Does McDonald’s Own Chipotle?

Image Credit: Aranami: CC via flickr

Q:

Does McDonald’s own Chipotle?

A:

The short answer is no, Mcdonald’s does not own Chipotle. However, McDonald’s once was a majority stakeholder in Chipotle. Read on for an explanation of what happened.

The first Chipotle opened in 1993 in Denver, Colorado by its founder Steve Ells. In 1998, McDonald’s took a minority stake in the company. Chipotle had only 14 locations at this time. By 2001, McDonald’s turned that minority stake into a majority. By 2005, McDonald’s capital helped fuel the growth of Chipotle to an impressive 500 approximate locations.

McDonald’s announced in 2006 that it would fully divest its stake in Chipotle. This was a bad move according to many. The company has grown its location count to about 2,250 as of today. While the company has struggled over recent years with problems involving E-coli, salmonella, norovirus, and wage disputes, its stock has seen a nice return since going public in 2006.

Chipote stock (CMG) closed at $44.00 on January 26, 2006, the initial public offering day. As of November 15, 2017 the stock closed at $285.45. At its peak, Chipotle traded at over $700 per share in July 2015.

Why did McDonald’s cut ties with Chipotle? Business Insider explains that Chipotle was essentially a distraction for McDonald’s according to McDonald’s current CEO Steve Easterbrook who was not the CEO at the time divestiture. A review of the 2007 McDonald’s annual report confirms that the company was looking to focus growth on the McDonald’s brand after previously seeking additional growth through other brands like Chipotle and Boston Market. The annual report indicates:

The Company continues to focus its management and financial resources on the McDonald’s restaurant business as we believe the opportunities for long-term growth remain significant. Accordingly, during the third quarter 2007, the Company sold its investment in Boston Market. In 2006, the Company disposed of its investment in Chipotle Mexican Grill (Chipotle) via public stock offerings and a tax-free exchange for McDonald’s common stock. As a result of the disposals during 2007 and 2006, both Boston Market’s and Chipotle’s results of operations and transaction gains have been reflected as discontinued operations for all periods presented.

Ultimately, Chipotle and McDonald’s never seemed to completely mesh. For example, McDonald’s wanted things like drive-thru’s, breakfast served, and coffee & cookies added as menu items. Chipotle leadership did not agree with these changes and found that the two were culturally different. In a Bloomberg article, Chipotle CEO Steve Ells explains,

What we found at the end of the day was that culturally we’re very different. There are two big things that we do differently. One is the way we approach food, and the other is the way we approach our people culture. It’s the combination of those things that I think make us successful.

McDonald’s could have made a pretty penny if it held onto its stake in Chipotle. This would have added to its already strong earnings. However, maybe it was best for both companies to get away from each other. There were clearly different visions on the future of Chipotle on both sides.