FI516_Week5IPOPaper_BrianLin - Chipotle Mexican Grill, Inc....

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Chipotle Mexican Grill, Inc. IPO Analysis Brian Lin D01278742 FI 516 – IPO Paper Chipotle Mexican Grill, Inc. (“CMG”) is a restaurant specializing in Mexican/Spanish food founded by Steve Ells in 1993 with its first location was in Denver, Colorado. Ells’ mission statement of Food with Integrity , describes the goals of the restaurant to focus on “higher-quality ingredients and cooking techniques used in high-end restaurants to make great food accessible at reasonable prices,” while simultaneously, “ understanding the environmental and societal impact of our business”. In addition, the missions statement, a staple of CMG is to serve naturally raised ingredients such as “ naturally raised pork, beef and chicken, as well as organically grown and sustainably grown produce, and we continue to investigate using even more naturally raised, organically grown and sustainably grown ingredients, in light of pricing considerations.” With these goals in place, CMG is now recognized as one of the pioneers of a category of dining now called "fast-casual”, the fastest growing segment of the restaurant industry, where “customers expect food quality that's more in line with full-service restaurants, coupled with the speed and convenience of fast food.” ( In addition to this unorthodox approach to the restaurant industry, CMG has also “rejected almost every major technique in which the industry was built.” Not only does CMG never show the actual product it sells, “it doesn’t advertise on television, doesn’t franchise, and has some of the highest ingredient costs in the industry” (St. Petersburg Times, Nov 24, 2007). These ideas have not only changed the landscape of the restaurant industry, it has led to the exponential growth of Chipotle restaurants worldwide. According to its 10-K Annual Report filing from December 31, 2010, CMG’s total revenue has increased 123% since 2006. Majority of this revenue increase is credited to the ability to have expanded to so many locations. This was made possible due to McDonalds
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Chipotle Mexican Grill, Inc. IPO Analysis serving as Chipotle’s largest investor from 1998-2005. With such an injection of capital, it allowed Chipotle to grow from “16 restaurants in 1998 to over 500 by 2005.” (, April 27, 2006) As of March 2011, 1,095 restaurants have opened throughout the United States, Toronto, Canada, and London, England. According to Renaissance Capital, “Chipotle restaurants have a startup cost of $900,000, average 2,500 square feet and typically generate $1.4 million in sales a year with a cash-flow margin of 18.5%, which indicates a return-on-investment run-rate of about 30%.” Adhering to their mission statement, CMG describes in its December 10-K report how its typically unorthodox approaches to their restaurant structure could also lead to higher risks. CMG “sales and profit growth could be adversely affected if comparable restaurant sales increases are less than they expect and [they] expect, and [they] may not
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This note was uploaded on 10/13/2011 for the course MAFM FI516 taught by Professor Anthonycriniti during the Spring '10 term at Keller Graduate School of Management.

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FI516_Week5IPOPaper_BrianLin - Chipotle Mexican Grill, Inc....

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