5 ms·

Chipotle: The Definitive Oral History

116 points by tim_sw 12y ago

patio11 12y ago
I had a Chipotle burrito once on, if I recall correctly, a trip to Denver with the college debate team. I liked it so much that I put the first $2k of BCC's profits (2006 and early 2007) into Chipotle shares. Then I sat on them. This was pure, unadulterated good luck, but the present value of those shares approaches that of BCC as a freestanding business. Fun story: back in the day, Chipotle had two share classes: CMG.A and CMG.B. The B shares were what McDonalds had originally gotten, but they could be bought and sold on the open market -- if you knew how to ask your broker for them. They had no intrinsic reasons to be less valuable than A shares -- they had 5x the voting rights but were otherwise identical. And they traded at a 10% discount to A shares for over a year, because Chipotle was growing quickly, people were logging into their discount brokerage to buy CMG, and their brokerages were giving them CMG.A. After quite a bit of headscratching about this, I figured out the correct series of incantations to get my discount brokerage to give me the B shares instead. Two years later, larger investors convinced the board to approve converting B shares into A shares on a 1:1 basis. Instant 10% ROI kicker if you had been holding them. (In a company which wasn't growing like wildfire you would have been able to sell CMG.A and buy CMG.B to arbitrage this price difference away, but apparently demand for shorting CMG.A was so high that doing this in quantity was difficult.)
- thissideup 12y ago
  Got any stock tips? EDIT: Thanks for the reminder that nothing mildly humorous is tolerated on HN.
  - jonah 12y ago
    His tip was "invest in the brands you like."
    - patio11 12y ago
      I would not actually suggest this as a strategy, since you almost certainly won't beat the market. Again, dumb luck. 75% of my investments are in index funds. If you're investing solely for returns, they should be substantially 100% of your equity allocation. (My last 25% is my concession to a deep-seated desire to play WoW with real money.)
      - christiangenco 12y ago
        This a hundred times. Mr. Money Mustache - the patio11 of the finance blogosphere - has a great overview on why index funds are the best long term strategy: http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/ http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-...
    - Ntrails 12y ago
      As an alternative, "invest in the CEOs you like". One of my fathers better investments was in Rolls Royce, which was based on a chance encounter with the then CEO on a bridge in London watching rowing.
  - elmin 12y ago
    The issue was that it wasent a funny enough joke for it to even be clear that it was a joke.
- hkmurakami 12y ago
  I would posit that what you did wasn't just "dumb luck". You actually went through the customer experience and tried the product, and enjoyed both tremendously. Through that process you actually understood more about the business than you're giving yourself credit for. If you read Peter Lynch's books on how retail investors should pick stocks, this is exactly what he recommends (ex: his wife loved l'eggs stockings, couldn't stop talking about them, and the stock performed tremendously). Now, I don't believe retail investors should be picking stocks at all, but if you are going to, then this isn't such a bad way to go about things. For instance, I think it beats picking stocks based on what you read in the financial news outlets any day of the week (which a lot of people do). Source: One Up on Wall Street
  - enraged_camel 12y ago
    Not sure if I agree with your narrative. The first time I had a Chipotle burrito, it was stuffed so full that it exploded onto my lap as I was taking the first bite. I was thoroughly annoyed and didn't eat there for five years (until I discovered their burrito bowls, but it was too late to buy their stock by then!). So I agree with Patrick that he got lucky. :)
    - hkmurakami 12y ago
      Maybe Patrick took enough sample data points! ;)
    - delecti 12y ago
      One of the key "strategies" is that you leave it in the foil for structural support. It makes a pretty huge difference in the overall experience.
  - mikeash 12y ago
    I agree to an extent, but the Chipotle experience and product are hardly unique (nor were they at that time), and I don't think the things that caused Chipotle to do so much better than the others are things you'd see as a customer. (Although he would have still done pretty well if he had gone to a Qdoba instead and decided to put the money into Jack in the Box stock as a result.)
- seanalltogether 12y ago
  I'm from Denver and invested for similar reasons. I've always liked the burritos personally, but it was when a friend from Northern Ireland had one and wouldn't stop talking about it, that I realized there was nothing stopping them from expanding worldwide.
- melvinmt 12y ago
