 00:02:39.340 --> 00:02:41.900 San Francisco sensibility, fresh ingredients, 00:02:42.039 --> 00:02:44.219 simple preparation. You see them assemble it 00:02:44.219 --> 00:02:46.039 right in front of you. And he brought it back 00:02:46.039 --> 00:02:49.840 to his home state, to Colorado. The very first 00:02:49.840 --> 00:02:51.879 Chipotle opened near the University of Denver 00:02:51.879 --> 00:02:54.599 campus, right in a former Dolly Madison ice cream 00:02:54.599 --> 00:02:57.520 store. And his initial financial ambition was, 00:02:57.680 --> 00:03:00.280 I mean, looking back, he was unbelievably small 00:03:00.280 --> 00:03:02.960 compared to what Chipotle became. It really was. 00:03:03.259 --> 00:03:06.240 Ells secured an $85 ,000 loan from his father 00:03:06.240 --> 00:03:08.699 to get started. That was the seed money. $85 00:03:08.699 --> 00:03:12.719 ,000. And based on their, I guess, very conservative 00:03:12.719 --> 00:03:15.699 projections, they calculated a break -even point. 00:03:15.879 --> 00:03:18.780 They figured they needed to sell 107 burritos 00:03:18.780 --> 00:03:21.900 daily just to be profitable, just to cover overhead 00:03:21.900 --> 00:03:25.039 and pay back that loan. 107 burritos a day. That 00:03:25.039 --> 00:03:27.199 was the benchmark. That was success. It's almost 00:03:27.199 --> 00:03:30.639 quaint. It is. But the market response was immediate 00:03:30.639 --> 00:03:32.599 and just overwhelming. They didn't just meet 00:03:32.599 --> 00:03:34.919 that goal. They completely obliterated it. Within 00:03:34.919 --> 00:03:37.560 one month, they weren't selling 107. They were 00:03:37.560 --> 00:03:40.259 selling well over a thousand breeders every single 00:03:40.259 --> 00:03:43.379 day. Wow. That efficiency of the assembly line 00:03:43.379 --> 00:03:45.219 combined with the quality of the ingredients 00:03:45.219 --> 00:03:47.900 just created this runaway success. And that initial 00:03:47.900 --> 00:03:51.650 explosive success completely derailed all. original 00:03:51.650 --> 00:03:54.050 plan. It absolutely did. His initial ambition, 00:03:54.310 --> 00:03:57.030 you know, the chef's dream was to use the money 00:03:57.030 --> 00:03:58.990 from the burrito shop to fund his true goal, 00:03:59.189 --> 00:04:02.250 opening a high end fine dining restaurant. But 00:04:02.250 --> 00:04:05.030 the sheer volume and the profitability of Chipotle 00:04:05.030 --> 00:04:08.389 forced him to abandon that culinary dream and 00:04:08.389 --> 00:04:11.110 focus entirely on scaling the fast casual concept. 00:04:12.000 --> 00:04:14.180 That early cash flow funded the second store, 00:04:14.319 --> 00:04:17.040 and then a small business administration loan, 00:04:17.180 --> 00:04:20.399 an SBA loan, funded the third. They'd proven 00:04:20.399 --> 00:04:22.939 the concept was viable, but they were still just 00:04:22.939 --> 00:04:26.660 a small, regional Colorado chain. And that's 00:04:26.660 --> 00:04:28.879 where the story takes this huge, gigantic turn. 00:04:29.100 --> 00:04:32.259 That initial organic growth was quickly eclipsed 00:04:32.259 --> 00:04:35.199 by the massive, almost unbelievable catalytic 00:04:35.199 --> 00:04:38.300 role played by McDonald's Corporation. This is 00:04:38.300 --> 00:04:40.720 really where the core tension of the brand begins. 00:04:40.920 --> 00:04:43.319 It really is. McDonald's, the inventor of operational 00:04:43.319 --> 00:04:45.879 efficiency and standardization, investing in 00:04:45.879 --> 00:04:48.160 a company that's dedicated to customization and 00:04:48.160 --> 00:04:50.579 fresh prep. The McDonald's intervention was, 00:04:50.720 --> 00:04:52.779 without a doubt, the single most important event 00:04:52.779 --> 00:04:54.620 in Chipotle's history when it comes to scale. 00:04:55.199 --> 00:04:57.319 McDonald's made a minority investment in 1998. 00:04:57.949 --> 00:04:59.670 At that point, you have to remember, Chipotle 00:04:59.670 --> 00:05:02.069 only had 16 locations. All of them are concentrated 00:05:02.069 --> 00:05:05.069 in Colorado. Just 16. And that investment instantly 00:05:05.069 --> 00:05:06.990 converted Chipotle from a regional specialty 00:05:06.990 --> 00:05:10.110 into a serious national growth prospect. And 00:05:10.110 --> 00:05:11.990 the Golden Arches weren't shy about doubling 00:05:11.990 --> 00:05:14.990 down on their bet either. By 2001, McDonald's 00:05:14.990 --> 00:05:17.389 had become Chipotle's largest single investor. 00:05:17.709 --> 00:05:19.910 And this is where the acceleration in scale just 00:05:19.910 --> 00:05:22.800 becomes staggering. McDonald's Capital funded 00:05:22.800 --> 00:05:26.160 this breakneck expansion. In just seven years, 00:05:26.420 --> 00:05:29.839 the chain went from 16 locations in 1998 to over 00:05:29.839 --> 00:05:33.279 500 by the end of 2005. That's incredible growth. 00:05:33.459 --> 00:05:36.199 You simply cannot achieve that kind of growth 00:05:36.199 --> 00:05:38.819 in food service without the infrastructure, the 00:05:38.819 --> 00:05:40.800 capital, and the real estate knowledge that a 00:05:40.800 --> 00:05:43.100 giant like McDonald's brings to the table. They 00:05:43.100 --> 00:05:45.959 literally laid the national foundation that Chipotle 00:05:45.959 --> 00:05:48.459 still relies on today. And yet the ultimate irony 00:05:48.459 --> 00:05:51.879 came in 2006. After all that, McDonald's decided 00:05:51.879 --> 00:05:54.560 to fully divest. Yeah, this was a strategic decision 00:05:54.560 --> 00:05:57.360 by McDonald's to refocus entirely on their core 00:05:57.360 --> 00:05:59.839 worldwide hamburger business. It wasn't just 00:05:59.839 --> 00:06:02.060 Chipotle. They also divested other non -core 00:06:02.060 --> 00:06:04.560 ventures, including Donato's Pizza and Boston 00:06:04.560 --> 00:06:07.100 Market. But the financial return on that investment 00:06:07.100 --> 00:06:10.060 is just mind -boggling. It's staggering. McDonald's 00:06:10.060 --> 00:06:13.279 invested roughly $360 million into Chipotle over 00:06:13.279 --> 00:06:15.620 those years. When they fully divested in October 00:06:15.620 --> 00:06:19.459 2006, they pulled out $1 .5 billion. That is 00:06:19.459 --> 00:06:22.160 an astronomical return on investment. It's got 00:06:22.160 --> 00:06:23.860 to be one of the most successful side investments 00:06:23.860 --> 00:06:25.819 in the history of the food industry. It absolutely 00:06:25.819 --> 00:06:28.980 is. But here's the key insight we miss if we 00:06:28.980 --> 00:06:31.759 just look at the money. McDonald's proved the 00:06:31.759 --> 00:06:34.079 commercial viability of the model, that people 00:06:34.079 --> 00:06:36.139 would pay a premium for fresh customization. 00:06:36.879 --> 00:06:40.759 But Els, the purist, he failed to learn McDonald's 00:06:40.759 --> 00:06:43.620 core lesson, which is that operational consistency 00:06:43.620 --> 00:06:47.220 is absolutely non -negotiable at scale. That's 00:06:47.220 --> 00:06:49.839 a great point. So Els bought time to protect 00:06:49.839 --> 00:06:52.439 his integrity. McDonald's reaped the profits 00:06:52.439 --> 00:06:54.439 and moved on, probably knowing that the problems 00:06:54.439 --> 00:06:57.120 of scaling Elle's model were, you know, inevitable. 00:06:57.360 --> 00:06:59.660 And the sources confirm that even while he was 00:06:59.660 --> 00:07:02.420 under the financial umbrella of McDonald's, Elle's 00:07:02.420 --> 00:07:05.000 actively resisted operational changes that the 00:07:05.000 --> 00:07:07.500 fast food giant was trying to push. This is the 00:07:07.500 --> 00:07:09.660 first real flashpoint of that integrity conflict. 00:07:10.060 --> 00:07:12.800 McDonald's executives, focused on volume and 00:07:12.800 --> 00:07:15.800 efficiency, wanted Els to implement their standard 00:07:15.800 --> 00:07:18.060 operational playbooks. Like what? Things like 00:07:18.060 --> 00:07:20.839 adding drive -thru windows, expanding the menu 00:07:20.839 --> 00:07:23.800 to include breakfast items, standard fast food 00:07:23.800 --> 00:07:27.279 stuff. But Els refused. He protected that core 00:07:27.279 --> 00:07:30.800 identity. that food was prepared fresh, often 00:07:30.800 --> 00:07:33.199 by hand, right inside of the customer. So his 00:07:33.199 --> 00:07:35.620 resistance meant the food with integrity brand 00:07:35.620 --> 00:07:38.699 survived that hyper growth phase. It did. But 00:07:38.699 --> 00:07:40.620 it also meant the operational infrastructure 00:07:40.620 --> 00:07:42.959 remained fundamentally slow and decentralized, 00:07:43.399 --> 00:07:46.180 which basically sowed the seeds for all the future 00:07:46.180 --> 00:07:49.139 crises. So with McDonald's gone, the market validated 00:07:49.139 --> 00:07:51.879 Ells' vision almost immediately. The initial 00:07:51.879 --> 00:07:54.360 public offering, the IPO, happened in January 00:07:54.360 --> 00:07:57.930 2006, right at that 500 store milestone. And 00:07:57.930 --> 00:07:59.790 the investor demand was so intense, the stock 00:07:59.790 --> 00:08:02.189 price had to be increased twice before the offering 00:08:02.189 --> 00:08:04.709 even began. The IPO was a thunderous success. 