Chipotle’s CEO has convinced customers to stay loyal and pay more. He’s now facing hurdles that could be even higher

Chipotle rolls out “LTOs” (limited-time offers) like the steak two or three times a year, hoping they’ll bring in new customers and get existing ones to spend more. Niccol, the author of the burrito chain’s stunning turnaround since he became CEO in 2018, is an LTO mastermind—and until now, he’d had a long winning streak. Chipotle went all out promoting the steak (which gets its name from guajillo chili peppers). It partnered with gaming site Roblox to offer free coupons for the dish in the metaverse and gave early access to members of its huge loyalty program.

But customers didn’t warm to the steak the way they did to, say, the beloved brisket LTO of 2021. And the reasons why hint at the challenges that Niccol needs to contend with if he wants Chipotle’s next five years to be as successful as the last five.

Higher-than-anticipated inflation meant Chipotle wound up charging more for the dish than some customers would pay, Niccol explains. And in a chain-restaurant kitchen—where new employees come and go constantly—the steak was a challenging dish to consistently prepare well. “The combination of a lot of turnover, and then frankly, the amount of inflation that was going on out there,” says the 49-year-old Niccol, meant “it just ended up being a little bit harder to execute.” 

Setbacks have been rare for Niccol, a marketing and branding savant who rose to fame when he turned around Taco Bell. Niccol went on to pull Chipotle back from the abyss after headline-grabbing food safety problems chased customers away in the mid-2010s. Since 2018, Chipotle’s annual sales have risen 77%, to $8.6 billion; annual sales per restaurant have climbed from $1.9 million to $2.8 million, and shares are up nearly 400%.

Today, however, Chipotle is feeling the same heartburn that all restaurants face post-pandemic, as inflation erodes consumers’ willingness to dine out. The guajillo bust coincided with a worrying 4% year-over-year drop in customer visits in the fourth quarter of 2022. Chipotle offset the decline, and inflation, by raising prices 11% last year, but that strategy can go only so far. 

The human element in the steak stumble points to Chipotle’s biggest challenge. Niccol has announced ambitious plans to more than double its restaurant count, from around 3,100 to 7,000, opening between 250 and 300 new locations a year for the next decade-plus. For Chipotle, which already employs 103,000 people in the U.S., that will mean hiring and retaining the equivalent of a small city. But workers are hard to find these days—and labor unrest, an endemic problem at restaurant chains, has touched Chipotle too. The average turnover in fast-casual restaurants is 130%, meaning that a restaurant with 30 staff will need to replace 39 people over the course of a year. At Chipotle, turnover ballooned to almost 200% in 2021, though it’s now far lower. 

The labor equation is one factor that has some investors skeptical about Niccol’s plan. “He’s one of the best executives in the space, great pedigree, a smart young guy who makes all the right moves,” says Howard Penney, a managing director at Hedgeye Risk Management. But Hedgeye is shorting Chipotle, Penney says, because it doesn’t think the chain can sustain its recent pace. “The issue that he faces now is lapping that success,” says Penney.

Niccol likes to say that Chipotle has white-tablecloth standards for food preparation: It takes a lot of training to make sure workers do it right. High turnover or undertrained staff can mean compromised quality. So a worker shortage is a potentially existential threat.

Chipotle is tackling that challenge, in part, with a bold move: automating some of the more menial work in its kitchens to make its jobs more attractive. If it automates too much, however, Chipotle could endanger the ethos and theater that have made it successful: the aura of eating handmade food; the pleasure of watching someone scoop your grilled chicken into your tortilla. Niccol now faces the difficult task of getting that balance of ingredients just right—at increasingly massive scale.

When Niccol arrived, Chipotle was a hotter mess than a disintegrating burrito. The chain was struggling to win back customers after a string of food safety incidents, most notably E. coli outbreaks in 2015 that sickened dozens of customers and led to the temporary shutdown of more than 40 restaurants. Chipotle went from Wall Street darling to health hazard: The reputational damage was so bad that comparable sales at Chipotle fell 20% year over year in 2016. 

Until that point, Chipotle had grown by leaps and bounds since its founding in 1993, thanks to its focus on “Food Integrity”—food made with fresh ingredients, in kitchens with no freezers, using only meat from animals free of antibiotics. Chipotle found the sweet spot at the intersection of consumers’ love of fast food and their growing desire for what they perceived as healthier fare.

The resulting growth made Chipotle a hot stock for years under founder Steve Ells and his co-CEO, Monty Moran. But it also brought indiscipline, including a lack of consistency in food prep and a disconnect between headquarters and frontline workers. Post–E. coli scandal, Chipotle’s marketing conveyed an air of desperation: There were $2 taco campaigns, “buy one, get one free” deals, and a constant defensiveness about food safety in its advertising.

