Chipotle adds Mexican spice to fast-food formula

Ells had a similar revelation seven years ago while trying to figure out why Chipotle's shredded-pork carnitas weren't selling as well as its grilled chicken or steak. On a trip to an Iowa hog farm that raised animals in the open, rather than in pens, he made a discovery: Because they put on more fat living out in the open, their meat was tastier.

Although the meat was more expensive, Chipotle soon switched to the free-range-pork supplier. "The ability to invest in higher-quality food as you increase sales is the thing that really drives the business," Ells says of a resulting doubling in carnitas sales.

• Video: Chipotle's 'simple' business model

The idea has since been expanded into Chipotle's "Food With Integrity" initiative, which has adopted everything from humanely raised pork to hormone-free sour cream.

Ells says that most of his customers don't know -- and probably don't care -- whether the pork in their burrito is naturally raised, "but the higher-quality ingredients ultimately result in better-tasting food. No one else in the business can do that because their economic models are different."

To be sure, most purveyors of fast food, and even those in the more upscale "fast casual" category, have pursued a strategy of using the lowest-cost ingredients possible. In fact, "their labor costs are usually higher than their food costs," says Chipotle Chief Operating Officer Monty Moran. "But for us, it's the other way around."

'First in line'

While Chipotle pays competitive wages, starting at about $8.10 an hour, Ells and Moran have focused aggressively on serving customers quickly -- increasing revenue per employee and pushing up average sales volumes to about $1.7 million per store annually. "That's pretty much unheard of in the industry," says Al Baldocchi, a restaurant consultant and longtime Chipotle director.

You can see the difference in Chipotle's kitchens, which despite requiring food preparation far more complex than the deep-fried, automated processes typical at most fast-food restaurants, are pictures of efficiency.

"The grill area is right behind the chef's table, which is right behind the front line," Moran says of the streamlined setup. "So the people on the line just turn around when they need something, and it's ready."

Meanwhile, the company has taken full advantage of one of the economy's most important labor sources: Latinos, who now represent 80% of Chipotle's work force.

Eschewing part-timers and college students in favor of full-time, permanent employees, Moran has recently put a new, multi-tiered store management system in place that provides a path for line workers to move up. The result: one of the lowest employee turnover rates in the industry. Analyst Haskell notes that will save a lot of money in the long run. "You get better people. And as they move up, their success just breeds more success."

So is Chipotle a "buy," after all?

"Well, let's just say this," Haskell says. "When they open up a store here in Nashville, I'll be first in line for a burrito."

This article was reported and written by Alex Markels for U.S. News & World Report.

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