00:08:05.029 --> 00:08:07.769 On its first day as a public company, the stock 00:08:07.769 --> 00:08:10.629 soared exactly 100%. Doubled on day one. Doubled. 00:08:10.649 --> 00:08:12.730 At the time, that was the best U .S.-based IPO 00:08:12.730 --> 00:08:15.670 in six years and the second best restaurant IPO 00:08:15.670 --> 00:08:17.870 ever, only slightly behind the launch of Boston 00:08:17.870 --> 00:08:20.250 Market, which coincidentally was also a former 00:08:20.250 --> 00:08:22.449 McDonald's holding. So it's clear investors were 00:08:22.449 --> 00:08:24.449 betting that the integrity premium was sustainable. 00:08:24.750 --> 00:08:27.550 They absolutely were. So by 2008, the company 00:08:27.550 --> 00:08:29.709 felt confident enough to take its first steps 00:08:29.709 --> 00:08:32.309 outside the US. They opened their first international 00:08:32.309 --> 00:08:35.129 location in Toronto, Canada. They had proven 00:08:35.129 --> 00:08:37.470 the model was scalable and immensely profitable, 00:08:37.710 --> 00:08:39.409 at least within the North American continent. 00:08:39.570 --> 00:08:42.279 But the next era, as we'll see. would test the 00:08:42.279 --> 00:08:44.419 limits of that model completely. This next decade 00:08:44.419 --> 00:08:47.480 is really defined by operational strain, executive 00:08:47.480 --> 00:08:51.460 turnover and this slow, painful realization that 00:08:51.460 --> 00:08:53.700 the founders original formula was incredibly 00:08:53.700 --> 00:08:57.240 difficult to manage, particularly when external 00:08:57.240 --> 00:09:00.220 factors like the food safety crises started to 00:09:00.220 --> 00:09:02.830 test the company's internal stability. You can 00:09:02.830 --> 00:09:04.889 see that internal pressure building just by looking 00:09:04.889 --> 00:09:08.129 at the executive structure. In 2009, Monty Moran, 00:09:08.210 --> 00:09:10.830 who'd been the president and COO, was elevated 00:09:10.830 --> 00:09:13.850 to co -CEO, sharing the top job with Steve Ells. 00:09:13.929 --> 00:09:17.009 That dual structure alone suggests that the operational 00:09:17.009 --> 00:09:19.509 demands were becoming way too complex for Ells, 00:09:19.509 --> 00:09:22.049 the culinary visionary, to manage all by himself. 00:09:22.350 --> 00:09:24.889 And that partnership lasted until December 2016, 00:09:25.070 --> 00:09:27.769 when Moran stepped down, leaving Ells as the 00:09:27.769 --> 00:09:30.519 sole CEO. Right, which put Ells back in complete 00:09:30.519 --> 00:09:33.039 control at the exact moment the company was facing 00:09:33.039 --> 00:09:35.220 the most devastating food safety crises in its 00:09:35.220 --> 00:09:37.940 history. But the pressure was immense and the 00:09:37.940 --> 00:09:40.879 market was demanding a commercial solution, not 00:09:40.879 --> 00:09:44.340 a culinary one. Ells stayed on as CEO for barely 00:09:44.340 --> 00:09:47.139 another year, announcing in November 2017 that 00:09:47.139 --> 00:09:50.320 he would step down completely. And this signaled 00:09:50.320 --> 00:09:52.600 the end of the founder's era and opened the door 00:09:52.600 --> 00:09:55.200 to the most polarizing strategic decision the 00:09:55.200 --> 00:09:57.779 company could have possibly made. Who would replace 00:09:57.779 --> 00:10:00.580 him? In February 2018, Brian Nicol was named 00:10:00.580 --> 00:10:03.159 CEO. And Nicol was the former chief executive 00:10:03.159 --> 00:10:06.399 of Taco Bell. Taco Bell? Yeah. For the brand 00:10:06.399 --> 00:10:08.720 purists, this was an almost sacrilegious choice. 00:10:09.470 --> 00:10:11.789 Nickel was famous for efficiency, aggressive 00:10:11.789 --> 00:10:14.490 marketing and, you know, frankly, highly processed 00:10:14.490 --> 00:10:16.710 ingredients. I have to push back on this a little. 00:10:16.809 --> 00:10:19.529 If the brand is built entirely on integrity and 00:10:19.529 --> 00:10:22.529 freshness, wasn't hiring a CEO famous for high 00:10:22.529 --> 00:10:25.149 volume and cost control at a direct competitor 00:10:25.149 --> 00:10:27.730 a tacit admission that the integrity promise 00:10:27.730 --> 00:10:29.610 was failing or at least that it was unsustainable? 00:10:29.710 --> 00:10:32.289 That is precisely the analytical tension that 00:10:32.289 --> 00:10:35.049 Nickel's hiring represents. Analysts were deeply 00:10:35.049 --> 00:10:37.649 divided. The critics saw it as a total betrayal. 00:10:38.250 --> 00:10:41.649 a shift from quality to pure commercialism. But 00:10:41.649 --> 00:10:43.830 the proponents argued that Chipotle didn't need 00:10:43.830 --> 00:10:45.909 a better chef. He needed a better manager of 00:10:45.909 --> 00:10:48.909 logistics and crisis. It needed someone who understood 00:10:48.909 --> 00:10:50.990 how to streamline operations and standardize 00:10:50.990 --> 00:10:53.649 processes. The lessons Ells had refused to learn 00:10:53.649 --> 00:10:56.730 from McDonald's. Exactly. And how did the market 00:10:56.730 --> 00:10:59.730 react to this ideological conflict? Well, the 00:10:59.730 --> 00:11:02.409 stock market voted overwhelmingly in favor of 00:11:02.409 --> 00:11:04.529 the commercial new blood. The stock jumped over 00:11:04.529 --> 00:11:07.169 12 % immediately following Nichols' appointment. 00:11:07.409 --> 00:11:10.070 Investors clearly prioritized operational stability 00:11:10.070 --> 00:11:12.149 and commercial aggression over the founder's 00:11:12.149 --> 00:11:15.029 frequently messy idealism. Nichols' mandate was 00:11:15.029 --> 00:11:18.090 clear. Fix the operations, increase digital sales, 00:11:18.330 --> 00:11:20.809 and scale faster. And the Ailes era officially 00:11:20.809 --> 00:11:22.809 concluded when he resigned as chairman and departed 00:11:22.809 --> 00:11:25.669 the board in March 2020. Even before that, in 00:11:25.669 --> 00:11:28.070 May 2018, the corporate headquarters where the 00:11:28.070 --> 00:11:31.009 company had been based for 25 years relocated 00:11:31.009 --> 00:11:33.720 from Denver to Newport Beach, California. A move 00:11:33.720 --> 00:11:36.299 that affected around 400 corporate workers. And 00:11:36.299 --> 00:11:38.100 you're right, this was more than just a relocation. 00:11:38.120 --> 00:11:41.460 It was a physical severing of ties to the founders' 00:11:41.600 --> 00:11:45.179 roots. So looking at the financial picture, Nickel's 00:11:45.179 --> 00:11:47.360 appointment seems to have accelerated the company's 00:11:47.360 --> 00:11:49.659 trajectory as a corporate growth machine, despite 00:11:49.659 --> 00:11:51.960 all the lingering operational challenges. Oh, 00:11:51.980 --> 00:11:54.700 the growth in scale is undeniable. Locations 00:11:54.700 --> 00:12:00.019 grew from 956 in 2009 to a staggering 3 ,726 00:12:00.019 --> 00:12:03.450 by 2024. And the revenue. Revenue jumped from 00:12:03.450 --> 00:12:09.470 $1 .518 billion in 2009 to $11 .314 billion in 00:12:09.470 --> 00:12:12.409 2024. That is just explosive growth sustained 00:12:12.409 --> 00:12:14.830 over two decades. But those impressive revenue 00:12:14.830 --> 00:12:17.210 figures, they kind of mask some profound internal 00:12:17.210 --> 00:12:19.649 conflicts about corporate ethics and wealth distribution, 00:12:19.950 --> 00:12:22.490 especially during the later Ells tenure. We really 00:12:22.490 --> 00:12:24.590 need to highlight the CEO to worker pay ratio 00:12:24.590 --> 00:12:27.659 that was reported back in 2015. That ratio is 00:12:27.659 --> 00:12:29.840 a stark illustration of how difficult it was 00:12:29.840 --> 00:12:31.820 for the company to maintain that high -minded 00:12:31.820 --> 00:12:35.580 integrity brand internally. In 2014, Steve Ells 00:12:35.580 --> 00:12:38.279 earned approximately $29 million. $29 million. 