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Montgomery F. Moran to Step Down as Chipotle Co-Chief Executive Montgomery F. Moran to Step Down as Chipotle Co-Chief Executive
(about 2 hours later)
The food safety crises that have battered the once high-flying Chipotle Mexican Grill over the last year are now taking a toll on its executive suite.The food safety crises that have battered the once high-flying Chipotle Mexican Grill over the last year are now taking a toll on its executive suite.
Montgomery F. Moran, a co-chief executive who has long presided over the company’s operations, will step down early next year, the company announced Monday morning. It also said it would be changing the board.Montgomery F. Moran, a co-chief executive who has long presided over the company’s operations, will step down early next year, the company announced Monday morning. It also said it would be changing the board.
“We all agreed that one C.E.O. will serve the company better,” Steve Ells, Chipotle’s founder and other co-chief executive, said in a telephone interview. “The board decided that one C.E.O. would be me, and I’m looking forward to a continued friendship with Monty.” The company declined to make Mr. Moran available for comment.“We all agreed that one C.E.O. will serve the company better,” Steve Ells, Chipotle’s founder and other co-chief executive, said in a telephone interview. “The board decided that one C.E.O. would be me, and I’m looking forward to a continued friendship with Monty.” The company declined to make Mr. Moran available for comment.
Chipotle has struggled to regain its footing after a series of food safety failures that started with a norovirus outbreak last year. Sales in stores open at least a year, a key measure of a restaurant chain’s health, have failed to recover as fast as the company and Wall Street had expected. Shares have fallen more than 30 percent in the last year. Chipotle has struggled to regain its footing after a series of food safety failures that started with a norovirus outbreak last year. Sales in stores open at least a year, a key measure of a restaurant chain’s health, have failed to recover as fast as the company and Wall Street had expected.
The company says about 33 million new or lapsed customers ate at a Chipotle restaurant in the last six months, but fewer of them made repeat visits. Last week, the company said that roughly half of its stores had failed to deliver the customer experience it expects, a part of the business overseen by Mr. Moran. Shares have fallen more than 30 percent in the last year. Late Monday morning, after the executive change was announced, shares were up about 3 percent, to about $380 a share.
Chipotle is also dealing with an activist investor in William A. Ackman, whose Pershing Square Capital Management disclosed in September that it owned a 9.9 percent stake in Chipotle. So far, Chipotle and Pershing Square have described their interactions as “cordial” and productive. The company says about 33 million new or lapsed customers ate at a Chipotle restaurant in the last six months, but fewer of them made repeat visits. Last week, the company said that roughly half of its stores had failed to deliver the customer experience it expected, a part of the business overseen by Mr. Moran.
Chipotle is also dealing with an activist investor in William A. Ackman, whose Pershing Square Capital Management disclosed in September that it owned a 9.9 percent stake in Chipotle. Chipotle and Pershing Square have described their interactions as “cordial” and productive. Pershing Square declined to comment on Monday.
Mr. Ells said Mr. Moran’s departure was not at Pershing Square’s behest. But other investors have been clamoring for change.Mr. Ells said Mr. Moran’s departure was not at Pershing Square’s behest. But other investors have been clamoring for change.
Chipotle is also planning to overhaul its board, where the median tenure is 17 years and four of the seven outside directors were appointed when the company was still private. Critics have also deplored a lack of diversity on the board, which is all white and has only one female member. Chipotle is also planning to overhaul its board, where the median tenure is 17 years and four of the seven outside directors were appointed when the company was still private. Critics have also deplored a lack of diversity on the board, which is all white and has one female member.
Mr. Ells said the company would announce changes to the board shortly.Mr. Ells said the company would announce changes to the board shortly.
Mr. Moran, who was appointed to his position in 2009, was known as somewhat of a taskmaster when it came to overseeing employees. Before he was a co-chief executive, he was the company’s chief operating officer.Mr. Moran, who was appointed to his position in 2009, was known as somewhat of a taskmaster when it came to overseeing employees. Before he was a co-chief executive, he was the company’s chief operating officer.
