Almost a year ago, we published a blog called
“Why Chipotle Refuses to Franchise,” in which we shared the benefits the Chipotle business would be missing
out on because, as their spokesperson Chris Arnold put it, “they
didn’t need to franchise.” But now, it seems like the tides
may be turning. Recent news indicates that Chipotle might be putting on
the franchise hat after all.
Hard Times for the Chipotle Company
Back in 2015, the Chipotle name suffered a series of e-Coli and norovirus
poisonings, closing doors to specific locations for good. The disaster
set the company back financially, curbing their annual sales from $2.5
million to $2 million and severely impacting store-level operating margins,
dropping them from 28% in the second quarter to 15.5%.
In the past, Chipotle’s Co-CEOs Monty Moran and Steve Ells have been
strongly against franchising. They have expressed the desire to control
their restaurants and are not in favor of relinquishing that control to
franchisees. At one point, the company did open eight franchised restaurants
at the request of McDonald’s, the majority owner at the time. Moran
described the moment as “an uncomfortable time for us.”
Why the sudden change of heart?
With the recent hard times in mind, could franchising really be back on
the table? If Pershing Square Capital’s Bill Ackman has anything
to say about it, then yes. Pershing recently revealed a 9.9% ownership
in Chipotle. After the announcement, Chipotle shares jumped in value,
despite being 45% off from its high value prior.
Ackman believes in the franchise business model, and his 9.9% interest
overshadows the combined interest of Ells and Moran. But it is still hard
to say whether or not Chipotle will venture down the franchise road. As
of right now, Ackman has said that he will not press for a board seat
if he feels “confident that the existing board already has appropriate
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