The 4 Pillars Driving This Company to Market-Thumping Returns
A lot has changed since Steve Ells opened a single burrito shop in Colorado 20 years ago. Since then, Chipotle Mexican Grill has been en fuego, growing to more than 1,500 restaurants, with even a handful of international locations. But one thing that hasn't changed as far as I can see is the lines in the restaurants. They're still as long as ever, and it seems there's a correlation between the lines in the stores and the stock's performance over the past five years:
For burritophiles only
Thankfully for burrito lovers, one of the top priorities for Chipotle management is throughput. That's fancy talk for how fast restaurants like Chipotle manage customers through its lines. The more customers it gets through the line (especially at lunch and dinner rushes), the more sales the company generates. And for Chipotle, it all grills down to four pillars of great throughput:
Pillar one -- mise en place: This is a French term meaning to have all of your ingredients ready to go, and for Chipotle this is crucial, as customers literally watch their food being prepared right in front of them. Any single component that isn't ready means precious seconds potentially down the drain.
Pillar two -- peak time expeditors: It seems Chipotle's peak time is all day every day. But for the actual lunch and dinner rushes, having that support in every restaurant to make sure everything is moving along through the cash-out process is crucial.
Pillar three -- linebackers: No, burritos aren't football. But if customers are delayed in getting their food, they can get upset. Having a "linebacker" in place to support the assembly line -- doing what's needed to keep the line running smoothly -- is another way Chipotle can ensure that there are no hold-ups.
Pillar four -- aces in their places: This simply means having the best people for each job doing that job. As with any team, individual members shine in different areas. Having people where they shine the brightest and avoiding training situations during rush hours keep the lines moving and customers happy.
Translation: muy bueno
So how does this all play out? In the second quarter of 2012 , throughput increased by an average of six transactions per hour during the peak lunch hours versus the year before. This past quarter, that number was closer to two transactions. Now. there can be a number of ways to look at this. At some point the line can only move so fast. And throughput is also dependent on general economic conditions and the store traffic that comes of it.
However, Chipotle management is doing something interesting. Throughput is so integral to the company's operations and reputation that the four pillars will now affect pay. For the first time ever, Chipotle management has made the four pillars a key part of each manager's semi-annual bonus measure. It's Incentives 101. Will it work? Only time will tell. But it's plain to see that management believes they're on to something with these pillars, and if history gives us any clue, they may just be spot-on.
More than one way to roll a burrito?
This doesn't all mean that Chipotle has figured out some magical formula in regard to throughput. It's focusing on what works for its particular model. As recently as last quarter, Panera Bread , for example, noted that it had around 50 initiatives being tested around the country in regard to improving throughput. Starbucks , on the other hand, continues to focus on technology as a major driver of transaction growth. In fact, just last quarter, management noted that the company is approaching 4 million U.S. mobile payment transactions per week, accounting for roughly 10% of total U.S. tender.
Four pillars, a burrito, and some killer returns
One glaringly obvious point is that there's more than one way to improve throughput, just as there's more than one way to invest. A lot depends on what the business is trying to provide in the first place. But it's crystal clear that Chipotle is putting its money where its mouth is and betting on these four pillars. And based on the model that CEO Steve Ells has just about perfected, in my opinion, I think that's a bet worth making.
The article The 4 Pillars Driving This Company to Market-Thumping Returns originally appeared on Fool.com.Jason Moser owns shares of Chipotle Mexican Grill, Starbucks, and Panera Bread. The Motley Fool recommends and owns shares of Chipotle Mexican Grill, Panera Bread, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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