00:12:38.539 --> 00:12:40.639 And the median worker pay at Chipotle that same 00:12:40.639 --> 00:12:44.059 year was reported by Glassdoor as $19 ,000. So 00:12:44.059 --> 00:12:45.840 what's the ratio on that? That resulted in a 00:12:45.840 --> 00:12:49.940 pay ratio of 15 -22 to 1. Wow. But didn't the 00:12:49.940 --> 00:12:52.379 company defend that? I mean, arguing that... 00:12:52.559 --> 00:12:55.139 ELSA's vision and performance driving that incredible 00:12:55.139 --> 00:12:58.659 growth in the record IPO justified that massive 00:12:58.659 --> 00:13:01.279 compensation. They certainly did. They argued 00:13:01.279 --> 00:13:03.620 it was performance -based compensation aligned 00:13:03.620 --> 00:13:06.299 with shareholder value. However, the optics were 00:13:06.299 --> 00:13:08.860 just terrible. How can you be the champion of 00:13:08.860 --> 00:13:10.820 ethical sourcing and the goodness of your food 00:13:10.820 --> 00:13:13.700 when your entry -level employees are paid substantially 00:13:13.700 --> 00:13:16.639 less than minimum living standards and the wealth 00:13:16.639 --> 00:13:20.360 disparity is so extreme? Yeah. This tension between 00:13:20.360 --> 00:13:22.480 the public facing integrity and the internal 00:13:22.480 --> 00:13:24.960 corporate behavior has always been a fault line 00:13:24.960 --> 00:13:27.179 in the company's story. And despite the massive 00:13:27.179 --> 00:13:29.899 overall growth, even powerhouses are vulnerable 00:13:29.899 --> 00:13:32.500 to market shifts. The sources show a dip just 00:13:32.500 --> 00:13:34.519 recently. That's right. Following the fiscal 00:13:34.519 --> 00:13:38.360 Q2 2025 results, the share price fell 9 % after 00:13:38.360 --> 00:13:41.320 same store sales actually shrank 4%. Which suggests 00:13:41.320 --> 00:13:43.100 that the quest for growth is hitting points of 00:13:43.100 --> 00:13:45.539 saturation or maybe consumer resistance. Which 00:13:45.539 --> 00:13:48.600 brings us to this strategic pivot. When sales 00:13:48.600 --> 00:13:51.220 start shrinking, the answer is usually operational 00:13:51.220 --> 00:13:54.179 efficiency. And here's where it gets really interesting. 00:13:54.500 --> 00:13:57.519 Under Nichols' direction, operational modernization 00:13:57.519 --> 00:14:00.820 is now the top priority. Driven by technology. 00:14:01.080 --> 00:14:03.480 A complete philosophical break from the founders' 00:14:03.580 --> 00:14:06.019 resistance to standardization and automation. 00:14:06.320 --> 00:14:09.539 A total break. The first major step was changing 00:14:09.539 --> 00:14:11.899 the physical store format to enhance digital 00:14:11.899 --> 00:14:15.700 sales. The Chipotle. Correct. In May 2018, they 00:14:15.700 --> 00:14:18.259 introduced the Chipotle. And it's important to 00:14:18.259 --> 00:14:20.220 remember, this is not a traditional drive -thru 00:14:20.220 --> 00:14:22.100 window. Right. You can't just pull up an order. 00:14:22.200 --> 00:14:24.700 No, it is exclusively for mobile order pickup. 00:14:25.100 --> 00:14:27.340 This setup completely streamlines the process, 00:14:27.659 --> 00:14:30.100 removing the variability of the cashier -customer 00:14:30.100 --> 00:14:32.220 interaction and reserving the lane purely for 00:14:32.220 --> 00:14:35.100 speed. This innovation has been massively successful 00:14:35.100 --> 00:14:37.899 in increasing throughput and digital sales, which 00:14:37.899 --> 00:14:40.580 are crucial for their profitability. As of 2023, 00:14:40.899 --> 00:14:43.759 there were over 500 locations with Chipotlanes. 00:14:43.779 --> 00:14:47.539 And the continued push toward efficiency, which 00:14:47.539 --> 00:14:49.960 was probably exacerbated by post -pandemic labor 00:14:49.960 --> 00:14:52.539 shortages, has led them directly to robotics, 00:14:52.960 --> 00:14:55.509 a move that sounds completely counterintuitive 00:14:55.509 --> 00:14:58.570 for a brand built on hand -prepared food. It's 00:14:58.570 --> 00:15:00.509 the ultimate collision between the founder's 00:15:00.509 --> 00:15:03.529 ethos and modern industrial reality. In July 00:15:03.529 --> 00:15:05.669 2023, the company announced they were testing 00:15:05.669 --> 00:15:08.669 a robot specifically designed for a massive bottleneck 00:15:08.669 --> 00:15:11.250 in their fresh prep model, preparing avocados 00:15:11.250 --> 00:15:13.509 for guacamole. I can imagine that's a huge time 00:15:13.509 --> 00:15:17.090 sink. Huge. And then in September 2024, they 00:15:17.090 --> 00:15:19.230 escalated that effort, announcing a collaboration 00:15:19.230 --> 00:15:21.850 with a company called Viboo on a specialized 00:15:21.850 --> 00:15:24.590 machine named AutoCado. The avocado is genuinely 00:15:24.590 --> 00:15:26.909 fascinating. It is the poster child for solving 00:15:26.909 --> 00:15:29.649 this integrity at scale problem. Avocado is an 00:15:29.649 --> 00:15:32.610 automated machine that they claim can peel, core, 00:15:32.750 --> 00:15:35.629 and cut avocados in less than 30 seconds for 00:15:35.629 --> 00:15:38.090 large batches. Think about the implications of 00:15:38.090 --> 00:15:41.019 that. Right. A human prepping avocados introduces 00:15:41.019 --> 00:15:44.759 massive variability. How many you yield per case, 00:15:44.919 --> 00:15:48.059 how fast they're cut, the risk of cross -contamination 00:15:48.059 --> 00:15:50.899 if the surface isn't cleaned. The avocado drastically 00:15:50.899 --> 00:15:54.419 reduces labor cost, increases yield consistency, 00:15:54.679 --> 00:15:57.500 and critically reduces that human point of failure, 00:15:57.600 --> 00:15:59.840 which, as we'll discuss later, has been their 00:15:59.840 --> 00:16:02.779 single biggest problem. So the avocado isn't 00:16:02.779 --> 00:16:05.320 just about saving money on labor. It's a direct 00:16:05.320 --> 00:16:08.340 response to the food safety and the portion inconsistency. 00:16:08.360 --> 00:16:10.500 issues that played the last decade. Precisely. 00:16:10.500 --> 00:16:13.220 It turns a vulnerable, highly manual process 00:16:13.220 --> 00:16:16.440 into a standardized machine driven one. And the 00:16:16.440 --> 00:16:19.100 automation isn't stopping in the kitchen. In 00:16:19.100 --> 00:16:22.279 August 2025, in a massive technological bet on 00:16:22.279 --> 00:16:24.440 the future of delivery, Chipotle partnered with 00:16:24.440 --> 00:16:26.799 Zipline to test drone aircraft food delivery 00:16:26.799 --> 00:16:30.100 in the greater Dallas area. Drones. Drones. These 00:16:30.100 --> 00:16:32.519 are huge technological gambits aimed at solving 00:16:32.519 --> 00:16:35.480 speed, labor, and consistency issues all at once. 00:16:35.639 --> 00:16:37.620 They are building a McDonald's -style infrastructure 00:16:37.620 --> 00:16:40.320 using 21st century technology, something Ells 00:16:40.320 --> 00:16:42.200 would never have even considered. But before 00:16:42.200 --> 00:16:45.080 this technological future arrived, Ells spent 00:16:45.080 --> 00:16:47.620 years trying to scale his original integrity 00:16:47.620 --> 00:16:50.330 concept. concept into other cuisines. And this 00:16:50.330 --> 00:16:53.570 led to the empire that wasn't. A string of really 00:16:53.570 --> 00:16:56.789 spectacular failed spinoffs. Yes. Five major 00:16:56.789 --> 00:16:59.250 attempts to diversify the menu using the same 00:16:59.250 --> 00:17:02.460 operational DNA and all of them failed. It really 00:17:02.460 --> 00:17:04.819 demonstrates how unique and non -transferable 00:17:04.819 --> 00:17:07.059 the success of the Mission Burrito format truly 00:17:07.059 --> 00:17:10.039 was. What was the first one? The first was Soul 00:17:10.039 --> 00:17:13.460 Daddy in 2011, a soul food concept. It operated 00:17:13.460 --> 00:17:15.940 for only eight weeks across three locations before 00:17:15.940 --> 00:17:18.420 being closed. Eight weeks. That's a staggering 00:17:18.420 --> 00:17:20.640 corporate failure rate. That's not even a test 00:17:20.640 --> 00:17:22.980 run. The failure was so immediate that it just 00:17:22.980 --> 00:17:25.319 indicated a total mismatch between the concept 00:17:25.319 --> 00:17:27.539 and the market, despite all the Chipotle corporate 00:17:27.539 --> 00:17:29.980 backing. Then came the most ambitious attempt, 00:17:30.099 --> 00:17:32.369 right? Shop House. Yes. Shop House Southeast 00:17:32.369 --> 00:17:35.650 Asian Kitchen launched in 2011. This followed 00:17:35.650 --> 00:17:38.269 the exact Chipotle service format, customized 00:17:38.269 --> 00:17:41.049 assembly line construction, and it adhered to 00:17:41.049 --> 00:17:43.089 the food with integrity ethos. What happened? 