  > And they traded at a 10% discount to A shares for over a year, because Chipotle was growing quickly, people were logging into their discount brokerage to buy CMG, and their brokerages were giving them CMG.A. The caveat is that this discount is only beneficial to a buy-and-hold strategy, in fact this discount was probably offset by the fact that CMG.B was less liquid than CMG.A and the spread was probably a bit higher as it was traded less often. Arbitrage opportunities are often too good to be true for a reason: selling CMG.B shares was probably the same trouble as buying them (before the split) so this market inefficiency was causing the 10% difference.
- timr 12y ago
  When was the Denver trip? I was a college debater (in Denver), and Chipotle #1 was the campus burrito joint for me.
allusory 12y ago
Whoa, is it just me or is this a blatant rip-off of http://grantland.com/features/boogie-nights/ http://grantland.com/features/boogie-nights/?
- mentat 12y ago
  That is pretty surprisingly similar.
- jacobolus 12y ago
  A copy but not as well executed. The Bloomberg page is full of pointless and distracting names fading in as you scroll. The name rollover effects on the Grantland page are carefully designed to keep the content uncluttered, not just to be cool; I just noticed there’s supposed to be a similar effect on the Bloomberg page, except it only works when the name itself is rolled over instead of the whole box, the avatars aren’t as stylish or consistent, and some of the the sub-descriptions are too long and spill out of their space. The overall typography and layout of the Grantland page is better designed; in pretty much every detail where they differ, the Grantland page is done more carefully and with more obvious adherence to a design vision. (As one trivial example, the Bloomberg article uses a mix of straight and curly quotation marks for no apparent reason.) I’d say Bloomberg’s designers copied the idea and several specific elements from the Grantland page (or another similar one), but ultimately either had shittier design constraints imposed from outside, did a rushed job, or just overall weren’t as skilled or tasteful.
- strathmeyer 12y ago
  Bloomberg's moving graphics are extremely distracting while trying to read text
- morley 12y ago
  Are you talking about the "Oral History" article concept? That's a common format: http://lmgtfy.com/?q=oral+history+of http://lmgtfy.com/?q=oral+history+of
JimmyM 12y ago
This seems relevant to this post - http://stratechery.com/2013/obsoletive/ http://stratechery.com/2013/obsoletive/ - that's often been posted on Hacker News about obsoletive vs. disruptive technology. I see this as Chipotle offering what is effectively an obsoletive product - fast food that's cheap but also has some valuable nutritional content - compared with McDonald's, who were capable of offering a highly disruptive low-end product in an environment where there was an information asymmetry. I find this interesting because, to me, it's a demonstration that themes of obsolescence and disruption can apply to much more than just pure tech businesses. I've never eaten at Chipotle myself (do we even have them in the UK?), but wow this is some great PR for them. Reminds me of when everyone just happened to start raving about Nando's a while back. Kudos to whoever set this up.
- mrkipling 12y ago
  > do we even have them in the UK? We do indeed, they opened their first branches a few years ago. There are now six locations in London. I'm not really a fan of burritos but the people in my office seem to like the bowls.
- joezydeco 12y ago
  Remember that McDonald's was just as disruptive in the 1960s when they introduced the quick-service model (what we call fast food today), replacing the drive-in and diner. By standardizing ingredients, cooking methods, presentation, menu, etc, the company was able to keep the product consistent across an entire nation. That was revolutionary in itself. But choices were simple in 1952. McDonald's original menu had, what, 4 items on it? Burger, cheeseburger, fries, drink. People didn't want customization so it was easy to assemble an order in a bag in under 30 seconds. People want more choices now. It's why McDonald's is struggling to keep up. Their systems, multiple generations more advanced than before, can handle it but only to a certain degree. Chipotle has found a way to address this desire for choice by bringing back what really is a buffet line. The innovation is that they found a way to streamline that into a fixed set of choices (Burrito or Bowl? Meat or chicken?) that avoids the line turning into a slow moving nightmare of indecisive lookers like you get at a typical wedding reception or church dinner. It was interesting to read in the article how McD's wanted to solve Chipotle's problems with technology, when really those weren't huge problems at all. It shows the difference in culture.
iamthepieman 12y ago
I love the way this story is done. Just a bunch of quotes with minimal exposition and some infographics and images.

