Chipotle: The Definitive Oral History
bloomberg.com
bloomberg.com
This was pure, unadulterated good luck, but the present value of those shares approaches that of BCC as a freestanding business.
Fun story: back in the day, Chipotle had two share classes: CMG.A and CMG.B. The B shares were what McDonalds had originally gotten, but they could be bought and sold on the open market -- if you knew how to ask your broker for them. They had no intrinsic reasons to be less valuable than A shares -- they had 5x the voting rights but were otherwise identical. And they traded at a 10% discount to A shares for over a year, because Chipotle was growing quickly, people were logging into their discount brokerage to buy CMG, and their brokerages were giving them CMG.A.
After quite a bit of headscratching about this, I figured out the correct series of incantations to get my discount brokerage to give me the B shares instead. Two years later, larger investors convinced the board to approve converting B shares into A shares on a 1:1 basis. Instant 10% ROI kicker if you had been holding them.
(In a company which wasn't growing like wildfire you would have been able to sell CMG.A and buy CMG.B to arbitrage this price difference away, but apparently demand for shorting CMG.A was so high that doing this in quantity was difficult.)
Now, I don't believe retail investors should be picking stocks at all, but if you are going to, then this isn't such a bad way to go about things. For instance, I think it beats picking stocks based on what you read in the financial news outlets any day of the week (which a lot of people do).
Source: One Up on Wall Street
So I agree with Patrick that he got lucky. :)
Last I heard, they had been doing pretty well throughout the early '00s.
I'm guessing you stopped looking around Feb 2004? :)
The caveat is that this discount is only beneficial to a buy-and-hold strategy, in fact this discount was probably offset by the fact that CMG.B was less liquid than CMG.A and the spread was probably a bit higher as it was traded less often.
Arbitrage opportunities are often too good to be true for a reason: selling CMG.B shares was probably the same trouble as buying them (before the split) so this market inefficiency was causing the 10% difference.
EDIT: Thanks for the reminder that nothing mildly humorous is tolerated on HN.
I see this as Chipotle offering what is effectively an obsoletive product - fast food that's cheap but also has some valuable nutritional content - compared with McDonald's, who were capable of offering a highly disruptive low-end product in an environment where there was an information asymmetry.
I find this interesting because, to me, it's a demonstration that themes of obsolescence and disruption can apply to much more than just pure tech businesses.
I've never eaten at Chipotle myself (do we even have them in the UK?), but wow this is some great PR for them. Reminds me of when everyone just happened to start raving about Nando's a while back. Kudos to whoever set this up.
But choices were simple in 1952. McDonald's original menu had, what, 4 items on it? Burger, cheeseburger, fries, drink. People didn't want customization so it was easy to assemble an order in a bag in under 30 seconds.
People want more choices now. It's why McDonald's is struggling to keep up. Their systems, multiple generations more advanced than before, can handle it but only to a certain degree.
Chipotle has found a way to address this desire for choice by bringing back what really is a buffet line. The innovation is that they found a way to streamline that into a fixed set of choices (Burrito or Bowl? Meat or chicken?) that avoids the line turning into a slow moving nightmare of indecisive lookers like you get at a typical wedding reception or church dinner.
It was interesting to read in the article how McD's wanted to solve Chipotle's problems with technology, when really those weren't huge problems at all. It shows the difference in culture.
This narrative doesn't explain why In 'n Out is very popular. They have five items on their menu. http://www.in-n-out.com/menu.aspx
(They also have a secondary menu, yes, but that's more for stylings and extras.)
I would describe it as McDonald's offering a very wide and shallow menu, while Chipotle/Five Guys/In-n-Out offer a very narrow but deep menu.
McDonald's is experimenting with touchscreen kiosks to let you decide from a list of burger topping options.
I like the way you present the Chipotle/buffet as a set of choices too - it seems to make choice into almost a data structure issue. Like Chipotle are succeeding partly because they're presenting people with a binary search tree rather than an undifferentiated cluster of choices.
Is there something I don't know about Chipotle's chickens?
We do indeed, they opened their first branches a few years ago. There are now six locations in London.
I'm not really a fan of burritos but the people in my office seem to like the bowls.
The Bloomberg page is full of pointless and distracting names fading in as you scroll. The name rollover effects on the Grantland page are carefully designed to keep the content uncluttered, not just to be cool; I just noticed there’s supposed to be a similar effect on the Bloomberg page, except it only works when the name itself is rolled over instead of the whole box, the avatars aren’t as stylish or consistent, and some of the the sub-descriptions are too long and spill out of their space.
The overall typography and layout of the Grantland page is better designed; in pretty much every detail where they differ, the Grantland page is done more carefully and with more obvious adherence to a design vision. (As one trivial example, the Bloomberg article uses a mix of straight and curly quotation marks for no apparent reason.)
I’d say Bloomberg’s designers copied the idea and several specific elements from the Grantland page (or another similar one), but ultimately either had shittier design constraints imposed from outside, did a rushed job, or just overall weren’t as skilled or tasteful.