Moran resigned as co-CEO at the end of 2016; 15 months later, Ells stepped down to become executive chairman. So eager was Chipotle’s board to hire Niccol that it agreed to move its headquarters, and hundreds of jobs, from Denver to Newport Beach—to be closer to neighboring Irvine, where Niccol was running Taco Bell. (Chipotle says Niccol wasn’t the sole reason for the move: Multiple fast-casual chains have home offices in the area, deepening its potential talent pool.)

Niccol started his career at Procter & Gamble in 1996, marketing Scope mouthwash. He radically altered the image of Yum Brands’ Taco Bell chain as its CEO from 2015 to 2018, winning new customers with the “Live Más” ad campaign, the launch of mobile ordering, and a wave of offbeat but popular new products. The Doritos Locos Taco, a megahit, was Niccol’s baby; so was the Cap’n Crunch doughnut hole mashup. 

Niccol says he always felt that Chipotle’s brand stood for something important in the public’s eye. Still, he inherited a company that needed a top-to-bottom recalibration. 

One priority was ending tactics like coupons and discounts that could erode Chipotle’s brand. “If you’re not careful, [discounting] can be a death spiral, where you create a consumer experience around price that’s not sustainable,” says NPD Group restaurant analyst David Portalatin. Niccol stripped most discounts and promotions off the menu—resisting entreaties from one of his top shareholders, activist investor Bill Ackman. (Ackman, who remains an investor, eventually made a killing on his Chipotle bet.) 

Niccol also resisted shareholder pressure to add breakfast, an offering that fueled a turnaround at McDonald’s but that would have forced restaurants to operate for much longer hours. Niccol says he got a standing ovation at a conference of 2,000 company managers in 2018 when he announced that Chipotle wouldn’t join the Breakfast Wars.

Early on, Niccol hired his Taco Bell colleague Chris Brandt to take over marketing. Much of Brandt’s work has focused on Chipotle’s loyalty program, which now has 32 million members, ranking alongside Starbucks’ as among the most successful such programs in food service. Niccol also prioritized Chipotle’s app, which worked to the chain’s benefit when restaurants were reduced to takeout or delivery only for weeks during COVID’s height. 

In advertising, Brandt dropped the defensive tone and refocused Chipotle’s campaigns on its fresh ingredients and its “culinary” approach to food prep. (Brandt says internal research shows that Chipotle’s safety crises are no longer on people’s minds when considering whether to eat there.) Niccol told managers to get frontline employees to think more like chefs; he even gave them a pocket guide with information on all their ingredients, with details such as how the flavor of a lime changes according to the season. 

For Niccol, stressing the culinary approach also meant emphasizing the open-kitchen theater of people preparing food in front of you and allowing you to customize it—something you’re more likely to associate with a sit-down restaurant than a quick-serve $10.99 burrito. “There is something to the sights and sounds of Chipotle, hearing the grill and seeing guys chopping chicken and seeing people banging pans,” Niccol says. “You want those sounds, and you want those smells.

“I don’t think of us as fast food,” he continues. “I’m always driving home the point that we are actually a company that does ‘culinary’ at scale.”

While giving a tour of a Chipotle kitchen in Costa Mesa, three miles from headquarters, chief restaurant officer Scott Boatwright proudly opens a huge refrigerator to show off the “walk-in” inventory. He says a Chipotle typically goes through the entire contents of a walk-in in three days, rather than the weeks it might take rivals that use frozen food. “We have no freezers, no can openers, no microwaves, so it’s as fresh as it gets,” he boasts. Employees arrive four hours before a restaurant opens to cut peppers, grate cheese, make guacamole, and generally do the mise en place—prepping ingredients for cooking the way a sit-down restaurant would.

Boatwright also points out that the Costa Mesa restaurant has two separate food-prep workstations—one for pickup digital orders, and the other exclusively for in-restaurant orders. Most Chipotle locations now have this two-tier setup. The idea is to avoid the chaos of workers preparing mobile and in-store orders in the same space, with staff on different timelines bumping into each other. That’s a problem that bedevils chains like Starbucks, and one that’s easily visible, and off-putting, to in-restaurant customers. Avoiding it means smoother fulfillment of online orders, which now account for a striking 37% of Chipotle’s business.   

Digital-order workstations also serve an important initiative: the drive-thru “Chipotlane.” The company is putting Chipotlanes in 90% of new stores and retrofitting them into many older ones. But they’re for online and app purchases only: No barking your order into a defective intercom and hearing back from an employee who sounds like one of the grownups from Peanuts. The result, Chipotle says, is shorter lines and shorter waits. 

Boatwright’s focus on optimal setups reflects his mandate to squeeze more growth out of existing restaurants. While the average Chipotle location generates $2.8 million in annual sales, Boatwright says many locations generate $5 million, and others could get there if they could squeeze in more staff. But that’s a tall order in a tight labor market.

