In business, there’s only one thing that’s more important than success: making that success sustainable. That’s been the goal and the challenge for innovative food brand Chipotle, and its rock star CFO, Jack Hartung, has played a key part in making it all happen.
Hartung is one of the longest tenured CFOs in the U.S., having served around four decades in the role at McDonald’s and now Chipotle–10 times the average tenure of most finance chiefs. In this episode of Secrets of Rock Star CFOs, Hartung talks to our Jack McCullough about how he’s helped helm Chipotle through an IPO, massive hurdles, from the Great Recession to Covid, and its current expansion plans.
Listen by clicking below. The Q&A, lightly edited and trimmed for clarity, follows.
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Listen to the podcast here
We have a phenomenal guest so let’s get right into it. Our guest is Jack Hartung of Chipotle. He is one of the longest-tenured CFOs in the United States. Jack, welcome to the show.
Jack, it’s great to be with you.
For maybe one out of 200 people who perhaps have not heard of your company, do you want to give a little bit of an overview of Chipotle?
Yeah. It would be my pleasure. Chipotle is in what’s called a fast-casual part of the restaurant industry. We were one of, if not the pioneer that that helped create this category. It’s the idea being that we’re somewhere in between traditional fast food like McDonald’s with the drive-thru, Taco Bell and things like that, but not quite a full-service restaurant. There’s not a wait staff when you’re going to Chipotle. It was started in the early ’90s when this kind of experience didn’t exist but the key that makes Chipotle a special company is the cooking.
The culinary came from fine dining. It was started by a fine dining chef classically trained at The Culinary Institute of America at Hyde Park who loved cooking when he was a kid. He worked in fine dining. He wanted to open up his own restaurant but he thought he had to start small. He thought, “I’m going to open up a burrito joint.” He took all of his fine dining cooking and made it accessible. He made it easy, fast, and customizable. That one little restaurant that opened up in the Denver area near Denver University in 1993 eventually led to a second restaurant and then a few more. We’re now up to 3,400 restaurants including having a couple of dozen restaurants outside of the U.S.
That’s amazing. He had no idea what he was creating when he created it to be this iconic company in the food services industry.
No. You are right. Sometimes, the greatest innovation just happens. They’re not intended. He wanted to open up one restaurant and save up enough money so he could open up a fine dining restaurant but the restaurant did so well. It connected in such a big way that he’s like, “I’ll open one more.” It’s going to be a chain of two and then he was going to get to his fine dining restaurant. That did better.
Eventually, he opened up another and another. Just one at a time. He figured out, “This is a real restaurant. I can serve more people with this kind of cooking and it’s more accessible. It’s more affordable.” It’s not elitist anymore. Not everyone can afford to eat at a fine dining restaurant or if it’s really fine, you can’t get a reservation unless you’re a who’s who. However, as it evolved, he realized as a chef that you can serve more people the kind of food that you want to bring to people and you want to make accessible. It ended up being a passion that is still by the way a passion of ours now that we are still doing real cooking in the restaurants. We’re very discerning about where we get our ingredients. The heritage of that original chef-driven restaurant is still with us now with 3,400 restaurants.
That’s insane. I mentioned before we went on that I’m the father of two autistic sons. Chipotle is about the only place that they both like. They’re the two pickiest eaters on the planet so to find a place where they both are going to be happy with the meal is a miracle, so one has been created.
I can’t tell you how much that warms my heart. We hear this all the time where for some reason, people don’t like to eat out or they are very picky about their menu, but they find their way through Chipotle. It warms my heart.
I don’t want to talk too much about the staff but they remember us because of my situation. They treat my boys like they are rock stars. I want to get back to you a little bit. I know you grew up in Illinois. Can you tell us a little bit about what it was like growing up in Illinois? You mentioned that you are a Bears fan.
I’m a Bears fan. We got to one Super Bowl but it’s been a long time since then. That’s been a hard journey. I was born in the city but when I was six months old, my whole family moved out to the suburbs in a little town called Hoffman Estates. I was one of five kids. I was the fourth of five. I had a very modest upbringing. My dad worked in a warehouse. My mom was a teacher at the Catholic school that I went to. Because it was the same school that I went to, if I got in trouble in the morning, she’d find out about it at noon and I’d be grounded by dinner time.
