WEBVTT - Chief Future Officer: Chipotle's Jack Hartung 0:00:02.880 --> 0:00:05.960 When Jack hard Tongue joined Chipotle twenty years ago, it 0:00:06.080 --> 0:00:09.479 was far from the powerhouse it is today. Chipotle was 0:00:09.520 --> 0:00:11.399 a special brand. It was an unknown brand. It was 0:00:11.520 --> 0:00:16.000 very small, founded in by chef turned entrepreneur Steve Els. 0:00:16.239 --> 0:00:18.360 The company stood on the brink of the growth spurth 0:00:18.440 --> 0:00:22.159 that would create a category fast casual dining. It was 0:00:22.200 --> 0:00:25.599 really simple idea of Steve at It was, look, why 0:00:25.760 --> 0:00:29.760 is fast food crap? Why can't great food be done fast? 0:00:30.240 --> 0:00:32.440 I was there when there was a couple of dozen restaurants, 0:00:32.479 --> 0:00:35.680 and I would visit restaurants like this where Steve would 0:00:35.720 --> 0:00:37.559 go behind the line and he'd see somebody cutting an 0:00:37.600 --> 0:00:39.479 onion and saying, well, hold on, let me let me 0:00:39.479 --> 0:00:42.000 show you how to do it. Two decades later, Jack 0:00:42.040 --> 0:00:44.680 hard Tongue is still the chief financial officer of Chipotle. 0:00:45.240 --> 0:00:47.320 He's had a hand in just about every area of 0:00:47.320 --> 0:00:49.960 the operation. I feel like I've always been able to 0:00:50.000 --> 0:00:53.080 dabble in things outside of just financials. And while his 0:00:53.200 --> 0:00:55.800 central task is to create greater value for a chain 0:00:55.840 --> 0:00:59.120 that now has about three thousand restaurants, he insists on 0:00:59.240 --> 0:01:02.280 staying true to the values that have defined Chipotle from 0:01:02.360 --> 0:01:05.880 day one. I think I'm really open minded, but um, 0:01:06.160 --> 0:01:08.679 I really do want to protect the heritage of Chippotle 0:01:09.000 --> 0:01:11.679 and make sure that we don't lose the essence. It's 0:01:11.680 --> 0:01:15.440 a powerful blend a consistent mission that sustains the brand 0:01:15.480 --> 0:01:19.560 with a commitment to innovation that drives the business. Chipotle's 0:01:19.600 --> 0:01:23.560 future depends on investments that address both priorities. Jack har 0:01:23.640 --> 0:01:28.560 Tongue embraces that challenge. He's always had a passion for 0:01:29.000 --> 0:01:31.840 what we do next at our company because he's always 0:01:31.920 --> 0:01:34.640 been really a champion of growth. I've got to make 0:01:34.680 --> 0:01:37.560 sure that the financials, the balance sheet, the way we 0:01:37.640 --> 0:01:40.840 source food, the way that we provide food, the way 0:01:40.840 --> 0:01:43.400 that our business works needs to be strong so that 0:01:43.440 --> 0:01:46.479 we reach our full potential. I love working with people 0:01:46.520 --> 0:01:48.800 that can figure out how to thread the needle between 0:01:49.280 --> 0:01:53.000 the numbers and the purpose. Frankly, not everybody can do it, 0:01:53.360 --> 0:01:56.200 but luckily Jack does it really well, and you know, 0:01:56.400 --> 0:02:13.239 we're pretty fortunate to have him at our company. Chipotle's 0:02:13.280 --> 0:02:15.520 growth in the last five years has been nothing short 0:02:15.560 --> 0:02:20.360 of spectacular. Revenues have jumped nearly sev the company's market 0:02:20.400 --> 0:02:24.480 capitalization has more than quadrupled. All this despite a global 0:02:24.520 --> 0:02:28.639 pandemic that's disrupted the restaurant industry, and all this following 0:02:28.639 --> 0:02:31.480 a food safety crisis that caused sales at the company 0:02:31.520 --> 0:02:36.000 to created and forced to shake up in the c suite. Individually, 0:02:36.760 --> 0:02:43.200 the team was phenomenal. Individually, people were very talented, but 0:02:43.280 --> 0:02:46.080 it's almost like they didn't have the right people in 0:02:46.120 --> 0:02:50.560 the right places UM to handle how big the brand 0:02:50.600 --> 0:02:54.799 and the platform became. The enhanced food safety procedures, enhanced 0:02:54.800 --> 0:02:58.520 standards and training they really enhanced. Hence, the management team 0:02:58.520 --> 0:03:02.160 took marketing dollars, you know, transition them to more effective 0:03:02.200 --> 0:03:05.760 marketing brand building efforts with a big focus on reminded 0:03:05.760 --> 0:03:09.679 consumers of why they love Chipotle. The breakdown was the 0:03:09.760 --> 0:03:13.440 human capital. The breakdown was in culture, and that's what 0:03:13.520 --> 0:03:17.400 they've repaired and that's why they're coming back stronger. What 0:03:17.560 --> 0:03:21.359 have you learned in your CFO position going through those crises? 