Fast-casual restaurateur Chipotle Mexican Grill, Inc. (NYSE:CMG) has delivered an 18-bagger return since 2006. What’s more, this incredibly delicious return has been backed by sustained growth over that period. That said, as desirable as it sounds, you should always look beyond the returns — and focus on how it sustains its hiring of good people to run its growing business. With it, you may just get that vital clue you need.
High Growth of Slow-Cooked Food
The table below captures the growth that Chipotle Mexican Grill, Inc. (NYSE:CMG) has experienced since 2006:
|Earnings Per Share||$0.66||$8.75||1226%|
|Number of Restaurants||489||1410||188%|
In order to sustain its revenue growth, Chipotle Mexican Grill, Inc. (NYSE:CMG) has had to increase its employee count by almost three times. The graph displays an equally sustained pace for both.
Source: SEC Filing and Annual Report
Enter Packard’s Law
The need for this sustained balance of growth and hiring new employees is not new. The essence of this is well captured by author Jim Collins as Packard’s Law, which is describedbelow:
“… no company can become or remain great if it allows its growth rate in revenues to exceed its growth in getting the right people in a sustainable way”
So, how did Chipotle Mexican Grill, Inc. (NYSE:CMG) sustain its pace of hiring of good people to support its business needs and growth? We should first start with its business needs.
Chipotle’s Business: Simple, But Not Easy
To understand Chipotle’s business needs, you can start with its daily menu. At first glance, it looks simple, with only about 17 different menu options. However, the execution of its menu is not as simple as it looks. As Chipotle’s Chief Culinary Manager Nate Appleman explains, unlike your typical fast-food restaurant, Chipotle Mexican Grill, Inc. (NYSE:CMG) does not cook according to a formula or a recipe. Instead, it cooks by the ingredients it sources. This approach has its complexities:
- Chipotle is increasingly sourcing its ingredients locally for freshness, and the source of its ingredients changes constantly.
- The preparation of Chipotle’s menu options is continually customized to suit the changes in local ingredients.
- This continually customized preparation has to be done at a scale of 1,410 restaurants on a daily basis.
While the approach is complex, its cook-by-ingredient approach gives Chipotle the advantage in freshness and flavor, which keeps customers coming back. But it also means that the Chipotle Mexican Grill, Inc. (NYSE:CMG) needs 1,410 teams of high performers to execute this plan on a daily basis.
This is where Chipotle’s Restaurateur Program is key.