Last week, Chipotle executives said that in part because of an extensive new food safety program the company has instituted over the last year, the amount of time it takes customers to get through the assembly line as their meal is made has increased. Spot checks by executives and the company’s auditing team found things like used napkins left on tables, smudged windows and doors, and messy condiment stations. Some customers using the Chipotle app to order were told their meal would not be ready for 45 minutes to an hour. Last week, Chipotle executives said that in part because of an extensive new food safety program the company had instituted over the last year, the amount of time it took customers to get through the assembly line as their meal was made had increased. Spot checks by executives and the company’s auditing team found used napkins left on tables, smudged windows and doors, and messy condiment stations. Some customers using the Chipotle app to order were told their meal would not be ready for 45 minutes to an hour.
Such issues largely fell under Mr. Moran’s supervision, but will now fall to Mr. Ells, a self-described perfectionist who founded the company in 1993 with a loan from his father.Such issues largely fell under Mr. Moran’s supervision, but will now fall to Mr. Ells, a self-described perfectionist who founded the company in 1993 with a loan from his father.
“Prior to the crisis, we would have maybe six, seven or eight changes to our operational protocols a year,” Mr. Ells said. “Post-crisis, we’ve introduce dozens and dozens of them, and that’s a lot to handle.”“Prior to the crisis, we would have maybe six, seven or eight changes to our operational protocols a year,” Mr. Ells said. “Post-crisis, we’ve introduce dozens and dozens of them, and that’s a lot to handle.”
He said that while employees have received top marks from internal auditors for embracing those changes, many of which were related to improving food safety, that may have caused lapses in other areas, including customer experience. He said that while employees had received top marks from internal auditors for embracing those changes, many of which were related to improving food safety, that may have caused lapses in other areas, including customer experience.
“We have a terrific team, and our managers are terrific managers,” Mr. Ells said, “but we have made it too complicated for them and too complicated in a way that they just can’t do an excellent job in many cases when it comes to the customer experience.” He said any changes would not come at the expense of food safety.“We have a terrific team, and our managers are terrific managers,” Mr. Ells said, “but we have made it too complicated for them and too complicated in a way that they just can’t do an excellent job in many cases when it comes to the customer experience.” He said any changes would not come at the expense of food safety.
Mr. Ells said he plans to change the incentives for employees who excel. Chipotle is already one of the handful of large restaurant chains that pays starting employees above minimum wage, and it offers benefits like paid vacation, sick leave and tuition reimbursement. Mr. Ells said he planned to change the incentives for employees who excel. Chipotle is already one of the handful of large restaurant chains that pays starting employees above minimum wage, and it offers benefits like paid vacation, sick leave and tuition reimbursement.
The company has long given stock to general managers who achieve what it calls “restaurateur” status, but Mr. Ells said that program has become increasingly complicated and will be streamlined. The company has long given stock to general managers who achieve what it calls “restaurateur” status, but Mr. Ells said that program had become increasingly complicated and would be streamlined.
“When our folks focus on exactly what is needed to succeed in the restaurants,” he said, “they should be able to lead themselves to restaurateur level.”“When our folks focus on exactly what is needed to succeed in the restaurants,” he said, “they should be able to lead themselves to restaurateur level.”
Howard Penney, a managing director and restaurant analyst at Hedgeye Risk Management, said Mr. Moran’s departure was not enough. “The problems with Chipotle go deeper than the operational issues,” said Mr. Penney, who last week said on Twitter that Mr. Moran was likely to leave the company. “They need to find someone with turnaround capabilities to help re-engineer the company.”
He said Chipotle might tap Troy Alstead, the former chief operating officer of Starbucks, either as a new board member or as an executive. Mr. Alstead was instrumental in the coffee chain’s turnaround.
Mr. Penney said Chipotle needed to slow its growth and focus more on profits. The company has had higher employee turnover in part, he said, because it has been less profitable and thus has less money for bonuses.
“When you open new stores, you typically take someone from an existing store and put them in the new store,” he said. “But they don’t have as many of those experienced people around anymore,” he said.
Any potential reduction in growth would almost certainly upset Wall Street, however. At the Barclays conference last week, Jack Hartung, the chief financial officer of Chipotle, said that there was plenty of “runway” to open new stores and that the company was slowing its development of more remote markets.
“The slowing down part was we looked at markets that were remote, so they’re tougher to run, remote, so the sales are less predictable, so there’s more risk in those, and we pared those down,” Mr. Hartung said.