0:03:21.400 --> 0:03:23.240 What was what was the Which one was the most challenging? 0:03:23.680 --> 0:03:25.920 The food safety issue was the most challenging because we 0:03:25.919 --> 0:03:29.000 were alone in that one UM that was unique to Chipotle. UM. 0:03:29.040 --> 0:03:32.240 The pandemic is certainly a challenge, but everyone's in it together. 0:03:32.520 --> 0:03:34.520 The things that really got us through it is we 0:03:34.560 --> 0:03:37.920 stay true to our purpose. So during each of these challenges, 0:03:38.160 --> 0:03:40.280 we made sure we invested into things that made Chipotle 0:03:40.360 --> 0:03:43.320 specially invest in higher quality food, invest in our people, 0:03:43.520 --> 0:03:45.640 and then invest in our growth and invest in things 0:03:45.640 --> 0:03:47.760 like technology. We have a saying around there. I think 0:03:47.760 --> 0:03:49.680 it actually comes from west Point. You know, we will 0:03:49.800 --> 0:03:53.600 choose the harder right over the easy role. How do 0:03:53.680 --> 0:03:56.960 you and Jack work on things like that, those black 0:03:57.040 --> 0:04:01.160 Swan events, those things that can be you know, fundamentally 0:04:01.320 --> 0:04:05.400 changing for you as a company. When we are successful 0:04:05.880 --> 0:04:09.560 in focusing on the really important things that can strategically 0:04:09.600 --> 0:04:13.480 drive growth for us, they seem to be having resiliency 0:04:13.720 --> 0:04:16.680 in these unexpected events. And the other thing I think 0:04:16.720 --> 0:04:19.080 is to make sure you have a strong balance sheet 0:04:19.240 --> 0:04:21.800 to make sure you can weather the storm. And we've 0:04:21.800 --> 0:04:24.080 had a strong balance sheet. We've never had debt. We've 0:04:24.120 --> 0:04:26.640 always had more cast and the balance sheet than we 0:04:26.680 --> 0:04:29.320 need for our normal ongoing business. And that has come 0:04:29.320 --> 0:04:32.480 in you know great, you know really happy. Chipotle carries 0:04:32.520 --> 0:04:35.599 no long term debt and it's free cash flow almost 0:04:35.640 --> 0:04:39.840 tripled in When you think about the future, how do 0:04:39.880 --> 0:04:42.280 you take advantage of this and and what is the 0:04:42.320 --> 0:04:45.919 flexibility that that enables What it really affords us is 0:04:46.120 --> 0:04:47.640 we're going to be able to invest in our future 0:04:47.839 --> 0:04:51.839 no matter what. Like we accelerated are open, we accelerated 0:04:51.960 --> 0:04:55.200 our pursuit of new restaurant sites during the pandemic when 0:04:55.200 --> 0:04:58.120 some of the restaurant companies were laying off their development team. 0:04:58.279 --> 0:05:01.920 CHIPOTLEI not only expanded its footprint over the last two years, 0:05:02.200 --> 0:05:05.760 it reshaped its restaurants, ventured to drive through dining that 0:05:05.839 --> 0:05:09.560 began several years ago, became a thriving profit center when 0:05:09.600 --> 0:05:13.200 the pandemic struck. The thing that's changed the most is 0:05:13.240 --> 0:05:15.160 just most of our restaurants and I'll have a Chipot Lane. 0:05:15.520 --> 0:05:18.360 So three years ago we had maybe five or six 0:05:18.440 --> 0:05:21.320 Chipotle length and now we have over three fifty and 0:05:21.480 --> 0:05:23.839 eighty percent of our new openings have each polne. The 0:05:23.960 --> 0:05:27.400 sales and our Chipotlelane restaurants are higher, and our margins 0:05:27.400 --> 0:05:30.560 are higher too, because the digital orders are our highest 0:05:30.560 --> 0:05:33.840 margin transaction. And when you can serve the customer through 0:05:33.920 --> 0:05:36.080 the pot lane without the