That was not always the best thing for me but in the day, you run outside and you’re running playing baseball. You’re playing tag. It was a different thing back then. Obviously, it didn’t have the internet or social media. We didn’t even have a colored TV back in the day. Everything was social. We were a family of five kids, across the street was a family of six, and down the road was a family of four. It was a mob of kids and that’s maybe why my wife and I, when we settled down and start having kids, we were both attached to this idea of a big family.
How many kids do you have?
We have five. She came from a family of six. When you’re around a lot of kids, it feels right when there’s a little bit of chaos and too many people talking at the same time, but we both feel at home that way.
When we were adults, we had a reunion in my childhood neighborhood. There was a bunch of us that were in first or second grade at the same time. I think we determined it was a two-month period where there were 22 pregnant women on my street.
It’s a neighborhood baby boom.
It was something like that. Pregnancy can be contagious in certain circumstances, I guess. You grew up with a fun childhood in Illinois. What attracted you to business, and accounting in particular? Are you an accounting undergrad?
I was an Accounting and Economics undergrad, then I got a master’s with a focus on Finance. The reality of it is I always liked numbers and problem-solving. I like analyzing things and trying to solve the problem. I remember back when I was in grade school, my mom who used to do crossword puzzles would order this magazine and it would come every week or every two weeks. She’d do all the crossword puzzles and I found the magazine.
Maybe I was 10 or 12 years old. She would leave all the word problem-solving things like, “Sally and Billy went to the store with $5…” I still like to figure that stuff out. Any kind of a puzzle like that where it took some analytics, I like doing that kind of stuff. As I got into junior high and then high school, I definitely was attracted to the more math-oriented analytical type subjects. My older brother was four years older. He was at the University of Illinois Champaign. He was in the accounting program.
I’m like, “What’s accounting?” He told me what accounting was. He’s like, “You basically keep track of how well the company’s doing. You can see all the numbers. You’d be the one that would identify whether a company is succeeding or failing. By the way, there’s a lot of demand. There’s a lot of jobs here.” I’m like, “I will try accounting.” As I got into school, I had to take all the electives. As much as I could, I took electives that were in economics, which were also analytical problem-solving and finance.
That’s all the stuff that I gravitated to. It’s still something I get a kick out of. I love dealing with business whether it’s the Chipotle business or helping other businesses as well. I love the idea of sitting down, looking at the whole picture, and figuring out from an analytical data-driven standpoint how can we solve this problem. How can we help this business go to a whole other level? It’s always been in my genes. I have to thank my brother for putting me on the right path so I can find the right career path that got me to where I am now.
It has worked out well for you. I was looking at your background. You worked for 18 years at McDonald’s. I never heard of that. Is that like a local niche type of burger joint in Illinois or something like that?
It’s a little hamburger stand.
I got a kick out of it Jack because on your bio and I know with public companies, you have to disclose everything. You formerly worked at McDonald’s, it went on to describe what McDonald’s was.
That was not my language. I’m sure it was a lawyer who said we had to describe what it was. It’s weird how long I’ve been out in the business world. I’ve only had a couple of interviews. When I was finishing college, I interviewed to get my first job, which was in public accounting. That is the thing that you do when you get an accounting degree. I thought it was a great way to get into the start of your career.
What I mean by that is public accounting means you go to different clients and different companies. I love the idea of instead of going to a company where you’d be there maybe for a number of years and you’d get bored with it, you’d go to one company and you’d audit their books. You do a bunch of work. You get to know people for a two-month period and then you move to another client that would be a three-month client.
The diversity of experiences and seeing how different companies did things, to meet different people, to figure out how to get things done through different people, I thought was fascinating. I thought it was a great way to start my career out of college. I stayed there for about four years. I knew it wasn’t going to be my career. I knew that when I saw where that career was leading, I wanted to branch off. I did want to work for a company.
A couple of my friends had left public accounting and told me about McDonald’s. What they describe was McDonald’s was even then the biggest restaurant company in the world. What they described was when they have an opening in any of the areas, they would post it and you could interview. If you start in the traditional closing-the-books accounting role but they have a job in another area, for example, supporting the company in restaurants, you can interview for that role.
I’m like, “That’s interesting.” The idea of going to a company and instead of feeling like I’ve got to do the same thing over and over again, I can see different parts of the business. That’s what they offered there and that was very appealing. I got that job and it worked out exactly the way I had hoped. After a year, I was able to go to another area of the business.
