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Jobs + Skills05.18.14

The Business Lesson Learned From Chipotle’s Crazy Week

Chipotle gets equally large parts praise and flack in a single week, and there’s a secret ingredient behind all of it.

From its new roll out of literary cups (good) to an investor smack-down (bad), Chipotle’s roller-coaster week was all about a single business lesson: Delighting the customer.

Customers gave a thumbs-up to the restaurant chain’s new line of cups and bags featuring original essays from authors and comedians such as Toni Morrison, Malcolm Gladwell, Sarah Silverman, Michael Lewis, and Judd Apatow.

The literary inspiration is actually the brainchild of author Jonathan Safran Foer. He met Chipotle Co-CEO Steve Ells a few years ago after writing Eating Animals, a bestselling book about factory farming.

The new packaging doesn’t change the taste of the food inside – but it’s yet another way that Chipotle is innovating the customer experience. As Foer says, “The question isn’t really is this going to change the world, the question is — is this better than having a blank bag?”

The concept may seem simple, but Chipotle revolutionized the fast food industry by changing the fast-food experience in similar ways. A trained chef, Ells bucked the fast food trend of cutting back on food quality in order to lower costs.

Instead, Ells created a new value equation for fast food by offering freshly prepared ingredients at a higher price. In doing so, he also created an entire new industry of fast-casual dining – which drew more traffic than any other restaurant segment for the fifth consecutive year in 2013, according to the NPD Group.

Chipotle’s innovations included clean, modern eating spaces, making food while customers watch, and using sustainably raised meat and locally raised produce. Decisions are based on making customers happy, regardless of cost. And customers reward those choices: when Chipotle used a higher grade of pork for its carnitas burrito and raised the price by a dollar, sales of that item actually doubled, according to Denise Lee Yohn, author of “What Great Brands Do.”

Chipotle’s new literary packaging follows that successful formula by creating yet another way to delight customers. As Foer says, “In the scheme of corporate America this is not a massive investment of any kind, but it might have really beautiful payoffs.”

That same philosophy enabled Chipotle, like fellow innovators Netflix and Amazon.com, to raise prices last month without losing customers. Chipotle executives cited rising costs for many of its key ingredients — including beef, cheese, avocados and limes –as justification for raising its burrito prices in the mid-single digits.

Like Chipotle, Netflix recently announced a price hike of $1 a month in order to increase value to customers. Recent improvements include offering original content like the hit series House of Cards, and signing deals with Comcast and Verizon for faster Internet speeds. Similarly, Amazon raised the price for its popular Prime membership program from $79 to $99 a year in march to cover rising shipping costs.

Because all three companies traded modest price hikes for innovations that increase customer value, they’ve received little pushback from either customers or investors.

But Chipotle learned the hard way what happens when corporate changes aren’t based on making customers happy.  In the largest vote against CEO pay this year, 77 percent of shareholders gave a thumbs-down to Chipotle’s proposal for executive compensation at the company’s annual shareholders meeting on Thursday. Last year co-CEOs Monty Moran and Steve Ells earned nearly $50 million combined.

Shareholder CtW Investment Group, which led the revolt, says executive pay has been rising every year “without clear rationale,” the Wire reports, especially as Chipotle is raising food prices and facing a potential increase in minimum wages.

As comedian Sarah Silverman writes on her Chipotle cup, “You don’t have to do what’s expected of you.” But if it doesn’t delight the customer, it’s a lot less likely to succeed.

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