delivery fees that we pay 0:05:36.080 --> 0:05:38.440 in the customers paper, it's it's it's a great margin 0:05:38.480 --> 0:05:42.159 opportunity for us. The convenience of Chipot lanes contributed to 0:05:42.240 --> 0:05:46.840 soaring digital sales in there was little erosion in one 0:05:47.240 --> 0:05:50.560 even as in restaurants sales returned to eight of twenty 0:05:50.680 --> 0:05:55.640 nine levels. Meanwhile, membership and loyalty programs has boomed, giving 0:05:55.680 --> 0:06:00.200 Chipotle valuable insight into its customers omni channel preferences. Is 0:06:00.560 --> 0:06:03.680 what we've seen is that our digital customers they come 0:06:03.720 --> 0:06:05.600 to most often, and they spend the most each time 0:06:05.680 --> 0:06:09.400 they come. Customer loyalty could face a test if inflation 0:06:09.440 --> 0:06:15.400 continues to push higher. Chipotle hiked menu prices roughly. Jack 0:06:15.440 --> 0:06:18.599 Harton says, it's not just wages and food costs that 0:06:18.640 --> 0:06:22.560 are putting on the pressure. It's hitting everything. Sitting materials 0:06:22.560 --> 0:06:24.520 to for a restaurants or new restaurants are costing more 0:06:24.560 --> 0:06:28.159 as well. You guys have had incredible pricing power. Is 0:06:28.200 --> 0:06:31.000 there kind of a tipping point where it's like enough? 0:06:31.560 --> 0:06:34.520 We haven't seen it? U. Why is that, Jack? Well, 0:06:34.520 --> 0:06:38.120 part of it is um we've over the years been 0:06:38.160 --> 0:06:42.400 slow to raise prices. We've always tried not to go 0:06:42.480 --> 0:06:44.680 to the menu board to raise prices. Whenever we've had 0:06:44.680 --> 0:06:47.200 a challenge from a cost standpoint, we'll do other things 0:06:47.200 --> 0:06:50.920 to try to find efficiencies. Somewhere along the line. We 0:06:51.000 --> 0:06:53.719 raise prices in the second quarter of last year. We 0:06:53.839 --> 0:06:57.040 did that just to cover the cost of raising wages. 0:06:57.120 --> 0:06:59.640 We raise wages up the fifteen dollars. It was an 0:06:59.680 --> 0:07:03.320 average increase, and we raise prices just to cover the 0:07:03.400 --> 0:07:05.440 dollar costs of app So we didn't increase our margins. 0:07:05.480 --> 0:07:08.520 Our margins actually went down, but our profitability stayed the same. 0:07:08.880 --> 0:07:11.800 Our customers actually said, we really applaud what you're doing. 0:07:12.080 --> 0:07:13.920 We're fine with a four percent price increase, not a 0:07:13.960 --> 0:07:16.520 chi cambrito that's thirty cents, but the fact that you 0:07:16.720 --> 0:07:19.840 increase wages to that extent. We like to eat a morgo. 0:07:20.720 --> 0:07:23.840 CEO Brian Nicol has warned that Chipotle may raise prices 0:07:23.840 --> 0:07:26.840 again if cost pressures intensify. With the cost of eating 0:07:26.840 --> 0:07:30.320 out already at historic levels, consumers may just have to 0:07:30.320 --> 0:07:33.720 get used to paying more. The industry is used to 0:07:33.800 --> 0:07:39.520 tepid inflation, call it two you know um level inflation. 0:07:40.120 --> 0:07:42.680 They take you know, a little bit of priced offset 0:07:43.040 --> 0:07:46.560 it flows through and margins are just naturally restored. The 0:07:46.560 --> 0:07:49.640 fact of the matter is labor was the pressure point. 0:07:50.320 --> 0:07:52.840 So the industry today is definitely sitting on a high 0:07:52.840 --> 0:07:56.280 single digit price versus what is typically a low single 0:07:56.280 --> 0:08:00.280 digit price inflation or level of menu price increase in 0:08:00.360 --> 0:08:02.720 relative terms. Everyone has to do this. In fact, I 0:08:02.760 --> 0:08:04.560 would say, Carol, we we could be more patient than 0:08:04.600 --> 0:08:06.920 others because we own all of our restaurants. When you're 0:08:06.920 --> 0:08:09.840 a franchise organization, when you have franchise z s that 0:08:09.880 --> 0:08:13.040 have borrowed to invest in their business, they can't necessarily 0:08:13.080 --> 0:08:15.680 afford to let inflation eat away at their at their 0:08:15.680 --> 0:08:18.720 ability to pay the debt for very long. It is 0:08:18.800 --> 0:08:21.640 