00:17:43.390 --> 00:17:46.589 It lasted six years, opened 15 locations, but 00:17:46.589 --> 00:17:49.130 the cost, the complexity, and a lack in differentiation 00:17:49.130 --> 00:17:51.769 meant that all 15 locations were closed by March 00:17:51.769 --> 00:17:54.430 2017. They even tried to go head -to -head with 00:17:54.430 --> 00:17:56.990 the classic American fast food template. Burgers. 00:17:57.009 --> 00:18:00.230 It did. Tasty Made was their focused burger concepts 00:18:00.230 --> 00:18:03.470 launched in 2016, offering a simple menu of burgers, 00:18:03.589 --> 00:18:06.319 fries and shakes. And how did that go? They clearly 00:18:06.319 --> 00:18:08.559 hope to capture the market that loves a simple, 00:18:08.680 --> 00:18:11.059 quality burger, much like the successful regional 00:18:11.059 --> 00:18:14.160 chains. But after opening a lone location in 00:18:14.160 --> 00:18:17.859 Ohio, it closed in February 2018. They exited 00:18:17.859 --> 00:18:20.440 the burger space completely. And then there was 00:18:20.440 --> 00:18:22.720 the attempt to enter the highly competitive pizza 00:18:22.720 --> 00:18:25.559 market with Pizzeria Locale starting in 2013. 00:18:25.940 --> 00:18:27.940 This was a fast, casual pizza chain partnership. 00:18:28.099 --> 00:18:30.960 The idea was compelling. Customized, fast -fired 00:18:30.960 --> 00:18:33.259 pizzas made to order. But the pizza industry 00:18:33.259 --> 00:18:35.410 is just cutthroat and very low market. margin. 00:18:35.490 --> 00:18:39.329 By July 2023, Chipotle had completely exited 00:18:39.329 --> 00:18:41.630 the pizza market, closing all remaining locations. 00:18:41.970 --> 00:18:44.849 The failure was so complete that the owners of 00:18:44.849 --> 00:18:47.930 the original full service pizzeria locale, which 00:18:47.930 --> 00:18:50.490 predated the partnership, actually renamed their 00:18:50.490 --> 00:18:53.329 restaurant to Pizzeria Alberico to distance themselves 00:18:53.329 --> 00:18:55.950 from the corporate failure. And the pattern continued 00:18:55.950 --> 00:18:58.710 even under the new management, which shows how 00:18:58.710 --> 00:19:00.910 hard it is to launch anything outside that burrito 00:19:00.910 --> 00:19:04.119 silo. Yeah, for Mesa Fresh Eatery, a California 00:19:04.119 --> 00:19:07.420 -inspired bowls concept was tested in 2023 but 00:19:07.420 --> 00:19:10.519 abandoned a year later in April 2024. So what's 00:19:10.519 --> 00:19:12.539 the big lesson here? The lesson is profound. 00:19:12.819 --> 00:19:15.339 The build -your -own operational template is 00:19:15.339 --> 00:19:17.779 easily copied, but the synergy between speed, 00:19:18.000 --> 00:19:20.819 the perception of health, and the unique, simple 00:19:20.819 --> 00:19:23.279 flavor profile of the original Chipotle ingredients 00:19:23.279 --> 00:19:26.559 is almost non -transferable. The company's success 00:19:26.559 --> 00:19:29.660 remains inextricably linked to one single dominant 00:19:29.660 --> 00:19:31.839 Mission Burrito product line. All right, now 00:19:31.839 --> 00:19:34.299 let's pivot to global growth. For a company that 00:19:34.299 --> 00:19:36.539 operates in the thousands domestically, its international 00:19:36.539 --> 00:19:39.519 expansion was famously slow and cautious for 00:19:39.519 --> 00:19:42.599 many, many years. Historically, yes, the international 00:19:42.599 --> 00:19:45.680 footprint was tiny compared to its U .S. presence. 00:19:46.019 --> 00:19:49.720 By October 2014, which was six years after launching 00:19:49.720 --> 00:19:52.059 their first location in Toronto, they only had 00:19:52.059 --> 00:19:55.099 17 locations outside the United States. Just 00:19:55.099 --> 00:19:58.440 17. Why so slow? Well, they faced significant 00:19:58.440 --> 00:20:01.400 cultural hurdles. Reviewers often noted that 00:20:01.400 --> 00:20:03.960 in Europe, the food was seen as overpriced. And 00:20:03.960 --> 00:20:07.319 in the U .K. specifically, there was an unfamiliarity 00:20:07.319 --> 00:20:09.799 with Mexican food, even as local competitors 00:20:09.799 --> 00:20:12.039 specializing in burritos were opening up at the 00:20:12.039 --> 00:20:14.480 same time. So where were they able to establish 00:20:14.480 --> 00:20:18.259 those early slow footholds? Canada was the starting 00:20:18.259 --> 00:20:21.359 point back in 2008 in Toronto. That market proved 00:20:21.359 --> 00:20:23.980 to be pretty steady, growing to 60 stores by 00:20:23.980 --> 00:20:27.720 September 2025 across Ontario, British Columbia 00:20:27.720 --> 00:20:29.960 and Alberta. And they're using Canada as a test 00:20:29.960 --> 00:20:31.960 market, right? They are. They're using it as 00:20:31.960 --> 00:20:34.220 a testing ground for innovations like the Chipotle, 00:20:34.279 --> 00:20:37.180 which was introduced in Port Coquitlam. It demonstrates 00:20:37.180 --> 00:20:39.579 that global focus on efficiency. And Europe started 00:20:39.579 --> 00:20:41.740 just a couple of years later. Yeah. European 00:20:41.740 --> 00:20:45.400 expansion began in London in May 2010. Then France 00:20:45.400 --> 00:20:48.180 followed in Paris in May 2012 and Germany and 00:20:48.180 --> 00:20:51.599 Frankfurt in 2013. And interestingly, in Paris, 00:20:51.720 --> 00:20:54.920 they built a massive flagship store. The La Defense 00:20:54.920 --> 00:20:57.880 location, opened in 2014, was the largest Chipotle 00:20:57.880 --> 00:21:00.019 in the world at the time. How big? It was over 00:21:00.019 --> 00:21:03.299 7 ,000 square feet, which far exceeds the typical 00:21:03.299 --> 00:21:06.680 2 ,200 to 2 ,500 square feet of a standard location. 00:21:07.059 --> 00:21:10.440 That desire for a huge flagship indicates a belief 00:21:10.440 --> 00:21:13.099 in the market potential. But the reality is that 00:21:13.099 --> 00:21:15.220 the European footprint... remains pretty modest. 00:21:15.359 --> 00:21:18.599 Very modest. As of September 2025, the number 00:21:18.599 --> 00:21:21.039 of European stores is still small, 20 in the 00:21:21.039 --> 00:21:24.200 UK, six in France, and only two in Germany. So 00:21:24.200 --> 00:21:25.900 you contrast this with their goal of doubling 00:21:25.900 --> 00:21:28.140 their overall footprint to 7 ,000 locations. 00:21:28.480 --> 00:21:30.700 Yeah. The old company -owned slow roll strategy 00:21:30.700 --> 00:21:32.640 just couldn't get them there. Not a chance. Which 00:21:32.640 --> 00:21:34.920 leads us to the monumental strategic shift under 00:21:34.920 --> 00:21:37.640 the new leadership, embracing franchising. For 00:21:37.640 --> 00:21:39.759 decades, Chipotle was defined by the fact that 00:21:39.759 --> 00:21:41.880 all U .S. stores were company -owned, ensuring 00:21:41.880 --> 00:21:44.269 maximum control over... quality, and sourcing. 00:21:44.410 --> 00:21:46.750 Now, that is completely out the window for international 00:21:46.750 --> 00:21:49.009 growth. This is perhaps the most significant 00:21:49.009 --> 00:21:51.910 strategic pivot and another direct break from 00:21:51.910 --> 00:21:55.089 the founder's ethos, which prized control over 00:21:55.089 --> 00:21:58.029 speed. Absolutely. Nicole realized that scaling 00:21:58.029 --> 00:22:01.289 to 7000 locations required local knowledge and 00:22:01.289 --> 00:22:04.650 decentralized capital. So in July 2023, they 00:22:04.650 --> 00:22:06.910 signed their first ever franchise deal with the 00:22:06.910 --> 00:22:09.309 Kuwait based Al Shaya group to tackle the Middle 00:22:09.309 --> 00:22:11.970 East. And this franchise model has yielded incredibly 00:22:11.970 --> 00:22:14.890 rapid results compared to that slow six year 00:22:14.890 --> 00:22:17.539 European rollout. The difference is night and 00:22:17.539 --> 00:22:20.259 day. The first franchise location opened in Kuwait 00:22:20.259 --> 00:22:22.940 in April 2024. They followed quickly, opening 00:22:22.940 --> 00:22:26.460 the UAE debut in Dubai in September 2024, and 00:22:26.460 --> 00:22:29.039 then a third UAE location in Abu Dhabi by August 00:22:29.039 --> 00:22:32.960 2025. Katar followed in September 2025. So that 00:22:32.960 --> 00:22:35.140 rapid, successful deployment in markets where 00:22:35.140 --> 00:22:37.539 they have no existing brand recognition proves 00:22:37.539 --> 00:22:40.099 the value of local expertise and franchise capital. 