By the mid-2000s, McDonald’s had a 90 percent stake in Chipotle — but the two franchises couldn’t be any more different, especially when it came to food preparation, says Chipotle founder Steve Ells.
The entrepreneur recently recounted a visit to a McDonald’s-operated chicken farm, a facility he described to his family as “absolutely the most disgusting thing” he had “ever seen in his life.” That experience, in tandem with ongoing squabbles about Chipotle’s expansion and pressure from McDonald’s to add a drive-thru and breakfast menu, eventually compelled McDonald’s to divest its stake in the casual dining establishment in 2006.
“What we found at the end of the day was that culturally we’re very different,” Ells told the Bloomberg Business Insider. “There are two big things that we do differently. One is the way we approach food, and the other is the way we approach our people culture. It’s the combination of those things that I think make us successful.”
Chipotle, founded in 1993, had less than 20 locations in Colorado when the McDonald’s Corporation became a major investor in 1998. By the time McDonald’s divested, Chipotle had more than 500 locations across the United States, the United Kingdom, Canada, Germany, and France.
Nearly a decade later, stories of Chipotle’s tumultuous relationship with McDonald’s have surfaced amid questions about the burrito chain’s ability to maintain its standing as a producer of “food with integrity,” compared to concerns about the quality of the food that more traditional fast food restaurants serve at significantly low prices.
Ells’ visit to an Iowa-based pig farm that didn’t use antibiotics or hormones in the early 2000s helped him affirm his commitment to serving naturally raised meat and organic produce. In the years since, he pledged to serve more than 60 million pounds of antibiotic-free meat, pork, and chicken — an unprecedented amount at the time — and testified before Congress in support of the Preservation of Antibiotics for Medical Treatment Act, an effort to reduce the amount of antibiotics given to farm animals.
Ells’ dedication to serving organic food has cost him some dollars along the way. Weeks ago, Chipotle announced that it would suspend purchases from a pork producer that company officials said violated animal welfare rules. While that move caused a supply shortfall that affected one-third of Chipotle’s restaurant chains and caused stocks to drop 0.6 percent on the New York Stock Exchange, some financial analysts said the business strategy would ultimately strengthen the corporation’s relationship with diners by reaffirming its commitment to using organic produce and meats that are free of antibiotics.
There’s some evidence that American consumers are looking for that. A June 2014 ABC News poll found that more than 90 percent of people said the federal government should require labels on genetically modified food, and more than half of respondents said they would purchase food that’s labeled as being raised organically raised. According to a 2014 Gallup poll, nearly 45 percent of Americans already seek out organic products.
This growing sentiment has affected McDonald’s bottom line by nearly $300 million, primarily because of questions of how the fast food chain prepares its meals. Even McDonald’s recent transparency campaign to show people what goes into its chicken nuggets didn’t do much to quell consumers’ concerns, especially with the discovery of tainted meat in its factories overseas.
Last month, McDonald’s Corp warned of weak sales in the first quarter of 2015 and a slash in its annual construction budget — a determinant of how many new franchises will be erected — to the lowest amount in more than five years. McDonald’s CEO Don Thompson recently stepped down after less than three years on the job.
Chipotle’s profits have been cutting into sales at big burger chains like McDonald’s and Burger King, leading some analysts to speculate whether the United States’ casual dining industry has reached “peak burger.”
While McDonald’s executives have pointed to that increased competition to explain the recent lackluster sales, Jim Slama of the Chicago Tribune had a different take on what the fast food chain should do in response to the current economic market — suggesting that it could build on its efforts to include sustainably sourced seafood, coffee, palm oil, and fiber-based packaging in its products.
“The use of antibiotics in animal feed is clearly an area in which McDonald’s can make a tangible impact on sustainability,” Slama wrote in his August 2014 opinion piece. [R]esisting change or simply failing to act would be a high-risk strategy for McDonald’s. Watchdogs would dismiss any smaller steps it takes as a fig leaf. Young consumers would shun it. Its market value would continue to erode.”