Over my career there, I was able to work for the company. I operated part of the business, the franchise and real estate development in which I liked the idea of identifying where you’re going to find new restaurants, what the economy looks like for a new restaurant, and how can you make sure that you’re going to be successful. I also worked internationally supporting our finance business in Europe and Latin America. It was almost any area you can think of from a business standpoint.
I had this opportunity to work at McDonald’s. My last stint there was when McDonald’s was looking into diversification. It means the hamburger business was getting to a point where they thought they were running out of growth room. They invested in a number of other restaurant companies including Chipotle. In my last role there, the title I had was CFO of the partner brand business. It was a non-McDonald’s business.
That was exciting because I’ve been with McDonald’s for a number of years. Now, I’m seeing this individual and there were five or six different businesses working with different people and businesses at different stages. That’s how I got to know Chipotle. That’s how I got to know the team there and the founder there. Eventually, I did make the move to Chipotle.
My experience with McDonald’s, I can’t tell you how much I appreciate those experiences. It led me to be able to, especially in the early days at Chipotle, not just to see what Chipotle’s opportunities were when I joined them as a very small company but also to see the future. Also, identify what capabilities we need to build over time so Chipotle can be very successful for not just a couple of years but a couple of decades.
You wouldn’t have thought that at the time necessarily because we’re going back now a few decades, but that training at McDonald’s was the best possible training for a future CFO.
I thought it was fantastic. There are parts of the CFO job that are nuts and bolts. It’s doing the accounting, the closing, the financial reporting and things like that. You’ve got to be excellent at that. You’ve got to have an excellent team at that but the idea of getting experiences at all the businesses so you’re not only seeing the numbers all close and you’re reporting on a consolidated basis–knowing how each of the businesses work and how they come together to roll up to one big company is critical.
The fact that I was able to see all those parts of the business has helped me in my career to identify, “What levers do we need to pull in order to be successful in a certain area so that our overall business will be successful?” I can’t tell you enough about how much that experience did help me. Not just while I was at McDonald’s, but certainly since I left and joined Chipotle.
You mentioned that you worked in the real estate group. I had a friend who did that at Burger King. We teased him. That’s the easiest job in North America. You see where the McDonald’s are and you set up a Burger King 300 yards away.
You’re 100 percent right. I joined Chipotle as other fast-casual companies were coming on the scene. I won’t name names, but I had some friends or acquaintances I met. They told me, “Jack, it was the same strategy.” I asked, “How did you decide what market to go to?” [The answer:] “I would look at where Chipotle is. I go to that market. I’d open up right next door.” It’s very flattering when that happens.
It’s imitation being the best source of flattery but it is incredible observing it. Almost always, you’d never see a McDonald’s without a Burger King. That’s probably not true but seven out of 10, there’s a Burger King you could walk to from a McDonald’s. You’ve been at Chipotle for decades.
For the two years before that, I was on the board of Chipotle while I still worked at McDonald’s. It’s been a long time that I’ve worked with them and it’s been an amazing journey.
I’d love to chat a little bit about that. Other than simply getting bigger, there has to have been some dramatic changes in your tenure with the company and the competitive landscape. What are some of the big challenges you’ve faced and lessons learned along the way?
There are lots of them. I first became attracted to Chipotle the very first time that I went into the restaurant and spent time with Steve, the founder. I was blown away because I worked for McDonald’s for 17 to 18 years. It’s the biggest and most successful restaurant company in the world and then I saw this young chef who was teaching me about how they made the rice. I’m thinking rice is something that’s a filler that you have to work through to get to the other food that has all the flavors.
However, we would taste the rice and he would talk about how you could taste the lime. You can taste the cilantro. It’s got to have exactly the right amount of salt. You’ve got to rinse it two or three times to make sure that you get the right amount of starch out. There is this level of detail for every single ingredient as we look along the line. We tasted the salsa and we go through the same thing. We tasted the meat and the chicken. You had to taste the char. You wouldn’t taste salt if it was seasoned correctly, but you would taste delicious succulent chicken.