00:22:40.240 --> 00:22:42.640 It does. And that franchising effort is now rapidly 00:22:42.640 --> 00:22:44.539 spreading across the globe. We're to you next. 00:22:44.740 --> 00:22:47.640 In April 2025, they signed a joint venture with 00:22:47.640 --> 00:22:50.339 ALSI, a major player in Latin America, to open 00:22:50.339 --> 00:22:53.420 restaurants in Mexico by early 2026. And that 00:22:53.420 --> 00:22:55.660 has huge potential for expansion across Central 00:22:55.660 --> 00:22:58.359 and South America. And Asia. Most recently, September 00:22:58.359 --> 00:23:01.740 2025, they announced a joint venture with SPC 00:23:01.740 --> 00:23:04.319 Group to break into Eastern Asia, targeting South 00:23:04.319 --> 00:23:08.480 Korea and Singapore in 2026. So this shift from 00:23:08.480 --> 00:23:12.400 painstakingly slow. company -owned stores to 00:23:12.400 --> 00:23:15.819 aggressive franchise global expansion. It shows 00:23:15.819 --> 00:23:18.539 a fundamental commercial confidence in the replicability 00:23:18.539 --> 00:23:21.039 of the operational template, even if they risk 00:23:21.039 --> 00:23:23.740 losing absolute control over the integrity promise. 00:23:23.920 --> 00:23:25.640 That's the trade -off they're making. All right. 00:23:25.660 --> 00:23:27.900 The menu and the food philosophy. This is really 00:23:27.900 --> 00:23:30.160 the sacred ground of the company. Elza's initial 00:23:30.160 --> 00:23:33.440 vision was all about simplicity. Five items. 00:23:33.940 --> 00:23:36.700 Burritos, bowls, tacos, quesadillas, and salads 00:23:36.700 --> 00:23:39.660 characterized as Calmex cuisine. And that simplicity 00:23:39.660 --> 00:23:42.279 was completely intentional. Ells stated back 00:23:42.279 --> 00:23:44.579 in 2007 that it's important to keep the menu 00:23:44.579 --> 00:23:46.559 focused. You can ensure that you do them better 00:23:46.559 --> 00:23:49.079 than anybody else. The simplicity reduces complexity, 00:23:49.380 --> 00:23:51.500 which should, in theory, aid quality control 00:23:51.500 --> 00:23:54.059 and speed. It's a very chef -driven approach 00:23:54.059 --> 00:23:57.019 to menu design. And that concept was supported 00:23:57.019 --> 00:23:59.799 by the operational setup that defined their integrity. 00:23:59.980 --> 00:24:02.759 A commitment to having no freezers, no microwave 00:24:02.759 --> 00:24:05.140 ovens, and no can openers in the restaurants. 00:24:05.420 --> 00:24:08.039 The food was supposed to be prepared fresh, in 00:24:08.039 --> 00:24:10.430 -house. daily. That's correct. Everything is 00:24:10.430 --> 00:24:12.430 prepared freshly with only a few exceptions, 00:24:12.769 --> 00:24:15.730 primarily large batch items like the beans and 00:24:15.730 --> 00:24:18.029 carnitas, which are prepared at a centralized 00:24:18.029 --> 00:24:20.690 kitchen facility in Chicago and then shipped 00:24:20.690 --> 00:24:22.549 out. So this commitment to fresh preparation. 00:24:23.150 --> 00:24:26.029 which involves intense manual labor, is radically 00:24:26.029 --> 00:24:28.569 nonstandard for high -volume fast food operations. 00:24:28.890 --> 00:24:31.450 It became their main brand differentiator, but 00:24:31.450 --> 00:24:34.029 as we'll see, it was also their Achilles heel. 00:24:34.289 --> 00:24:37.109 The menu has evolved slightly, mainly by introducing 00:24:37.109 --> 00:24:39.730 new protein options to keep pace with dietary 00:24:39.730 --> 00:24:42.210 trends. Yeah, we saw the introduction of sofritas, 00:24:42.250 --> 00:24:44.809 their popular tofu -based option, which started 00:24:44.809 --> 00:24:47.630 testing in 2013 and rolled out nationwide in 00:24:47.630 --> 00:24:50.930 2014. They also tested and then pulled a pork 00:24:50.930 --> 00:24:54.190 and chicken chorizo option. 2015 -2017 and a 00:24:54.190 --> 00:24:56.529 limited return in 2018. And more recently. More 00:24:56.529 --> 00:24:58.730 recently, in response to health and vegan trends, 00:24:58.970 --> 00:25:02.289 they tested cauliflower rice in 2020 and a plant 00:25:02.289 --> 00:25:05.650 -based chorizo made with pea protein, which was 00:25:05.650 --> 00:25:09.289 a limited -time national item in early 2022 before 00:25:09.289 --> 00:25:12.950 being removed. These iterations show them trying 00:25:12.950 --> 00:25:15.690 to expand the menu without betraying that core 00:25:15.690 --> 00:25:18.700 simplicity. But despite the focus on fresh and 00:25:18.700 --> 00:25:21.200 simple ingredients, the nutritional facts of 00:25:21.200 --> 00:25:23.980 the massive portions often run counter to the 00:25:23.980 --> 00:25:26.690 perception of health. That's the major nutritional 00:25:26.690 --> 00:25:29.849 contradiction. Back in 2003, early in their growth, 00:25:30.089 --> 00:25:32.069 the Center for Science and the Public Interest 00:25:32.069 --> 00:25:34.710 released a report that highlighted a huge problem. 00:25:34.970 --> 00:25:37.789 Which was? A typical Chipotle burrito could easily 00:25:37.789 --> 00:25:40.769 exceed 1 ,000 calories, which is nearly two meals 00:25:40.769 --> 00:25:44.029 worth of food for many adults. MSNBCHealth .com 00:25:44.029 --> 00:25:46.190 later listed them as one of the 20 worst foods 00:25:46.190 --> 00:25:48.430 in America because of that high calorie and sodium 00:25:48.430 --> 00:25:50.650 content. When you compare it specifically to 00:25:50.650 --> 00:25:53.619 traditional fast food. Like a Big Mac, the burrito 00:25:53.619 --> 00:25:56.180 wasn't always the healthier choice. No, the comparison 00:25:56.180 --> 00:25:58.960 was startling. Analysts found the typical burrito 00:25:58.960 --> 00:26:01.440 contained more total fat, cholesterol, carbohydrates, 00:26:01.559 --> 00:26:03.900 and sodium than a standard Big Mac. But what 00:26:03.900 --> 00:26:06.059 about the good stuff? Well, to give credit where 00:26:06.059 --> 00:26:08.339 it's due, the burrito also packed significantly 00:26:08.339 --> 00:26:11.460 more protein and dietary fiber. thanks to the 00:26:11.460 --> 00:26:14.099 beans and vegetables. And they have made efforts 00:26:14.099 --> 00:26:16.259 to improve accessibility for different diets. 00:26:16.500 --> 00:26:20.119 For example, in late 2013, they removed bacon 00:26:20.119 --> 00:26:22.460 from their pinto beans, making them completely 00:26:22.460 --> 00:26:25.460 vegetarian and vegan -friendly. Okay, now we 00:26:25.460 --> 00:26:27.619 arrive at the centerpiece of the brand's self 00:26:27.619 --> 00:26:31.339 -identity, food with integrity. This is the foundational 00:26:31.339 --> 00:26:34.799 promise Steve Ells built the company on, championing 00:26:34.799 --> 00:26:37.299 ethical sourcing. but it's also the source of 00:26:37.299 --> 00:26:39.559 the deepest corporate conflicts. The commitment 00:26:39.559 --> 00:26:41.619 really started with the sourcing of meat, which 00:26:41.619 --> 00:26:44.799 was driven by Elsa's personal shock. In 1999, 00:26:45.079 --> 00:26:46.880 while he was seeking ways to improve the taste 00:26:46.880 --> 00:26:49.700 of their carnitas, he visited these Concentrated 00:26:49.700 --> 00:26:53.339 Animal Feeding Operations, or CAFOs. CAFOs. Yeah, 00:26:53.420 --> 00:26:56.140 where most industrial meat is raised. He described 00:26:56.140 --> 00:26:58.819 these large industrial facilities as horrific. 00:26:59.019 --> 00:27:01.960 And we should probably define KFOs clearly for 00:27:01.960 --> 00:27:05.059 you, the listener. They are essentially highly 00:27:05.059 --> 00:27:08.500 intensive livestock facilities designed to maximize 00:27:08.500 --> 00:27:11.460 volume and speed of production. And they're often 00:27:11.460 --> 00:27:14.099 criticized for their environmental impact and 00:27:14.099 --> 00:27:17.359 animal welfare standards. Exactly. They are the 00:27:17.359 --> 00:27:20.180 industrial scale antithesis of ethical farming. 00:27:20.420 --> 00:27:23.220 And Ells' reaction led him to start sourcing 00:27:23.220 --> 00:27:26.259 from open range pork suppliers instead. And what 00:27:26.259 --> 00:27:28.769 was the business impact of that? Well, this decision 00:27:28.769 --> 00:27:30.990 increased the cost of their pork, but ironically, 00:27:31.230 --> 00:27:33.950 it also increased the sales of the carnitas burritos, 00:27:34.150 --> 00:27:36.089 demonstrating that customers were willing to 00:27:36.089 --> 00:27:38.829 pay that premium for the integrity promise. Ells 00:27:38.829 --> 00:27:40.390 even took this commitment into the political 00:27:40.390 --> 00:27:43.130 realm. He did. He testified before Congress in 00:27:43.130 --> 00:27:45.289 support of the preservation of antibiotics for 00:27:45.289 --> 00:27:47.470 Medical Treatment Act, showing a willingness 00:27:47.470 --> 00:27:50.009 to advocate for industry -wide change regarding 00:27:50.009 --> 00:27:52.259 livestock care. And the commitment reached its 00:27:52.259 --> 00:27:54.920 logical peak in 2015 when Chipotle stopped using 00:27:54.920 --> 00:27:57.579 genetically modified corn and soybeans. Right. 