116 points by tim_sw 12y ago

I had a Chipotle burrito once on, if I recall correctly, a trip to Denver with the college debate team. I liked it so much that I put the first $2k of BCC's profits (2006 and early 2007) into Chipotle shares. Then I sat on them. This was pure, unadulterated good luck, but the present value of those shares approaches that of BCC as a freestanding business. Fun story: back in the day, Chipotle had two share classes: CMG.A and CMG.B. The B shares were what McDonalds had originally gotten, but they could be bought and sold on the open market -- if you knew how to ask your broker for them. They had no intrinsic reasons to be less valuable than A shares -- they had 5x the voting rights but were otherwise identical. And they traded at a 10% discount to A shares for over a year, because Chipotle was growing quickly, people were logging into their discount brokerage to buy CMG, and their brokerages were giving them CMG.A. After quite a bit of headscratching about this, I figured out the correct series of incantations to get my discount brokerage to give me the B shares instead. Two years later, larger investors convinced the board to approve converting B shares into A shares on a 1:1 basis. Instant 10% ROI kicker if you had been holding them. (In a company which wasn't growing like wildfire you would have been able to sell CMG.A and buy CMG.B to arbitrage this price difference away, but apparently demand for shorting CMG.A was so high that doing this in quantity was difficult.)

thissideup 12y ago
Got any stock tips? EDIT: Thanks for the reminder that nothing mildly humorous is tolerated on HN.
- jonah 12y ago
  His tip was "invest in the brands you like."
  - patio11 12y ago
    I would not actually suggest this as a strategy, since you almost certainly won't beat the market. Again, dumb luck. 75% of my investments are in index funds. If you're investing solely for returns, they should be substantially 100% of your equity allocation. (My last 25% is my concession to a deep-seated desire to play WoW with real money.)
    - christiangenco 12y ago
      This a hundred times. Mr. Money Mustache - the patio11 of the finance blogosphere - has a great overview on why index funds are the best long term strategy: http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/ http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-...
  - Ntrails 12y ago
    As an alternative, "invest in the CEOs you like". One of my fathers better investments was in Rolls Royce, which was based on a chance encounter with the then CEO on a bridge in London watching rowing.
- elmin 12y ago
  The issue was that it wasent a funny enough joke for it to even be clear that it was a joke.
hkmurakami 12y ago
I would posit that what you did wasn't just "dumb luck". You actually went through the customer experience and tried the product, and enjoyed both tremendously. Through that process you actually understood more about the business than you're giving yourself credit for. If you read Peter Lynch's books on how retail investors should pick stocks, this is exactly what he recommends (ex: his wife loved l'eggs stockings, couldn't stop talking about them, and the stock performed tremendously). Now, I don't believe retail investors should be picking stocks at all, but if you are going to, then this isn't such a bad way to go about things. For instance, I think it beats picking stocks based on what you read in the financial news outlets any day of the week (which a lot of people do). Source: One Up on Wall Street
- enraged_camel 12y ago
  Not sure if I agree with your narrative. The first time I had a Chipotle burrito, it was stuffed so full that it exploded onto my lap as I was taking the first bite. I was thoroughly annoyed and didn't eat there for five years (until I discovered their burrito bowls, but it was too late to buy their stock by then!). So I agree with Patrick that he got lucky. :)
  - hkmurakami 12y ago
    Maybe Patrick took enough sample data points! ;)
  - delecti 12y ago
    One of the key "strategies" is that you leave it in the foil for structural support. It makes a pretty huge difference in the overall experience.
- mikeash 12y ago
  I agree to an extent, but the Chipotle experience and product are hardly unique (nor were they at that time), and I don't think the things that caused Chipotle to do so much better than the others are things you'd see as a customer. (Although he would have still done pretty well if he had gone to a Qdoba instead and decided to put the money into Jack in the Box stock as a result.)
seanalltogether 12y ago
I'm from Denver and invested for similar reasons. I've always liked the burritos personally, but it was when a friend from Northern Ireland had one and wouldn't stop talking about it, that I realized there was nothing stopping them from expanding worldwide.
melvinmt 12y ago
> And they traded at a 10% discount to A shares for over a year, because Chipotle was growing quickly, people were logging into their discount brokerage to buy CMG, and their brokerages were giving them CMG.A. The caveat is that this discount is only beneficial to a buy-and-hold strategy, in fact this discount was probably offset by the fact that CMG.B was less liquid than CMG.A and the spread was probably a bit higher as it was traded less often. Arbitrage opportunities are often too good to be true for a reason: selling CMG.B shares was probably the same trouble as buying them (before the split) so this market inefficiency was causing the 10% difference.
timr 12y ago
When was the Denver trip? I was a college debater (in Denver), and Chipotle #1 was the campus burrito joint for me.