I’m a finance guy and I’m learning about all these tastes. All I know is this burrito tasted delicious, but when I went through and tasted all the ingredients as I went through the line with Steve and he told me what he was trying to accomplish with each ingredient, I’m like, “This is why the end result of this burrito is so delicious, because you’ve got a chef that cares about every single detail about everything that is on that line. I’ve never seen anything like this.”
I was very enamored by it. I did not think at that time that I would be joining Chipotle a couple of years later, but I certainly did think this is the future of how food is going to be consumed. This is the way people are going to want to eat in the future. It’s very exciting to see those early days of where Chipotle was and where it possibly could end.
That is fascinating. It’s probably exceeded expectations since you joined, I would guess. You describe this small company at the time you joined. It’s now not a small company.
I remember at the time, it was very sophisticated from a food standpoint. It’s not sophisticated yet from a business standpoint. When I had the opportunity to join Chipotle, I felt like, “This is the kind of food that more people should be able to enjoy but it’s not going to happen unless the business model and the business results are strong. There’s got to be a sustainability part of the business so that you could raise money based on the existing restaurants.”
It doesn’t mean that young companies have to raise money from the outside as well, whether it’s from debt or equity financing, but my thinking was you have to have sustainability here so that you can invest in your own growth. You can invest in higher-quality ingredients. You can invest in people so you can run your own restaurants. Along the way, you asked about challenges. I didn’t mean to dodge that question but we went public in 2006 about four years after I joined.
That was very exciting and challenging at the same time. It’s something I’ve never been through before. We went through the Great Recession after that. Again, it was very much of a challenge. We’ve had additional challenges through the years and the pandemic. That had a global impact on everybody. What I think I’m most proud of is, as we’ve navigated through any of these challenges, the original ethos and the purpose of Chipotle didn’t just remain or survive, it got stronger.
That’s so important to me along the way that as companies grow, sometimes they lose their way a little bit. With Chipotle, the heritage of where we started, the fact that we’re food-based, culinary-based and we care about the ingredients. We don’t have any additives, whether preservatives or colors. We only have 52 or 53 ingredients and none of them are chemicals or preservatives or anything. That took a long time to work through to get to that point. The food ethos that we have now is as strong if not stronger than we had back in those early days when I was going through the line with Steve, the founder of Chipotle.
It’s interesting because I tend to think of great chefs as artists. You’re able to keep the art pure despite the business success that you’ve had along with it, which I have to think not a lot of companies are doing. You saw the vision grow. You saw the need to make some quality compromises to continue the growth and achieve the opportunity. It doesn’t sound like you’ve made any on the food side of it.
One thing that was important in the early days and there are a couple of great books. There’s an author named Jim Collins who I got the chance to meet a number of years ago. He was at the University of Colorado in Boulder. He had a number of observations about successful businesses. Some of which I remember and thought applied to Chipotle. One of one of which is called the Genius of the AND.
Most companies and most people would think that you can have A or B but you can’t have both. Chipotle broke that and saw the Genius of the AND. The idea of the Genius of the AND is you don’t make the compromise. If you want to make, for example, food accessible and affordable, you want to have high-quality food and serve it at a fair price so you can say there’s a Genius of the AND, most finance professors would say, “You can’t do that. You can have premium ingredients or you can have affordable prices, but you can’t have both.”
We worked hard on our supply chain and on our business model so that we would find efficiencies in everything else in the business except the food so we could invest in the food. As a consumer, what better way to enjoy a great meal than to find out that this is a company that is spending less on all the P&L items like utilities, rent, maintenance, repairs and things like that you don’t care about so they can spend more money on the food.
There were some adages or some sayings along the way that reinforced what Chipotle was all about but I think you’re right. It’s more common for businesses as they grow to make little compromises that seem okay at the time but then you make another little compromise. Before you know it, it’s like, “What happened to our food?” We haven’t done that. We’ve made the food better along the way and not compromised.
I remember a case study I did in grad school. I won’t mention the company but it was a fast-food company. I think they were dealing with quality, price and speed. Pick two. They basically gave up. They said, “We can’t do all three.” Unfortunately, for this company, I believe that the one that they decided to compromise on was the quality of the food. They wanted to make it affordable and they wanted to get it to people quickly. They thought that was more important than other things.
