It is deep-freezer cold outside??ust 5 degrees??nd the snow is coming down hard. Never mind. Trey Parrott has just trudged up Chicago's Michigan Avenue to Chipotle Mexican Grill for lunch. Parrott, 25, figures he has eaten at Chipotle every week since a friend first took him to one seven years ago, when he was a high school senior in Kansas City, Mo. Over that stretch, he has also reversed roles: Today he has brought along a couple of co-workers who've never been in a Chipotle before. Their snap review? Two thumbs-up.
Most fast-food chains drum up traffic by barraging consumers with mass-media ads, trumpeting their newest product or latest deal. Chipotle Mexican Grill Inc. (CMG) plays by different rules. The Denver-based company eschews TV commercials and most other traditional advertising. In fact, it spends less in a year on advertising than McDonald's Corp., its former parent, (MCD) spends in 48 hours. "Advertising," declares M. Steven Ells, Chipotle's founder and chief executive, "is not believable." Instead, Chipotle banks on customers to spread the word. And like Parrott, who works for Citigroup's (C) Primerica Financial Services, they routinely do.
This all-volunteer army has helped make Chipotle one of the hottest properties in the restaurant industry. Same-store sales jumped 13.7% in 2006, its ninth straight year of double-digit increases. The 573-unit chain ranked tops among quick-serve Mexican places in a just-published national survey of consumers and tied for fourth out of 2,400 brands overall. Chipotle can also brag about the biggest bang of any initial public offering in 2006: Its share price has nearly tripled, to 60, since January, 2006, when McDonald's began its spin-off, which was completed last October.
Fittingly, Chipotle is also generating buzz for word-of-mouth marketing. These days the typical consumer is exposed to so many paid pitches??stimates range from 600 to 3,000 a day??hat people tend to tune them out. People also dismiss almost anything that comes from big companies, notes Dan Buczaczer, senior vice-president of Denuo, a new-media consulting division of Publicis Groupe (PUB). But if people hear the same message from a friend or even a stranger, he adds, they'll probably believe it since the tipster has nothing to gain. "Chipotle so far has got it nailed," Buczaczer says. "You have people evangelizing the brand because they love it."
What advertising Chipotle does is mostly on billboards or radio, touting the ample size or fresh ingredients of its burritos and tacos, though with a dash of irony. But its marketing budget is minimal. Over the first 11 months of 2006, McDonald's spent $818.9 million on traditional media advertising in the U.S., while Yum! Brand Inc.'s (YUM) Taco Bell unit spent $252.4 million, according to Nielsen Monitor-Plus. Chipotle's outlay over the same span: $4.5 million. Looked at another way, Chipotle spent less than 1% of its full-year revenue of $882.9 million on ads vs. 4% or more by its larger rivals.
The thriftiness goes back to Chipotle's start in 1993, when Ells opened a cramped outlet in a Denver storefront. With only $85,000 to cover everything, he recalls, even a single ad seemed too costly. Besides, Ells, a white-tablecloth chef who trained at the Culinary Institute of America, thought customers should be swayed first and foremost by the food. So instead of telling people about Chipotle's burritos he gave them away. When dozens of reporters were camped out in Denver in 1997 as Timothy J. McVeigh was tried for the 1995 Oklahoma City bombing, Chipotle regularly delivered free food to the courthouse.
The handouts are now part of Chipotle's strategy. When Chipotle came to midtown Manhattan last July, it gave burritos away to 6,000 people, some of whom stood in line for two hours. The stunt cost $35,000, figures James W. Adams, Chipotle's marketing director. In return, the company landed 6,000 new spokespeople. "You could spend that same amount on an ad in The New York Times and you wouldn't have that many people talking about you," Adams points out. "The response to the food is almost always positive. It's unique and it's tasty." But don't just take it from him; any Chipotle regular would probably say the same thing.
By Michael Arndt