00:27:57.900 --> 00:28:00.720 Proudly claiming to be the first nationwide restaurant 00:28:00.720 --> 00:28:04.259 chain to cook completely GMO free food. However, 00:28:04.440 --> 00:28:07.220 as is often the case with these purity claims 00:28:07.220 --> 00:28:09.839 at scale, it led to immediate legal trouble. 00:28:10.200 --> 00:28:13.519 A lawsuit. In 2019, Chipotle paid a substantial 00:28:13.519 --> 00:28:16.799 $6 .5 million to settle a class action lawsuit. 00:28:17.079 --> 00:28:18.799 And what was the substance of that lawsuit? What 00:28:18.799 --> 00:28:21.339 was the claim? The plaintiffs argued that while 00:28:21.339 --> 00:28:23.359 the food prepared in the restaurants might not 00:28:23.359 --> 00:28:26.019 contain GMO ingredients, the company's claim 00:28:26.019 --> 00:28:29.220 of being completely GMO free was misleading because 00:28:29.220 --> 00:28:31.400 the livestock used to produce the meat and dairy 00:28:31.400 --> 00:28:34.319 products had likely consumed GMO animal feed. 00:28:34.500 --> 00:28:36.880 So it's a supply chain issue. It highlights the 00:28:36.880 --> 00:28:39.200 immense, almost impossible difficulty of ensuring 00:28:39.200 --> 00:28:42.200 a completely pure supply chain when you operate 00:28:42.200 --> 00:28:45.039 at this massive scale. The food might be non 00:28:45.039 --> 00:28:47.160 -GMO, but the inputs to the supply chain are 00:28:47.160 --> 00:28:49.390 often not. And we see this integrity failure 00:28:49.390 --> 00:28:52.450 persist with animal welfare. even with established 00:28:52.450 --> 00:28:54.970 internal commitments. The sources confirm this. 00:28:55.089 --> 00:28:57.910 In 2017, Chipotle met a public commitment to 00:28:57.910 --> 00:29:00.069 transition away from bird spread to maximize 00:29:00.069 --> 00:29:02.609 growth at the expense of their well -being, a 00:29:02.609 --> 00:29:05.210 major ethical concern in industrial chicken farming. 00:29:05.529 --> 00:29:07.849 But did they follow through? Well, investigations 00:29:07.849 --> 00:29:11.230 conducted by animal welfare groups in 2024 indicated 00:29:11.230 --> 00:29:13.950 that the company was failing to meet these established 00:29:13.950 --> 00:29:16.589 welfare standards. The gap between the press 00:29:16.589 --> 00:29:18.869 release commitment and the operational reality 00:29:18.869 --> 00:29:22.150 just continues to surface. Another massive integrity 00:29:22.150 --> 00:29:24.650 battle that played out very publicly involved 00:29:24.650 --> 00:29:28.329 the Coalition of Immokalee Workers, or CIW, over 00:29:28.329 --> 00:29:31.569 tomatoes. This wasn't about animal welfare or 00:29:31.569 --> 00:29:34.950 GMOs, but about human labor conditions. This 00:29:34.950 --> 00:29:37.910 was a six -year public relations nightmare for 00:29:37.910 --> 00:29:42.049 the brand, lasting from 2006 to 2012. The CIW 00:29:42.049 --> 00:29:44.730 protested Chipotle, demanding that the company 00:29:44.730 --> 00:29:47.190 sign the Fair Food Agreement. And what did that 00:29:47.190 --> 00:29:49.559 agreement entail? It was simple. It committed 00:29:49.559 --> 00:29:51.940 Chipotle to paying a penny per pound premium 00:29:51.940 --> 00:29:54.259 on Florida tomatoes, which would be directed 00:29:54.259 --> 00:29:56.559 toward boosting the wages of the farm laborers. 00:29:56.660 --> 00:29:59.220 It also committed them to only buying from growers 00:29:59.220 --> 00:30:01.700 who complied with the Fair Food Code of Conduct. 00:30:01.759 --> 00:30:04.619 And Ells initially resisted this agreement, framing 00:30:04.619 --> 00:30:07.160 it as an issue of control. That was his public 00:30:07.160 --> 00:30:10.000 line. He argued the CIW wanted them to sign a 00:30:10.000 --> 00:30:11.980 contract that would allow the organization to 00:30:11.980 --> 00:30:15.059 control Chipotle's decisions regarding food in 00:30:15.059 --> 00:30:17.809 the future. But the ethical and public relations 00:30:17.809 --> 00:30:20.829 stakes were huge. Was their integrity philosophy 00:30:20.829 --> 00:30:22.970 genuine if they fought against better conditions 00:30:22.970 --> 00:30:25.029 for the laborers who harvested their ingredients? 00:30:25.349 --> 00:30:28.190 There was significant external pressure. Huge 00:30:28.190 --> 00:30:30.329 pressure, including an open letter of support 00:30:30.329 --> 00:30:33.210 for the CIW signed by the creators of the documentary 00:30:33.210 --> 00:30:36.190 Food, Inc. And eventually, that public pressure 00:30:36.190 --> 00:30:39.210 proved too great to sustain the fight. In October 00:30:39.210 --> 00:30:42.009 2012, Chipotle relented and signed the agreement, 00:30:42.210 --> 00:30:44.930 becoming the 11th major company to join the Farrah 00:30:44.930 --> 00:30:47.609 Food Program. It was a significant victory for 00:30:47.609 --> 00:30:49.869 labor and a major course correction for Chipotle, 00:30:50.089 --> 00:30:52.569 forcing their labor practices to align, at least 00:30:52.569 --> 00:30:54.869 partially, with their ethical sourcing rhetoric. 00:30:55.470 --> 00:30:57.450 OK, finally, let's bring this conflict right 00:30:57.450 --> 00:31:00.809 down to the counter level. Portion size irregularities. 00:31:00.849 --> 00:31:03.269 This isn't about ethics or pathogens, but about 00:31:03.269 --> 00:31:06.049 operational consistency. And it has become a 00:31:06.049 --> 00:31:08.869 viral topic on social media platforms like TikTok. 00:31:09.309 --> 00:31:12.150 This is a perfect example of how the manual fresh 00:31:12.150 --> 00:31:14.390 prep model, the one that guarantees quality, 00:31:14.829 --> 00:31:18.589 also guarantees inconsistency. Because the company 00:31:18.589 --> 00:31:21.150 refuses to use strict scoops or automation for 00:31:21.150 --> 00:31:24.569 many ingredients, it relies entirely on the individual 00:31:24.569 --> 00:31:27.250 employee's judgment and mood. Right. So when 00:31:27.250 --> 00:31:29.869 volume is high, there is a natural incentive 00:31:29.869 --> 00:31:32.630 to move faster, which often means skimping on 00:31:32.630 --> 00:31:35.789 portions to save time and cost. So essentially, 00:31:35.970 --> 00:31:39.250 when I pay $15 for a bowl, whether I get a snack 00:31:39.250 --> 00:31:42.450 or enough food for two meals is entirely dependent 00:31:42.450 --> 00:31:44.670 on whether my server had a good morning. That's 00:31:44.670 --> 00:31:47.130 the complete antithesis of a scaled industrial 00:31:47.130 --> 00:31:49.769 operation. And this is exactly what an independent 00:31:49.769 --> 00:31:53.269 analysis confirmed. In June 2024, a Wells Fargo 00:31:53.269 --> 00:31:55.309 analyst decided to put these customer claims 00:31:55.309 --> 00:31:57.690 to the test. What did they do? They ordered 75 00:31:57.690 --> 00:32:00.710 identical items across eight New York City locations, 00:32:00.849 --> 00:32:03.250 and then they weighed them. The variance was 00:32:03.250 --> 00:32:05.049 shocking. What were the extremes? The portion 00:32:05.049 --> 00:32:08.109 sizes ranged dramatically, from a measly 14 ounces 00:32:08.109 --> 00:32:11.269 to a massive 27 ounces. The median weight was 00:32:11.269 --> 00:32:14.789 21 .5 ounces. So that scientifically validated 00:32:14.789 --> 00:32:17.710 the viral customer frustration. It did. When 00:32:17.710 --> 00:32:19.670 you rely on employees to eyeball ingredients 00:32:19.670 --> 00:32:22.549 quickly, you introduce an unacceptable level 00:32:22.549 --> 00:32:25.750 of operational variability. It frustrates customers, 00:32:26.029 --> 00:32:28.789 it creates food waste, and it completely undermines 00:32:28.789 --> 00:32:30.869 the professionalism the brand attempts to project. 00:32:31.480 --> 00:32:34.079 And this manual failure point is precisely why 00:32:34.079 --> 00:32:37.269 the new CEO, Nickel, is now so aggressively pursuing 00:32:37.269 --> 00:32:39.309 the AutoCado and other automation solutions. 00:32:39.750 --> 00:32:42.829 It is. So the issues with consistency, they extended 00:32:42.829 --> 00:32:45.650 catastrophically into food safety. The sheer 00:32:45.650 --> 00:32:47.930 number, the variety, and the frequency of the 00:32:47.930 --> 00:32:50.369 food safety crises Chipotle endured suggest that 00:32:50.369 --> 00:32:52.369 the problem wasn't a single bad ingredient or 00:32:52.369 --> 00:32:55.710 one sick employee, but a systemic failure rooted 00:32:55.710 --> 00:32:58.190 in their decentralized, high -prep operational 00:32:58.190 --> 00:33:01.369 model. And they faced nearly every major pathogen, 00:33:01.490 --> 00:33:04.470 hepatitis A, norovirus, E. coli, salmonella. 