I’ll tell you what. That’s a brand killer. The problem with trying to win on price, it is the easiest thing to copy. No matter what business you’re in, if all you are is low prices, that’s the easiest thing in the world. With Chipotle, what makes us special from a business and a brand standpoint is we do have affordable prices. If you look at Chipotle versus other fast casual, we’re at or below. We invest in premium ingredients. We pay more for the naturally raised meats, the organics, the locally raised and things like that.
We do pay more for our ingredients and yet, we have high margins. When you have those three together, that’s hard to have all three, but it makes our business sustainable. It allows us to invest in higher quality food so we can continue to make sure that the food is sustainably raised with respect for the animals, the farmers and the environment. The fact that we have high margins as well, among the highest in the industry, allows us to continue to invest in new restaurants and invest in our people.
There’s a sustainability about the way we raise our ingredients but there’s a sustainability about the way that we build our business model as well so we can continue to invest in our business and what makes our business strong. We’ve never had any debt, Jack. We went public in 2006. We theoretically still have the money we raised. We raised over $100 million back then. We still have it because our cash balance never dips below $100 million. We’ve been able to sustain and invest in our future. During the Great Recession, we didn’t get to a point where we were running out of cash or had to renegotiate our loan. We’ve been able to make these investments along the way and not have to compromise.
I want to chat a little about your career because you’re a bit of an anomaly. Not exactly a unicorn but I think it anomaly is the right word. According to Spencer Stuart, the average tenure for a public company CFO is a little bit north of four years. Here you are, Jack. You’ve worked for two companies for over 40 years. You are clearly amongst the longest-tenured public company CFOs out there. Tell us a little bit about what’s led to the longevity. Was this a conscious thing? It’s because I know people who consciously say, “I’m going to change jobs every five years.”
It’s not a conscious thing but I am somebody that gets attracted to things that I buy into. When I buy into something, I commit to it. When I commit to it, as long as it’s still fun and there is an opportunity to continue to move the business forward toward our purpose, that’s energizing to me. If you had asked me years ago when I joined Chipotle how long do you think you’re going to be here, it would not have been 20-something.
If you would have told me, “Jack, I think you’re going to be here for 20 years.” I would say you’re absolutely nuts, but I didn’t plan to be here for five, 10 or 20. Every year, it’s like, “This is fun.” It’s challenging to take a company that is a small private company and go through all the stages that we talked about. The idea that we are a purpose-driving company and our purpose’s words have changed over the years. We used to say that we wanted to prove to people that just because it’s fast doesn’t mean it has to be a typical fast-food experience.
You don’t have to explain that to people because they’re like, “The typical fast food experience,” there are things that they don’t appreciate about it. Chipotle does elevate that experience. Our purpose is to cultivate a better world. We do that through sourcing our ingredients, the way we treat our animals, the way treat our farmers and the way we invest in our people. We invest in their growth. They have attractive careers when they come to Chipotle if they commit to our purpose as well.
The idea is that Chipotle is purpose-driven. I’m fortunate to work with a great leadership team in accounting and finance supply chain. These are great people. You’re on a winning team of people that you like to work with who are among the best in the industry and what they do. They’re also good people who you want to hang around with and it doesn’t feel like a job. It doesn’t mean it’s not hard but it feels like more of a mission and a passion. It’s something that you’re enjoying doing together. That’s the way I would describe it. I’ve been very lucky that I found a company and I was able to work with great people who have this common goal in mind to cultivate a better world.
You mentioned Chipotle’s mission and it’s to cultivate a better world. It’s easy to say but you guys seem to be living and breathing it for sure. What are some of the other things that you’re doing along those lines? From what I read about you, you’re on the cutting edge of sustainability efforts, for example.
It’s been in our heritage. The whole idea of what we call “food with integrity,” that’s sourcing sustainably raised food. It started just before I joined Chipotle. If you think back then, it wasn’t a thing. Now we have ESG and people are into sustainability. They’re into reading labels. We’ve got Whole Foods. I don’t know if they were around in the early 2000s, but I wasn’t aware of them at that time.
Chipotle was very early on in understanding how food is raised and it started with pork. It started with our founder Steve reading an article about free-ranging pork. He’s like, “Aren’t all hogs free-ranging? Aren’t they out?” When you picture hogs, cows or a farm, you picture beautiful green rolling hills and these animals are loving their life. If you go look at the way most hogs are raised, it’s not that at all. Most are raised in confinement. Steve read this article about free-ranging hogs.