full speed ahead when it comes to store growth. Chipotle 0:08:21.840 --> 0:08:24.240 just up to its goal to seven thousand from six 0:08:24.280 --> 0:08:27.240 thousand restaurants in the US, thanks in large part to 0:08:27.320 --> 0:08:31.160 strong performance at seeing in smaller towns based on we're 0:08:31.160 --> 0:08:33.760 are already in more than a hundred of them. Based 0:08:33.760 --> 0:08:35.440 on the ones that we're in, based on the results 0:08:35.440 --> 0:08:38.200 so far, which are extraordinary, we think there is as 0:08:38.280 --> 0:08:40.520 many as almost a thousand more restaurants. And so even 0:08:40.559 --> 0:08:42.640 though you talk about a small town with you know, 0:08:42.800 --> 0:08:46.080 maybe twenty thirty thousand people, the sales volumes are almost 0:08:46.080 --> 0:08:48.040 the same as if you you know, we're in a 0:08:48.080 --> 0:08:51.840 city like Chicago or a Chicago suburb, but the investment 0:08:51.840 --> 0:08:53.920 costs are lower. The rents are certainly lower and the 0:08:53.920 --> 0:08:56.200 operating costs are lower, so you end up getting higher 0:08:56.240 --> 0:08:59.319 margins and higher returns. She probably reaps the full benefit 0:08:59.360 --> 0:09:01.679 of these return earned since it owns and operates all 0:09:01.679 --> 0:09:05.000 its stores, and advantage that's not lost on Wall Street. 0:09:05.640 --> 0:09:09.920 It's extremely unusual, and not only restaurants, but from a 0:09:09.960 --> 0:09:14.040 restaurant stock perspective, to have a large cap stock that's 0:09:14.200 --> 0:09:17.600 growing its unit level economic model, meaning the revenues are 0:09:17.600 --> 0:09:20.640 getting better and the margins are getting better as growth 0:09:20.679 --> 0:09:25.199 is accelerating. It's just it's like almost unheard of. So 0:09:25.240 --> 0:09:28.040 there's little reason for Chipotle to begin franchising in the 0:09:28.120 --> 0:09:32.240 United States, but for the chains forty five international restaurants, 0:09:32.400 --> 0:09:36.920 Bloomberg Intelligence notes that partnering with local operators overseas might 0:09:36.960 --> 0:09:41.560 boost margins and accelerate expansion. We're open to the idea 0:09:41.640 --> 0:09:44.120 of some kind of franchise model. UM. You know, there 0:09:44.160 --> 0:09:45.800 are areas of the world where it's going to be 0:09:45.840 --> 0:09:48.120 harder for us to to own UM and to run 0:09:48.160 --> 0:09:51.520 the businesses ourselves. When the process of bringing our digital 0:09:51.520 --> 0:09:54.319 system to Europe that's going really, really well. We've also 0:09:54.320 --> 0:09:57.599 opened up some alternative sites. It gives us great optimism 0:09:57.679 --> 0:09:59.840 that international is going to be a growth vehicle for 0:10:00.080 --> 0:10:05.280 and you know, hopefully not for this computer. Like Chipotle's menu, 0:10:05.440 --> 0:10:09.520 Jack Hartungue's professional resume isn't patted out with exotic ingredients. 0:10:09.920 --> 0:10:12.800 After earning a bachelor's degree in NBA at Illinois State, 0:10:13.120 --> 0:10:15.360 he went straight to an accounting job at Cooper's and 0:10:15.440 --> 0:10:20.440 library his next stop eighteen years at McDonald's. They called 0:10:20.480 --> 0:10:22.880 me up and McDonald's was just a few miles down 0:10:22.920 --> 0:10:24.880 the road, and they said, this place is great. And 0:10:24.920 --> 0:10:26.760 what they what they told me was great about it 0:10:26.840 --> 0:10:29.640 was you started in one area, but then when a 0:10:29.720 --> 0:10:31.319 job opens up, they would post it and you can 0:10:31.360 --> 0:10:33.640 interview for it. So I felt, well, that sounds great. 