00:33:05.000 --> 00:33:07.880 and clostridium perfringens. Critics have argued 00:33:07.880 --> 00:33:09.460 that this points to a fundamental flaw in the 00:33:09.460 --> 00:33:11.519 way they handle food, not just isolated incidents. 00:33:11.839 --> 00:33:14.039 That's right. A former professor of food safety 00:33:14.039 --> 00:33:16.279 at Kansas State University openly criticized 00:33:16.279 --> 00:33:18.200 Chipotle for essentially blurring the lines, 00:33:18.339 --> 00:33:21.059 confusing the public by equating naturally raised 00:33:21.059 --> 00:33:24.539 or organic sourcing with food safety. Which are 00:33:24.539 --> 00:33:26.940 two totally separate concepts. Entirely separate. 00:33:27.099 --> 00:33:29.759 In fact, Chipotle's own annual reports in 2013 00:33:29.759 --> 00:33:33.059 and 2014 publicly acknowledged this higher risk 00:33:33.059 --> 00:33:35.519 factor. They stated, and I'm quoting here, they 00:33:35.519 --> 00:33:37.940 may be at a higher risk for foodborne illness 00:33:37.940 --> 00:33:41.079 outbreaks due to our use of fresh produce and 00:33:41.079 --> 00:33:43.599 meats rather than frozen and our reliance on 00:33:43.599 --> 00:33:45.740 employees cooking with traditional methods rather 00:33:45.740 --> 00:33:48.359 than automation. That is an astonishing corporate 00:33:48.359 --> 00:33:50.609 admission. They knew their foundational philosophy 00:33:50.609 --> 00:33:53.529 was a vulnerability. So let's detail the timeline 00:33:53.529 --> 00:33:56.069 of the crises because the severity and frequency 00:33:56.069 --> 00:33:59.529 were just unprecedented for a high -profile modern 00:33:59.529 --> 00:34:02.190 food chain. The decade of crises started pretty 00:34:02.190 --> 00:34:04.750 early. In March and April of 2008, there was 00:34:04.750 --> 00:34:07.450 a hepatitis A outbreak in San Diego that infected 00:34:07.450 --> 00:34:10.730 22 customers. Later that same month, a separate 00:34:10.730 --> 00:34:13.650 norovirus outbreak in Kent, Ohio, sickened over 00:34:13.650 --> 00:34:16.570 400 people, largely Kent State students. And 00:34:16.570 --> 00:34:18.869 what were the causes? In both cases, the contamination 00:34:18.869 --> 00:34:21.269 was either untraceable or linked back to sick 00:34:21.269 --> 00:34:23.130 employees who should not have been working. And 00:34:23.130 --> 00:34:25.670 the situation became truly catastrophic in 2015, 00:34:26.050 --> 00:34:28.769 which many sources referred to as the year of 00:34:28.769 --> 00:34:31.070 the outbreaks. It was a total nightmare year 00:34:31.070 --> 00:34:33.269 for them. It started quietly with the little 00:34:33.269 --> 00:34:39.210 -known July 2015 E. coli 0157 abort H7 outbreak 00:34:39.210 --> 00:34:42.289 in Seattle affecting five people, which health 00:34:42.289 --> 00:34:44.150 officials never traced to a specific source. 00:34:44.510 --> 00:34:47.630 Then came the August 2015 norovirus outbreak 00:34:47.630 --> 00:34:49.730 in Simi Valley, California, which ultimately 00:34:49.730 --> 00:34:53.630 sickened 207 customers and employees. And this 00:34:53.630 --> 00:34:56.010 incident was pivotal because of the legal fallout. 00:34:56.110 --> 00:34:57.690 This is the event that triggered the federal 00:34:57.690 --> 00:35:27.550 criminal investigation. Two days. And the crisis 00:35:27.550 --> 00:35:29.949 continued. that same month? Yes. Simultaneously, 00:35:30.010 --> 00:35:32.849 in August 2015, a completely separate Salmonella 00:35:32.849 --> 00:35:35.170 -Newport outbreak hit the Minnesota market, affecting 00:35:35.170 --> 00:35:38.429 64 people across 22 different locations. And 00:35:38.429 --> 00:35:40.309 did they find the source on that one? Health 00:35:40.309 --> 00:35:42.630 officials traced this specific incident back 00:35:42.630 --> 00:35:46.090 to contaminated Mexican tomatoes. Then came the 00:35:46.090 --> 00:35:49.349 devastating multi -state October -November 2015 00:35:49.349 --> 00:35:52.949 major E. coli crisis. This is the outbreak that 00:35:52.949 --> 00:35:56.590 forced mass closures. Right. The Stek 026 strain 00:35:56.590 --> 00:35:58.900 outbreak began in in Oregon and Washington state, 00:35:59.079 --> 00:36:03.059 forcing Chipotle to proactively close 43 stores. 00:36:03.480 --> 00:36:07.079 The pathogen expanded rapidly to 11 states, infecting 00:36:07.079 --> 00:36:10.639 55 people, with 21 requiring hospitalization. 00:36:10.719 --> 00:36:13.059 And the source? And here's a critical administrative 00:36:13.059 --> 00:36:16.119 tale. The source of the outbreak remained untraceable, 00:36:16.199 --> 00:36:18.400 and health authorities specifically noted that 00:36:18.400 --> 00:36:20.840 Chipotle's decentralized and poor record -keeping 00:36:20.840 --> 00:36:23.320 actively hindered their investigation into the 00:36:23.320 --> 00:36:25.900 supply chain. This absolutely hammered the share 00:36:25.900 --> 00:36:28.519 price. And the final insult in 2015 was the December 00:36:28.519 --> 00:36:30.940 norovirus outbreak in a major college market. 00:36:31.159 --> 00:36:34.539 In Boston, an outbreak sickened 141 people, primarily 00:36:34.539 --> 00:36:37.239 Boston college students. Health inspectors traced 00:36:37.239 --> 00:36:39.440 the cause to a sick employee, and the manager 00:36:39.440 --> 00:36:41.710 was fired for knowingly allowing the ill worker 00:36:41.710 --> 00:36:44.010 to complete their shift. This required closing 00:36:44.010 --> 00:36:46.869 the location for health violations. The speed 00:36:46.869 --> 00:36:49.050 and variety of these concurrent crises really 00:36:49.050 --> 00:36:51.130 showed the systemic problem was company -wide. 00:36:51.349 --> 00:36:53.769 So what was the corporate response to this relentless 00:36:53.769 --> 00:36:57.559 public health disaster? In February 2016, they 00:36:57.559 --> 00:37:00.820 undertook radical, unprecedented and very expensive 00:37:00.820 --> 00:37:04.800 steps. Chipotle closed all 2000 plus U .S. eateries 00:37:04.800 --> 00:37:08.019 for a few hours for a national mandatory all 00:37:08.019 --> 00:37:10.559 staff food safety meeting. And they made changes. 00:37:10.739 --> 00:37:13.539 Big changes. They hired a new head of food safety 00:37:13.539 --> 00:37:17.079 and implemented new stringent mandates, handwashing 00:37:17.079 --> 00:37:19.840 every half hour. And two employees must verify 00:37:19.840 --> 00:37:22.280 that high risk produce like onions, jalapenos 00:37:22.280 --> 00:37:25.449 and avocados are immersed in hot water. for five 00:37:25.449 --> 00:37:27.829 seconds to kill surface germs. And critically, 00:37:27.929 --> 00:37:29.789 they began implementing industrial processing 00:37:29.789 --> 00:37:32.550 to reduce risk, which directly conflicted with 00:37:32.550 --> 00:37:34.590 the founder's ethos. This is a critical moment. 00:37:35.030 --> 00:37:37.269 They implemented something called pascalization 00:37:37.269 --> 00:37:40.010 for some ingredients. Now, for you, the listener, 00:37:40.130 --> 00:37:42.840 we should clarify what that means. Pascalization, 00:37:43.139 --> 00:37:45.400 or high pressure processing, is an industrial 00:37:45.400 --> 00:37:48.079 technique where food is placed under extremely 00:37:48.079 --> 00:37:51.559 high pressure, up to 87 ,000 pounds per square 00:37:51.559 --> 00:37:55.460 inch, to kill pathogens like E. coli and salmonella. 00:37:55.719 --> 00:37:58.300 It essentially pasteurizes the fresh ingredients 00:37:58.300 --> 00:38:00.760 without using heat. So this is an expensive, 00:38:00.900 --> 00:38:03.519 high -tech industrial process, the exact opposite 00:38:03.519 --> 00:38:07.260 of the no -can openers, no microwaves, chef -driven 00:38:07.260 --> 00:38:09.840 ideal. Absolutely. They were outsourcing the 00:38:09.840 --> 00:38:12.000 risk of the fresh prep model. They realized they 00:38:12.000 --> 00:38:14.059 couldn't guarantee safety with 2 ,000 separate 00:38:14.059 --> 00:38:16.400 kitchens handling everything manually, so they 00:38:16.400 --> 00:38:18.760 began relying on industrial partners to pre -treat 00:38:18.760 --> 00:38:20.780 ingredients before they even arrived at the store. 00:38:20.960 --> 00:38:23.219 But despite those massive expensive changes, 00:38:23.579 --> 00:38:26.139 the systemic issues resurfaced. They did. In 00:38:26.139 --> 00:38:29.639 July 2017, a norovirus outbreak in Virginia sickened 00:38:29.639 --> 00:38:33.119 over 130 people. Again, officials blamed lax, 00:38:33.119 --> 00:38:35.159 sick policy enforcement and a sick employee. 