How McDonald’s Played a Major Role in the Success of Chipotle
These two major fast food juggernauts' histories are intertwined!
It’s no secret that McDonald’s has had a somewhat contentious relationship with some of its fast-food competitors. They rejected Burger King’s offer to team up on a “McWhopper” burger, and Chick-fil-A recently started outpacing it in terms of money per store. But it has a little-known, but very significant, connection to another fast-food giant that, sure enough, led to contention. That’s right: McDonald’s used to own Chipotle.
How did the two chains become associated?
It might seem strange considering what different types of food they serve, despite being under the same fast-food umbrella. But back in 1998, McDonald’s did purchase an investment in the then–brand new business that was Chipotle. As you probably know, McDonald’s was enjoying massive success in the 1990s, as is the overall case for really every other decade it’s been around. (Get a close look at what McDonald’s menu looked like through the years.) Chipotle, on the other hand, was tiny. There were just 13 locations, all in the Denver, Colorado area.
How did McDonald’s end up taking interest in this Little Chain That Could? Well, one of their investors had a friend who was hired as a business developer at McDonald’s. Thanks to him, Chipotle’s founder, Steve Ells, snagged an invite to a McDonald’s board meeting and brought along some burritos. “The board just savored it,” Bob Ells, Steve’s father and one of Chipotle’s earliest investors, told Bloomberg.
So McDonald’s, which, according to Bloomberg, had made $1.6 billion in profits that year, funneled $50 million into growing Chipotle. For eight years, McDonald’s helped Chipotle out with its massive industry pull and expertise—while garnering some of its profits. Chipotle, meanwhile, grew and grew, until it had 500 locations all throughout the United States. In 2005, McDonald’s had a 90 percent stake in Chipotle. Find out some more surprising things you never knew about McDonald’s.
So what happened?
Fast-forward to 2006, which was the year the relationship between the two chains dissolved. McDonald’s sold its shares, and Chipotle was on its own. But that wasn’t a problem, as the chain’s momentum was full steam ahead. Chipotle more than doubled its locations in the next five years, and today has more than 2,000 stores nationwide. The Golden Arches had clearly let go of a golden goose.
Why did McDonald’s relinquish the chain—especially right when it was on the cusp of completely exploding? Well, massive business decisions like that are never simple, but there are a few potential reasons that spokespeople from both chains have cited.
McDonald’s current CEO Steve Easterbrook (who wasn’t in charge in 2006) stands by what he believes was the reason McDonald’s let Chipotle go. And that reason? McDonald’s was doing the ol’ “it’s not you, it’s me.” “Chipotle…had taken attention away from the core brand,” wrote Entrepreneur’s Kate Taylor, recapping Easterbrook’s answer in a 2015 shareholders’ meeting. “Company executives wanted everyone to put 100 percent of their efforts into the McDonald’s brand, so they sold the company’s shares.”
To hear the folks at Chipotle tell it, though, the relationship between the two chains was never quite hunky-dory. McDonald’s reportedly offered some “business suggestions” to the Chipotle higher-ups that simply did not interest them. For one, they reportedly floated the idea of Chipotle re-branding as “Chipotle Fresh.” But the Chipotle folks rejected what they saw as a forced, “telling, not showing” naming choice. According to Chipotle’s COO Gretchen Selfridge, McDonald’s also suggested other things that “we just really didn’t do,” like serving breakfast, franchising restaurants and adding drive-throughs. (Here’s the reason why the latter finally changed!)
So, basically, McDonald’s no longer owns Chipotle because of irreconcilable differences. But, as different as the chains are, consider throwing a mental “thank you” out there to McDonald’s next time you’re munching on one of those mouthwatering guac-loaded burritos. Next, dive deeper into the day-to-day at Chipotle with these secrets Chipotle employees won’t tell you.