Chipotle: From Single Shop to Surprise Departure

A Denver Success Story Heads West

Pictured, on the left: The original Chipotle restaurant, which opened for business in 1993 at 1644 E. Evans Ave. in Denver.

As any mother of a graduating senior will tell you, it all happens in the blink of an eye.

One minute you have a scrappy burrito joint on a corner near the University of Denver, and before you know it, the $12 billion fast-casual restaurant concept you helped spawn is off to sunny California to be with its new CEO.

But Denver will always have its memories, as well as its 77 Colorado Chipotle locations.

Wednesday’s news that Chipotle Mexican Grill (NYSE: CMG) would withdraw its corporate headquarters from the city it has called home for 25 years came as a surprise to the business community here, which has watched Chipotle grow from a single shop on East Evans Avenue into a nationwide staple for a quick dinner out for $10 or less.

Founded in 1993, Chipotle was a homegrown grown success story, combining things that have come to be known as quintessentially Colorado: Mexican food, an appeal to young people and a tinge of a hippie vibe, with an emphasis on responsibly sourced products and environmental consciousness.

With the goal of putting a fresh spin on fast food, founder Steve Ells created a business that grew to 2,441 restaurants with a $12.1 billion market cap, and was at the front of a new trend in the region.

Chipotle was the first in a wave of counter-service, build-your-own Mexican food establishments popular with college students to pop up along the Front Range. Qdoba, with a concept basically identical to Chipotle’s, was founded in Denver in 1995. It jumped on the relocation train earlier than Chipotle, moving its headquarters from Lakewood to San Diego in 2016.

Lesser-known local players like Big City Burrito, Illegal Pete’s and Café Mexicali were founded in 1994, 1995 and 2005, respectively. All have experienced success, expanding beyond the boundaries of the respective college towns in which they were founded and drawing huge crowds on a daily basis.

Ells built the business on capital gleaned from his father and small business loans until 1998, when McDonald’s invested in the burgeoning burrito business. McDonald’s eventually became the largest shareholder in Chipotle, pouring roughly $1.5 billion into the business before divesting in 2006, just as Chipotle went public.

The following decade boomed for Chipotle, as it saw its stock rise from roughly $45 on its first day in trading to $742 in July 2015. Simultaneously, the nationwide store count rose from 496 in 2006 to 1,831 in 2015, according to filings with the Securities and Exchange Commission. Not even the recession could slow the chain’s growth, with the number of stores increasing by 50 percent between 2008 and 2011.

But an outbreak of E. coli in 2015 and early 2016 rained reality down on Chipotle, as 55 customers in states from California to Delaware reported illness after dining at the restaurant. So began a string of bad press and stock slides from which the company still hasn’t fully recovered.

The company vowed to turn things around, and its stock has rebounded, although at $432, pricing is a far cry from its glory days. Ells stepped down as CEO earlier this year, but stayed on as executive chairman, saying at the time that the company needed to "move faster in order to make improvements."

The company appeared poised to stay the course in its hometown, signing a 152,000-square-foot, 15-year lease in December for a brand-new office space developed by Hines, where it could consolidate its two existing offices while simultaneously expand the company’s office footprint in downtown Denver.

Chipotle’s Denver offices consist of about 46,940 square feet in 1401 Wynkoop and 50,335 square feet in 1515 Wynkoop, according to CoStar data, for a total of 97,276 square feet. The new lease at 1144 15th St. would have expanded their local office space by about 56 percent.

But at the time the lease was signed, the Chipotle board, which includes Robin Hickenlooper, an executive at Liberty Media Corp. and wife of Gov. John Hickenlooper, were searching for a CEO to take Ells’ place.

Enter Brian Niccol, who served as CEO of Irvine, CA-based Taco Bell from 2015 until he took the reins at Chipotle earlier this year. Niccol oversaw a period of growth at Taco Bell, and a Chipotle press release announcing his hire trumpeted his success in repositioning Taco Bell as a "lifestyle brand."

Among Niccol’s first acts as CEO was to bring fellow Taco Bell alum Chris Brandt on board as chief marketing officer, replacing Mark Crumpacker, whose involvement in a New York cocaine bust was one of Chipotle’s many woes in 2016. Crumpacker was reinstated to his position in fall 2017 after completing rehab, but resigned earlier this year.

Then, as so often happens under a new CEO, came the shakeup. In addition to the closure of the Denver offices, Chipotle will shutter its New York office, shifting positions to its "shared services" office in Columbus, OH, and to Newport Beach, CA.

Chipotle’s existing office space in Columbus is in the Microsoft building at 8800 Lyra Drive. The asking rate for office space in that building is about $13.50 per square foot, triple-net, compared with about $30 per square foot in Chipotle’s existing buildings in Denver, according to CoStar data.

Asking lease rates at 1144 15th have not been disclosed, but are rumored to be well over the downtown market average. Chipotle and its brokers are responsible for finding a tenant for its space in the tower, whether through a sublease or a replacement tenant, according to a statement from Hines.

Columbus stands to gain about 150 jobs in the restructuring, according to local media.

"Some" of its roughly 400 employees in Denver will be offered relocation packages, Chipotle said in its statement Wednesday, but there’s no telling how many that will be.

The Colorado Department of Labor stands ready to help employees who lose their jobs find new ones at some of Denver’s other companies, many of which are hungry for talented workers amid a 2.1 percent unemployment rate, said Sam Bailey, vice president of economic development at Metro Denver Economic Development Corp.

That’s the silver lining to losing a company like Chipotle, Bailey said. Denver may no longer be the home of Chipotle, but the city does get to keep some of the talent that worked within its walls, and the many companies that remain here need those workers.

"We certainly don’t want to see the departure of a company, but we understand that seems to be driven by the executive leadership and their location. But if we retain the talent, that allows opportunities for some of our other employers," Bailey said.

Further, Bailey hopes that Chipotle’s roots in Denver mean that people still affiliate the two.

"The first location is still here," Bailey added.

Molly Armbrister, Denver Market Reporter  CoStar Group