0:10:33.679 --> 0:10:35.360 So I can learn a job and then if I'm 0:10:35.360 --> 0:10:38.320 looking for another opportunity, I can interview for it, and 0:10:38.360 --> 0:10:40.280 if I've done a good job, I'll get those opportunities, 0:10:40.320 --> 0:10:42.080 which is what happened. I am curious when you went 0:10:42.080 --> 0:10:45.480 from McDonald's to Chimpole. Were folks like Jack. Here, you've 0:10:45.520 --> 0:10:47.679 got the established company, You're going to a startup. I mean, 0:10:47.679 --> 0:10:50.600 did people think you were crazy? Yeah? I mean a 0:10:50.600 --> 0:10:52.600 lot of people thought I was crazy. Um. In fact, 0:10:52.720 --> 0:10:55.280 one memorable person was the CEO of McDonald's at the time, 0:10:55.360 --> 0:10:57.480 because I had a great career at McDonald's and the 0:10:57.480 --> 0:11:00.400 future looked really, really really good at a tootle. It 0:11:00.400 --> 0:11:02.480 was in its infancy and it and it had this 0:11:02.640 --> 0:11:06.439 vision for food, um that was like no other that 0:11:06.520 --> 0:11:10.240 I've seen. How much of it was but Dowald, Oh, Chipotle, 0:11:10.360 --> 0:11:12.560 how much of it was? Alright, Jack, keep an eyeing 0:11:12.600 --> 0:11:15.560 these guys, you know, That's how it started. Okay, And 0:11:15.559 --> 0:11:18.760 it wasn't keep an eye on it, but it was more. Um, 0:11:18.800 --> 0:11:22.520 their food culture was very advanced, their business culture was not, 0:11:22.760 --> 0:11:25.120 and so it was more of bringing some of your 0:11:25.120 --> 0:11:28.320 experience to Chipotle just so you can get them on 0:11:28.400 --> 0:11:30.600 a you know, on a on a stronger track. Once 0:11:30.640 --> 0:11:33.040 I got into Schopotle, the environment and I realized, oh 0:11:33.080 --> 0:11:35.480 my god, I want to be part of this. There 0:11:35.520 --> 0:11:37.240 was a passion about what we were doing. So it 0:11:37.320 --> 0:11:39.720 wasn't a finance job anymore. It was a job that 0:11:39.800 --> 0:11:42.360 was really changing food culture in this country. Um, And 0:11:42.360 --> 0:11:43.720 it was it was a mission and it was a 0:11:43.720 --> 0:11:46.600 mission that I that I totally bought into. The Chipotle's 0:11:46.679 --> 0:11:49.880 culture and mission have long differentiated it as a place 0:11:49.920 --> 0:11:53.320 to eat. With restaurants competing fiercely for employees in the 0:11:53.320 --> 0:11:56.040 wake of the pandemic, companies are going to have to 0:11:56.040 --> 0:11:59.000 show that they are great places to work as well. 0:11:59.840 --> 0:12:02.600 It's not just about that person coming back to work 0:12:02.600 --> 0:12:05.440 in the restaurant. They're going to come back, but they're 0:12:05.480 --> 0:12:07.719 not going to come back and work the way they 0:12:07.760 --> 0:12:11.600 did before. I think that the companies that win are 0:12:11.640 --> 0:12:14.920 those that are investing in their employees, their teams, that 0:12:14.960 --> 0:12:18.280 are developing a strong culture that people want to be 0:12:18.320 --> 0:12:21.760 a part of. The real win on a micro level 0:12:22.320 --> 0:12:24.560 is if restaurants can figure out how to make that 0:12:24.640 --> 0:12:29.720 employee work better and more efficiently, but in a way 0:12:29.720 --> 0:12:33.520 that makes them more satisfied. At this new location just 0:12:33.600 --> 0:12:36.680 outside Chicago, Jack hartone, tell me what it will take 0:12:36.760 --> 0:12:40.760 to build a workforce to meet Chipotley's goals. You've got 0:12:40.800 --> 0:12:43.040 to start with attractive wages, but then you've got to 0:12:43.040 --> 0:12:45.800 go away beyond that. You've got to offer developmental opportunities, 0:12:46.080 --> 0:12:49.440 promotional opportunities. We have a hundred thousand employees. As we 0:12:49.480 --> 0:12:52.920 grow from three thousand restaurants to seven thousand restaurants, we're 0:12:52.920 --> 0:12:55.600 gonna need two hundred or two or fifty thousand employees. 0:12:55.840 --> 0:12:58.880 So our feature depends on hiring great crew today that 0:12:58.920 --> 0:13:02.679 will be great managers and that your turn, double the locations, 0:13:02.920 --> 0:13:06.280 double the staff. And along with investing in people, Chipotle 0:13:06.440 --> 0:13:10.720 plans to invest in technology to support them. There is 0:13:11.040 --> 0:13:15.120 so much still that can be done with artificial intelligence robotics. 