It was with a company called Niman Ranch. He’s like, “That’s interesting.” We ordered some pork and cooked with it. He was blown away. It’s like, “This is better than any of the pork we’ve ever had.” We met the founder. We met Bill Niman, who I’ve gotten to know and I consider a friend over the years. We saw the difference between the way hogs were raised under the Niman badge versus traditional. We decided, Chipotle is not going to be successful based on exploitation. We’re not going to exploit the animals, the farmers and the environment. That was when the fuse was lit.
Little by little, we moved to, “Let’s make sure we do the same thing with the beef that we source and with the chicken. Let’s now source local.” We buy more locally raised produce than any other company in the country. We try to work with organics as much as possible. There are not enough organics to source all of our ingredients. We’re constantly on this journey to source more organic. It’s been something that was in our heritage very early and still very important to what we do now.
It’s also been something that Steve was very insightful about. When I first started with them, he took me on farms and showed me this stuff. As a finance guy, when you’ve seen the two ways and you’re like, “We want to do it this way and not that way,” you then start thinking about, “What can we do? What should we do to build a business model to support the right way to do it?” We did that at a very early stage when we were smaller. The supply chain now has grown with us to support the way that we source ingredients.
That makes sense. You were into sustainability before it was cool and before it was a government mandate.
We were doing it, Jack, at a time when you couldn’t charge a premium. If you charged $1 or more for naturally raised burrito, people wouldn’t necessarily say, “Do I want to pay $1? I don’t understand what that was.” We had to be scrappy and build the business model around being efficient so we could invest in these foods. I think those early days of committing to something we believed in so much and finding a way have helped us have this strong business model that we have now. It allows us to continue to invest in his higher-quality food.
I remembered at one point in my life, people who would pay extra for something naturally raised, I would have thought they were strange people. It’s like, “Why? What difference does it make?”
I agree with them. I didn’t understand it either until you spent time on farms. Let’s face it, not many people spend time on farms. It was a real gift for me to get to spend time with farmers in fields with the animals because I never had that experience before. I never had that connection with any of the food that any of us are consuming whether it’s in restaurants or groceries. It was a real gift but you can’t unsee it. Once you see it, you then have to understand how you want to change that and how you want to build your business. You want to build it the right way or at least, at Chipotle, we’ve decided we’re going to build it the right way.
I haven’t been a CFO for a long time and I’d say right now, I’m probably grateful for that. I’m trying to think of some of the challenges that you and your team are facing like dealing with inflation and rising interest rates. I dealt with rising interest rates in my CFO career, but for some of the younger CFOs, that’s new to them. There is no more free money. Also, supply chain disruptions, talent shortages and a whole bunch more. How are you dealing with this? It’s not unprecedented but all at the same time, I think it probably is unprecedented, at least for us.
I’d say the last few years have been some of the most challenging times that we face. I’ve mentioned some other challenges we’ve gone through but nobody expects. Certainly, even when we were starting to hear about Covid and what it might be, I didn’t believe it. I didn’t think there would be lockdowns. I thought it was going to be another flu season. Some people will get Covid and then they’ll move on.
When it came, it came very hot and heavy. It affected people’s health. Some people didn’t make it, unfortunately. It was nothing like I thought it might be in the early days. I knew it was real when they canceled March Madness. I’m like, “This is real. This isn’t going to be just a flu season-type thing.” Dealing with our restaurants, all of a sudden, the volume is dropping, and the inability to have staff come into the restaurant.
We were fortunate that we have a digital business. It was a growing digital business but immediately our digital business went from 18 percent or 20 percent to for a while, it was 60 percent to 70 percent of the business. Luckily, we have a separate make line where you can make all the food that you can see when you’re in Chipotle and make it along the line. We had that before the pandemic started. It allowed us to make that pivot but from a financial standpoint, the sales dropped significantly.
We decided we’re going to continue to pay our people so from a financial standpoint, it did put a big drain on us. I would say the thing that helped us navigate more than anything was first of all having great people that were committed to we’re going to do whatever we needed to do to keep our people safe and to pivot. From the office and a restaurant standpoint, we’re going to try to keep our restaurants open. We’re going to respect our teams that don’t feel safe coming in.