00:38:35.340 --> 00:38:37.940 But the worst incident yet came in July 2018. 00:38:38.320 --> 00:38:40.960 A clostridium perfringens outbreak in Powell, 00:38:41.119 --> 00:38:44.619 Ohio, affected over 700 people. Public health 00:38:44.619 --> 00:38:47.219 officials characterized it as the worst incident 00:38:47.219 --> 00:38:49.920 traced to a single restaurant location in the 00:38:49.920 --> 00:38:52.800 company's history. This was the moment that truly 00:38:52.800 --> 00:38:55.380 solidified the need for the technological solutions 00:38:55.380 --> 00:38:58.630 we discussed earlier, like AutoCado. And beyond 00:38:58.630 --> 00:39:00.829 food safety, the company also suffered major 00:39:00.829 --> 00:39:03.409 data security failures, which reminds us that 00:39:03.409 --> 00:39:05.869 any modern chain is also a technology company. 00:39:06.269 --> 00:39:09.289 Yeah, the major incident was the 2017 data breach. 00:39:09.510 --> 00:39:12.349 Their point of sale system, where customers swiped 00:39:12.349 --> 00:39:14.849 their cards, was compromised for three weeks, 00:39:14.949 --> 00:39:17.329 from late March to mid -April. How widespread 00:39:17.329 --> 00:39:20.530 was it? It affected 2 ,250 restaurants across 00:39:20.530 --> 00:39:23.550 47 states and Canada, potentially compromising 00:39:23.550 --> 00:39:25.429 hundreds of thousands of customer credit and 00:39:25.429 --> 00:39:27.869 debit card accounts. This led to a class action 00:39:27.869 --> 00:39:30.570 lawsuit from credit unions. And even after pushing 00:39:30.570 --> 00:39:32.909 customers toward their mobile app, security issues 00:39:32.909 --> 00:39:35.929 followed them. In 2019, customers reported their 00:39:35.929 --> 00:39:38.349 mobile ordering accounts had been hacked, leading 00:39:38.349 --> 00:39:41.369 to fraudulent charges. Chipotle attempted to 00:39:41.369 --> 00:39:43.429 blame customers for using unsecured passwords, 00:39:43.769 --> 00:39:45.989 but many countered that the issue pointed to 00:39:45.989 --> 00:39:48.590 a server -side vulnerability, indicating that 00:39:48.590 --> 00:39:51.469 their digital security infrastructure also struggled 00:39:51.469 --> 00:39:53.849 to keep pace with their growth. Finally, let's 00:39:53.849 --> 00:39:55.969 address the labor and legal issues that compound 00:39:55.969 --> 00:39:58.429 this internal conflict of the Integrity brand. 00:39:58.880 --> 00:40:01.179 It shows operational managers cutting corners 00:40:01.179 --> 00:40:04.199 at the expense of basic employee rights. The 00:40:04.199 --> 00:40:07.079 legal consequences have been severe. In January 00:40:07.079 --> 00:40:10.320 2020, Massachusetts fined the company $1 .3 million 00:40:10.320 --> 00:40:14.500 for a staggering 13 ,000 child labor violations. 00:40:14.900 --> 00:40:18.440 13 ,000. That huge number indicates a systemic 00:40:18.440 --> 00:40:21.300 failure of management to follow basic labor law 00:40:21.300 --> 00:40:23.739 and scheduling regulations across multiple locations. 00:40:24.039 --> 00:40:26.260 It does. And the strain on employees naturally 00:40:26.260 --> 00:40:28.659 led to attempts at unionization, challenging 00:40:28.659 --> 00:40:30.760 the corporate culture directly. And how did the 00:40:30.760 --> 00:40:33.239 company respond? We saw significant corporate 00:40:33.239 --> 00:40:36.579 pushback against union attempts. In July 2022, 00:40:37.079 --> 00:40:39.019 a store in Agresta, Maine, that was attempting 00:40:39.019 --> 00:40:41.780 to unionize was closed by Chipotle, ostensibly 00:40:41.780 --> 00:40:45.460 citing staffing difficulties. The NLRB, the National 00:40:45.460 --> 00:40:48.019 Labor Relations Board, later issued a complaint 00:40:48.019 --> 00:40:50.780 accusing Chipotle of illegally closing the store 00:40:50.780 --> 00:40:53.159 and blackballing those employees. But despite 00:40:53.159 --> 00:40:56.079 the corporate resistance, we saw a landmark victory 00:40:56.079 --> 00:41:00.260 for labor. Yes. In August 2022, a Michigan restaurant 00:41:00.260 --> 00:41:02.519 successfully voted to unionize with the International 00:41:02.519 --> 00:41:05.380 Brotherhood of Teamsters. This marked the chain's 00:41:05.380 --> 00:41:07.800 first unionized location, and it really underscores 00:41:07.800 --> 00:41:10.500 the deep strain and dissatisfaction felt by workers 00:41:10.500 --> 00:41:12.519 trying to operate within that pressurized, high 00:41:12.519 --> 00:41:15.099 prep, high volume environment that Chipotle demands. 00:41:15.420 --> 00:41:18.079 So the operational failures, the safety crises, 00:41:18.260 --> 00:41:20.440 the legal settlements, they all paint a picture 00:41:20.440 --> 00:41:23.400 of a company just struggling to reconcile its 00:41:23.400 --> 00:41:26.260 high integrity promise. with the reality of decentralized 00:41:26.260 --> 00:41:30.019 high -speed execution. So what does this all 00:41:30.019 --> 00:41:32.659 mean for you, the consumer, and for the future 00:41:32.659 --> 00:41:36.010 of the fast casual category? We've traced the 00:41:36.010 --> 00:41:38.670 brilliant genius of Steve Ells' initial, simple 00:41:38.670 --> 00:41:41.469 concept, fresh ingredients, customized assembly, 00:41:41.650 --> 00:41:44.210 and the massive financial lift McDonald's provided 00:41:44.210 --> 00:41:47.070 that allowed the brand to scale nationally. But 00:41:47.070 --> 00:41:48.849 once separated from that corporate structure, 00:41:49.010 --> 00:41:50.769 the company continuously struggled to maintain 00:41:50.769 --> 00:41:53.969 operational consistency. That inability to standardize 00:41:53.969 --> 00:41:55.969 led to everything from portion sizes varying 00:41:55.969 --> 00:41:58.690 by over 13 ounces between restaurants, to food 00:41:58.690 --> 00:42:00.489 safety crises that affected hundreds of people 00:42:00.489 --> 00:42:02.809 across multiple states, and forced the company 00:42:02.809 --> 00:42:05.349 to adopt expensive industrial processes like 00:42:05.349 --> 00:42:08.190 Pascalization. And the current leadership, acknowledging 00:42:08.190 --> 00:42:10.550 that the founder's ethos was just too vulnerable 00:42:10.550 --> 00:42:13.309 for a publicly traded hyper growth company, is 00:42:13.309 --> 00:42:16.010 aggressively embracing commercialism and technology. 00:42:16.429 --> 00:42:18.909 They are pushing hard toward massive automation 00:42:18.909 --> 00:42:21.789 with the AutoCado, testing drone delivery via 00:42:21.789 --> 00:42:24.429 Zipline, and radically shifting toward rapid 00:42:24.429 --> 00:42:27.150 global franchising with partners like the Alshaya 00:42:27.150 --> 00:42:57.369 Group. So we leave you with a question. that 00:42:57.369 --> 00:42:59.650 will determine the next decade of this global 00:42:59.650 --> 00:43:03.050 empire. The new goal is immensely ambitious, 00:43:03.389 --> 00:43:06.730 doubling the footprint to 7 ,000 locations globally, 00:43:06.929 --> 00:43:09.550 relying heavily on new international franchise 00:43:09.550 --> 00:43:12.730 partners, and domestically, targeting smaller 00:43:12.730 --> 00:43:15.960 untapped markets. Given the historic difficulties 00:43:15.960 --> 00:43:18.219 they faced in maintaining quality control and 00:43:18.219 --> 00:43:20.619 safety, even in markets where they owned and 00:43:20.619 --> 00:43:23.099 operated every single store, I mean, you have 00:43:23.099 --> 00:43:25.059 to remember the 700 -person outbreak in Ohio 00:43:25.059 --> 00:43:27.840 or the major E. coli crisis with untraceable 00:43:27.840 --> 00:43:30.519 sources. How will this unprecedented scaling 00:43:30.519 --> 00:43:33.219 effort, driven by new leadership and increasing 00:43:33.219 --> 00:43:36.179 reliance on automation and franchising, impact 00:43:36.179 --> 00:43:38.219 the company's ability to uphold its original 00:43:38.219 --> 00:43:40.260 high -integrity mission? Will automation and 00:43:40.260 --> 00:43:42.460 franchising prove to be the only viable mechanism 00:43:42.460 --> 00:43:44.730 to sustain the company? even if it dilutes the 00:43:44.730 --> 00:43:46.929 very founding philosophy that made it a powerhouse 00:43:46.929 --> 00:43:49.289 in the first place. That's the tension you, the 00:43:49.289 --> 00:43:51.250 informed consumer and investor, will be watching 00:43:51.250 --> 00:43:53.429 closely in the coming years. Thank you for joining 00:43:53.429 --> 00:43:54.289 us for the deep dive.