This conundrum explains Chipotle’s experiments with automation. The chain has begun testing a grill for preparing chicken, of which Chipotle served 86,000 tons last year. Currently, its chicken takes 13 minutes of grilling—and since workers often leave the grill to do other tasks, they sometimes overcook the meat. Niccol says the automated grill will improve quality by standardizing preparation—while sharply cutting cooking time. But for now, that will happen only at online-order workstations: Folks eating in-house will still see imperfect human beings at work at a griddle.

Niccol also hopes to have machines take over the tasks employees say they most dislike—the roles, he says, “that our team members have told us, ‘Man, if you could figure out how to make this easier …’ ” Those include frying tortilla chips (Chipotle is trying out a fryer called the Chippy), coring avocados, and cooking rice.

Niccol bristles at the suggestion that automation is designed simply to reduce the need for humans. He says the tools would essentially just fill positions that see particularly high turnover. Indeed, staying attractive to potential employees is crucial to Chipotle’s expansion—and like many restaurants, it’s navigating some tense moments on that front. 

The average U.S. hourly wage at Chipotle is $16, and its minimum is higher than that of many competitors; it also offers benefits like tuition assistance. But other working conditions have stirred discontent. Last year, Chipotle saw the first successful unionization vote in its history: A restaurant in Lansing, Mich., voted to join the Teamsters, in an election fueled by employees’ anger about scheduling and flexibility. The company closed a restaurant in Maine where workers wanted to unionize. (Chipotle said it closed the location because it couldn’t staff it adequately.) And Chipotle paid a $20 million settlement to New York last August, after the city alleged that its restaurants failed to post work schedules with enough notice, compensate workers for schedule changes, or give existing employees more shifts before hiring new ones. 

Niccol says labor relations are good and that unionization will only hinder them. “It slows down our ability to have a great conversation with people that potentially weren’t getting what they needed,” he tells Fortune. 

Above all, Niccol knows that the chain won’t hit its goals unless workers not only sign on but stay. He says that in his experience, a restaurant’s general manager will almost never work out unless that person was hired and developed in-house. “If I want to open 300 restaurants a year, that means I need 300 new general managers a year,” he says. “And I want to do that with a ‘promote within’ approach.” Frontline workers can rise to the highest level of general manager, or Restaurateur in company parlance, in as little as 3.5 years, the company says, earning a compensation package of $100,000 or so.

What would it take to keep someone in a chain-restaurant job for that long? Chipotle is betting that the answer involves delegating the crummiest tasks to machines, while sustaining the “you’re a chef” cachet of Chipotle’s fresh-food ethos. 

Increasing efficiency without making restaurants feel robotic: It’s a tough recipe to perfect. But that quest is clearly driving Niccol’s decisions. Chipotle just rolled out its latest LTO, Chicken al Pastor. It involves fewer steps than the guajillo steak, Niccol notes, and chicken is something Chipotle already makes a lot of. And anything new at Chipotle needs to be operationally simple, he says: “It’s got to be something that doesn’t slow us down.” 

Wins and worries 

As Chipotle’s CEO, Brian Niccol has turned around a struggling company—instilling operational discipline, developing a popular app, and increasing sales by 77% over five years. For his next act, he needs to keep growth going despite the challenges of inflation and a tight labor market.

3 big wins

App opportunity Niccol’s push to develop an industry-leading app streamlined digital ordering, boosted the company’s loyalty program, and made Chipotle a winner during the pandemic when many restaurants were takeout-only for lengthy periods. The app has also made the rollout of its Chipotlanes—drive-thrus reserved for customers who place orders online—a success. 

Dining without distress Chipotle implemented more rigorous food-handling measures in the wake of its 2015 E. coli outbreaks. Niccol and his team added even more safeguards, and the result has been a clean food-safety record. “We have had nothing in the last five years, knock on wood,” says marketing chief Chris Brandt.

Worth the price When Niccol became CEO, Chipotle was stanching a sales bleed and had resorted to cheesy promotions to win customers back. Niccol jettisoned much of the discounting and focused its advertising on quality ingredients. That rebuilt the brand’s aura and restored its pricing power.

3 big challenges

Inflation blues Chipotle’s pricing power has allowed it to pass on rising food costs and protect its top line. But higher prices in 2022 also contributed to a decline in store visits, mostly from lower-income diners; a sustained decline could torpedo Niccol’s plans to more than double the chain’s restaurant count.

Restless labor Last year, for the first time in history, a Chipotle restaurant voted to unionize. Complaints about scheduling fueled the organizing drive, and New York fined Chipotle over scheduling practices later in the year. Niccol will need to heal frictions with frontline workers in order to expand the company’s talent pool.

Robots on the line? Niccol wants to automate some of the food-prep tasks that workers dislike most, and Chipotle is testing automated tortilla-chip fryers and chicken grills at some restaurants. The machines could help retain employees and boost revenue. But too much automation could be pricey and threaten the “theater” of the food prep, analysts say.

This article appears in the April/May 2023 issue of Fortune with the headline “Can Chipotle still mix it up?”