0:13:15.800 --> 0:13:18.120 When you think about our system, there are a lot 0:13:18.160 --> 0:13:21.880 of processes that frankly people don't love doing. Cutting and 0:13:21.960 --> 0:13:26.760 couring avocados in the restaurant. Not a fun job, very repetitive, 0:13:27.200 --> 0:13:28.560 you know. I think there's a way where we could 0:13:28.640 --> 0:13:31.000 use robotics to help us do that. And then as 0:13:31.000 --> 0:13:33.360 you think about artificial intelligence, we could be better at 0:13:33.360 --> 0:13:35.280 figure out how many avocados that we have to cut 0:13:35.280 --> 0:13:37.360 in court today so that we never run out of 0:13:37.400 --> 0:13:41.400 backamore lee throughout the day. As digital orders have surged, 0:13:41.600 --> 0:13:45.200 Chipotle has adapted its processes. The most dramatic change has 0:13:45.200 --> 0:13:48.160 been the addition of a second make line. This is 0:13:48.240 --> 0:13:50.480 very familiar to customers, our frontline, and this is what 0:13:50.760 --> 0:13:52.920 for the first you know, call it eighteen years at 0:13:53.000 --> 0:13:55.800 coleg this was you come into pole along the line, 0:13:56.080 --> 0:13:58.240 you interact with the crew, and you customize your mail. 0:13:58.559 --> 0:14:01.720 We've got this separate makeline and it's digitized, and so 0:14:02.040 --> 0:14:04.600 the orders come in and they're they're really kind of 0:14:04.640 --> 0:14:06.880 stage so that if you say at noon, I want 0:14:06.880 --> 0:14:09.079 to come in at one o'clock, we hold that order 0:14:09.440 --> 0:14:11.240 and we will send it to the crew like it 0:14:11.280 --> 0:14:13.480 maybe ten to one, so it's already right when you 0:14:13.480 --> 0:14:16.360 pull up your car. How do you manage these kind 0:14:16.400 --> 0:14:18.840 of two different staffing needs right and making sure you 0:14:18.840 --> 0:14:21.320 have the right amount of people at the at the 0:14:21.400 --> 0:14:24.880 right right time. We spend a lot of time projecting 0:14:24.920 --> 0:14:27.040 sales of a lot of it is you know, it's 0:14:27.080 --> 0:14:29.640 part art, part science. We're trying to bring more science 0:14:29.640 --> 0:14:31.760 and more AI into it because if you get the 0:14:31.800 --> 0:14:34.640 right sales projection, then you know exactly what you're saying, 0:14:34.880 --> 0:14:36.760 what you're staffing needs to be. So if you get 0:14:36.760 --> 0:14:39.520 the sales right, you can get the entire restaurant staffed 0:14:39.560 --> 0:14:42.800 perfectly with just a couple of people. Our our average 0:14:42.920 --> 0:14:47.080 restaurant now does about um over a million dollars per 0:14:47.200 --> 0:14:51.440 restaurant in digital sales. Data science meets culinary art. In 0:14:51.480 --> 0:14:55.840 Chipotle's commitment to menu innovation but releasing several new items 0:14:55.840 --> 0:14:59.520 each year, management hopes to boost same store sales. It 0:14:59.640 --> 0:15:03.520 seems to be working, but it's more complicated than it looks. 0:15:03.560 --> 0:15:05.640 The most important thing is to make sure that the 0:15:05.680 --> 0:15:09.520 economics work, meaning when you bring something new UM, does 0:15:09.560 --> 0:15:12.440 it bring in additional customers? Does that bring existing customers 0:15:12.600 --> 0:15:14.920 more often? There's always going to be trade off from 0:15:15.040 --> 0:15:17.400 you know, one menu item to another UM, and there 0:15:17.400 --> 0:15:20.760 could be economic either advantages or disadvantages. So we just 0:15:20.800 --> 0:15:23.720 want to understand that. You know, when a customer comes in, 0:15:23.920 --> 0:15:26.520 if they're trading from a high mar den itum to 0:15:26.560 --> 0:15:28.680 lomar den it um, that's gonna be a loser for us. 0:15:28.800 --> 0:15:32.600 And any new offering must meet Chipotle's rigorous sourcing standards. 0:15:33.560 --> 0:15:35.640 It will take us a year and a half up 0:15:35.880 --> 0:15:38.600 from the time that we are are experimenting in the 0:15:38.600 --> 0:15:41.400 test kitchen. Two. We'll put it into a few restaurants 0:15:41.400 --> 0:15:43.680 to see how does it work operationally and do customers 0:15:43.720 --> 0:15:45.080 like it? But it'll take us a year and a 0:15:45.080 --> 0:15:48.320 half because we've then got to build up the supply chain. 