allusory 12y ago

Whoa, is it just me or is this a blatant rip-off of http://grantland.com/features/boogie-nights/ http://grantland.com/features/boogie-nights/?

mentat 12y ago
That is pretty surprisingly similar.
jacobolus 12y ago
A copy but not as well executed. The Bloomberg page is full of pointless and distracting names fading in as you scroll. The name rollover effects on the Grantland page are carefully designed to keep the content uncluttered, not just to be cool; I just noticed there’s supposed to be a similar effect on the Bloomberg page, except it only works when the name itself is rolled over instead of the whole box, the avatars aren’t as stylish or consistent, and some of the the sub-descriptions are too long and spill out of their space. The overall typography and layout of the Grantland page is better designed; in pretty much every detail where they differ, the Grantland page is done more carefully and with more obvious adherence to a design vision. (As one trivial example, the Bloomberg article uses a mix of straight and curly quotation marks for no apparent reason.) I’d say Bloomberg’s designers copied the idea and several specific elements from the Grantland page (or another similar one), but ultimately either had shittier design constraints imposed from outside, did a rushed job, or just overall weren’t as skilled or tasteful.
strathmeyer 12y ago
Bloomberg's moving graphics are extremely distracting while trying to read text
morley 12y ago
Are you talking about the "Oral History" article concept? That's a common format: http://lmgtfy.com/?q=oral+history+of http://lmgtfy.com/?q=oral+history+of

JimmyM 12y ago

This seems relevant to this post - http://stratechery.com/2013/obsoletive/ http://stratechery.com/2013/obsoletive/ - that's often been posted on Hacker News about obsoletive vs. disruptive technology. I see this as Chipotle offering what is effectively an obsoletive product - fast food that's cheap but also has some valuable nutritional content - compared with McDonald's, who were capable of offering a highly disruptive low-end product in an environment where there was an information asymmetry. I find this interesting because, to me, it's a demonstration that themes of obsolescence and disruption can apply to much more than just pure tech businesses. I've never eaten at Chipotle myself (do we even have them in the UK?), but wow this is some great PR for them. Reminds me of when everyone just happened to start raving about Nando's a while back. Kudos to whoever set this up.

mrkipling 12y ago
> do we even have them in the UK? We do indeed, they opened their first branches a few years ago. There are now six locations in London. I'm not really a fan of burritos but the people in my office seem to like the bowls.
joezydeco 12y ago
Remember that McDonald's was just as disruptive in the 1960s when they introduced the quick-service model (what we call fast food today), replacing the drive-in and diner. By standardizing ingredients, cooking methods, presentation, menu, etc, the company was able to keep the product consistent across an entire nation. That was revolutionary in itself. But choices were simple in 1952. McDonald's original menu had, what, 4 items on it? Burger, cheeseburger, fries, drink. People didn't want customization so it was easy to assemble an order in a bag in under 30 seconds. People want more choices now. It's why McDonald's is struggling to keep up. Their systems, multiple generations more advanced than before, can handle it but only to a certain degree. Chipotle has found a way to address this desire for choice by bringing back what really is a buffet line. The innovation is that they found a way to streamline that into a fixed set of choices (Burrito or Bowl? Meat or chicken?) that avoids the line turning into a slow moving nightmare of indecisive lookers like you get at a typical wedding reception or church dinner. It was interesting to read in the article how McD's wanted to solve Chipotle's problems with technology, when really those weren't huge problems at all. It shows the difference in culture.

iamthepieman 12y ago

I love the way this story is done. Just a bunch of quotes with minimal exposition and some infographics and images.