0:15:48.840 --> 0:15:51.040 It's a challenge, but we take our time and we're 0:15:51.080 --> 0:15:53.320 not going to roll it out before it's ready. Jack 0:15:53.360 --> 0:15:56.640 Harton clearly places a high value on the customer experience, 0:15:56.960 --> 0:16:00.240 and the experience of those who work at Chipotle restaurant. 0:16:00.520 --> 0:16:03.080 He's a people person and a family man with five 0:16:03.200 --> 0:16:07.520 children and ten grandchildren. Even his favorite hobby brings family 0:16:07.560 --> 0:16:11.800 into play. It's a passion for collecting and restoring classic cars. 0:16:12.280 --> 0:16:14.640 I drive here very conservatively, so I'm not like ripping 0:16:14.640 --> 0:16:17.520 down the highway or anything. But these are cars that 0:16:17.600 --> 0:16:20.480 I really cared about and really admired and aspired to 0:16:20.520 --> 0:16:22.760 when I was young, and so I still love these cars. 0:16:23.080 --> 0:16:24.760 There's a bonding that goes on as well. One of 0:16:24.760 --> 0:16:26.600 my sons is a mechanic, so he was a mechanic 0:16:26.640 --> 0:16:29.920 for tesla Um and he loves cars, and so we 0:16:30.320 --> 0:16:32.520 spend time to car shows together. We'll go to auctions 0:16:32.520 --> 0:16:34.440 and look for cars um, and so we have a 0:16:34.440 --> 0:16:36.600 great time. And he knows how to fix the cars, 0:16:36.760 --> 0:16:38.440 and I know how to drive the cars, and so 0:16:38.480 --> 0:16:40.440 that's kind of the partnership that we have. We have 0:16:40.440 --> 0:16:44.920 a great time together. Essential pillar of Chipotle's business has 0:16:44.960 --> 0:16:47.200 always been a commitment to fresh food and support of 0:16:47.280 --> 0:16:52.240 sustainable agriculture. From responsibly raised meat to local and organic produce, 0:16:52.520 --> 0:16:55.960 the company has crafted a supply chain carefully over decades. 0:16:56.720 --> 0:17:02.440 Every company is facing supply change, leunges. Chippotle has a 0:17:02.560 --> 0:17:08.560 great infrastructure. They have a sophisticated team. They have relationships 0:17:08.640 --> 0:17:12.520 with their suppliers, a lot of whom are local, and 0:17:12.680 --> 0:17:14.919 a lot who have gotten to know Jack hard Tongue. 0:17:15.280 --> 0:17:18.199 He's done much more to build those relationships than just 0:17:18.520 --> 0:17:21.960 sign checks. Within my first year, I was spending time 0:17:21.960 --> 0:17:25.159 on hog farms, cilantro farms. Believe it or not, I was. 0:17:25.960 --> 0:17:28.840 I drove a combine, you know that's like the size 0:17:28.840 --> 0:17:32.360 of this restaurant, um to harvest rice, organic rice, and 0:17:32.600 --> 0:17:34.760 these are things that they had. They had a lasting 0:17:34.920 --> 0:17:37.320 impression on me because when I would go back to 0:17:37.400 --> 0:17:39.359 my office and I would be working on spreadsheets and 0:17:39.359 --> 0:17:42.320 financial analysis, I saw how the hogs were raised, and 0:17:42.359 --> 0:17:45.880 I saw how they were raised conventionally versus with our farmers, 0:17:46.000 --> 0:17:47.600 and I'm like, I've got to make sure that our 0:17:47.640 --> 0:17:50.879 financials and all everything we spend money on needs to 0:17:50.880 --> 0:17:53.680 be thoughtful so that we can invest in the better 0:17:53.680 --> 0:17:56.439 way raising food. It's more expensive to buy this food. 0:17:56.960 --> 0:17:59.240 I was trying to make sure that the economic model 0:17:59.400 --> 0:18:02.320 supported in testing in this food and not through higher 0:18:02.320 --> 0:18:07.480 menu prices. Jack is bought into our purpose and cultivating 0:18:07.480 --> 0:18:10.760 a better world. One of those key planks is sustainability 0:18:10.800 --> 0:18:12.439 and doing the right thing for the planet. And as 0:18:12.440 --> 0:18:14.879 a result, he's all on board with investing in it 0:18:15.000 --> 0:18:18.440 and understanding the implications on the business and then obviously 0:18:18.480 --> 0:18:21.119 our purpose. We know it matters. We know it matters 0:18:21.200 --> 0:18:22.960 not just to our customers, to our crew as well. 0:18:23.320 --> 0:18:25.440 We do the right things. We do what's right for people. 0:18:25.440 --> 0:18:27.119 We do it's right for the farmers, we do it's 0:18:27.160 --> 0:18:29.920 right for the environment. For the last twenty years at Chipotle, 0:18:30.359 --> 0:18:33.600 Jack hard Tongue has made strategic decisions based on what matters, 0:18:34.000 --> 0:18:37.160 even in times of turmoil in crisis. Looking back, more 0:18:37.200 --> 0:18:40.119 often than not, it's paid off. So I wanted to 0:18:40.160 --> 0:18:43.320 know what he sees when he looks ahead, what's the 0:18:43.359 --> 0:18:45.760 opportunity for Chipotle and the next ten years. It excites 0:18:45.800 --> 0:18:49.240 you the most, well, I think the most exciting thing 0:18:49.359 --> 0:18:52.360 is that we're not even halfway to our potential um 0:18:52.400 --> 0:18:54.520 in the US. So you know, when I joined the 0:18:54.520 --> 0:18:56.760 company with a few hundred restaurants and we're talking about 0:18:56.760 --> 0:18:59.240 a thousand, maybe two thousand. Here we are three thousand, 0:18:59.280 --> 0:19:02.120 talking about seven, and I believe as we approach seven 0:19:02.200 --> 0:19:04.080 that number is going to be higher, a lot higher. 0:19:04.200 --> 0:19:06.440 Well I don't know how much higher, but for sure 0:19:06.480 --> 0:19:09.000 it's going to go up. And international we're just scratching 0:19:09.040 --> 0:19:12.080 the surface. And we've been very responsible in international where 0:19:12.080 --> 0:19:15.240 we've taken the same food ethos we've owned the restaurants 0:19:15.240 --> 0:19:17.560 so far, and so it's been a very slow let's 0:19:17.560 --> 0:19:19.720 make sure we get this right. You know, sometimes you 0:19:19.760 --> 0:19:21.600 have to go slow before you go fast, and that's 0:19:21.640 --> 0:19:24.120 kind of been our approach. We've gone slow, and now 0:19:24.119 --> 0:19:26.960 we're positioning ourselves too, I think in the not to 0:19:27.080 --> 0:19:29.480 Distan future go fast into international. So those are two 0:19:29.480 --> 0:19:30.919 things that excite me the most. All Right, what's the 0:19:31.000 --> 0:19:34.560 challenge for the next ten years that is on your 0:19:34.600 --> 0:19:38.080 mind the most, that maybe even keeps you up at night? People, Um, 0:19:38.160 --> 0:19:40.960 when we run all of our restaurants like we do today, Um, 0:19:40.960 --> 0:19:43.680 we have around a hundred thousand employees. As we grow, 0:19:43.680 --> 0:19:47.000 we're gonna need more employees. Uh. We promoted nineteen thousand 0:19:47.080 --> 0:19:51.440 people last year of our of our promotions were in house. 0:19:51.760 --> 0:19:53.560 So we always have to be on our game in 0:19:53.640 --> 0:19:56.600 terms of hiring great people that believe in Chipotle and 0:19:56.600 --> 0:19:59.600 our purpose today, that have the desire to learn how 0:19:59.600 --> 0:20:01.879 to cook, learn how to run a business, learn how 0:20:01.880 --> 0:20:03.960 to lead people. If we do a great job with that, 0:20:04.119 --> 0:20:07.160 the future only gets brighter. So we're in great shape 0:20:07.160 --> 0:20:09.680 from with people standpoint. But that's something that I'll always 0:20:09.720 --> 0:20:11.879 worry about. Are we are we hiring and developing the 0:20:11.960 --> 0:20:13.600 right if you don't want to be losing people. If 0:20:13.640 --> 0:20:16.639 we lose people, then we might have to resort to franchising. 0:20:16.720 --> 0:20:19.480 And it's hard to follow a purpose during tough times 0:20:19.480 --> 0:20:21.960 like during a pandemic. It's hard to invest in things 0:20:22.000 --> 0:20:24.320 like food and people you win margins or under pressure. 0:20:24.359 --> 0:20:26.920 When you own your own restaurants, you can make those investors. 0:20:26.920 --> 0:20:30.199 How do you see your role as CFO changing in 0:20:30.200 --> 0:20:31.960 the next ten years? Safe to say it's changed a 0:20:31.960 --> 0:20:33.880 lot in the past ten years. How about the next 0:20:33.920 --> 0:20:37.280 ten it has? You know, I think it'll just evolve 0:20:37.440 --> 0:20:40.880 with the challenges. I mean again, I'm I'm already fortunate 0:20:40.920 --> 0:20:43.400 that I've been able to get involved in real estate 0:20:43.560 --> 0:20:45.800