We still paid them. For the restaurant folks that do come in, we’re going to keep them safe. We’re going to keep our customers safe. There were some amazing things that we had to pivot on and we can only get that done because we’ve got amazing people at Chipotle in all of the areas. That’s how we navigated through all this. In terms of dealing with some of the business challenges as a pandemic was starting to move in the rearview mirror.
We had some of the highest inflation that I’ve seen in my career. We’ve got high-interest rates. If you wait until those things are on you to deal with them, as a CFO, it’s probably too late. What I’ve tried to focus on, I’ve tried to take the long game with Chipotle. We built a balance sheet and an economic model that would sustain itself certainly through good times but also through tough times. That’s why during the Great Recession and the pandemic as we have high interest rates, we’ve been able to financially make the right investments in the things that matter to Chipotle like in our people, in a higher-quality food and in growth.
We haven’t slowed down our growth during this time because we know growth means that’s more career opportunities and more promotions for our folks. It’s a matter of rather than I know on a spreadsheet if you leverage your balance sheet, meaning you go out and borrow a bunch of money, you’ll theoretically get a higher return on your capital. That’s true during good times, but during bad times, you might be crippled to the point where you’re going to have to give up on making some of your long-term investments.
You may have to lay off people that are good. You may have to stop growth, which means you’re shutting off the career opportunities for folks. From the beginning, I was determined to make sure that we would have a fortress balance sheet. This balance sheet will allow us to get through some of these challenges. Knock on wood, thankfully, it has done just that. However, if you wait to deal with some of these financial challenges until they’re on top of you, your options are going to be limited.
Jack, I think I’m financially savvy and I could probably make a reasonable guess but a fortress balance sheet, I’m not 100 percent sure what that is. Can you elaborate a little bit on that?
We never had that. We went public in 2006. We raised over $100 million. We’re very responsible in terms of we have a relatively small headquarters. We’re very efficient at the P&L level and at the restaurant level so that we can invest in higher-quality food. We’re going to be opening up between 255 and 285 restaurants soon. We’re going to fund all those through existing cashflow. We also are able to take some of the cashflow and it’s in cash or it’s in short-term investments.
We have over $1 billion in cash on the balance sheet. We also buy back stock. A lot of companies when they’re in growth mode don’t have the ability to buy back their stock as well but we have the ability with our strong financial model and strong balance sheet to fund all of our investments, to buy back our stock and to have over $1 billion of cash in the balance sheet.
We have enough financial wherewithal and this fortress balance sheet that I’m talking about allows us to and if we need to, we can dip into our rainy day fund. During the pandemic, we burnt through some of that balance sheet. I remember Brian [Niccol], our CEO, at that time, we were both in our homes because the office was shut down. We were talking about for the first time I’d been at Chipotle, what’s our cash burn and how long will it last.
We went through a number of scenarios to find out how long will our balance sheet last and the good news was it was going to be able to last us through the pandemic and well beyond that. Those are the things that allow you as a management team to make the right decisions along the way and not be panicked like, “If we do this wrong, we’re going to be out of business.” Certainly, nobody wants to be hanging by a thread as you’re navigating through this kind of challenge.
If history has taught us little else about business it’s that during times of crisis, the ones that roll up into the fetal ball position are the ones that die. They think they’re doing the safe thing. They’re doing the absolutely not safe thing. However, the ones that dip into the rainy day funds, who make the aggressive decisions to continue to grow, take care of their team, and invest in digital technology or whatever it might be are the ones that survive these things.
One of the things that we as a management team do every time we face a challenge, we get together and say, “Guys, we want to leave this challenge stronger than when we went into it.” If you stay committed to that idea and if you have the financial ability to do it, you will come out stronger.
I want to share a little bit because you’re on two boards of directors, for The Honest Company and Zocdoc. They’re very lucky to have you. I’m going to guess you’re on the audit committee and perhaps others, but what’s your relationship with the CFOs of those companies?
In one case, the CFO is brand new. He just joined The Honest Company. The CFO in Zocdoc has been with them almost from the beginning. They’re an 11 or 12-year-old company. She’s been there almost from the beginning. These are both small companies. One is newly public. Zocdoc is still private but they’re small companies with big ambitions. They have this idea of trying to make the world a better place in the areas that they’re in.
You probably are hearing a parallel there. This idea of trying to help a company that has big ambitions and that wants to make the world a better place in the area that they’re in appeals to me. It resonates with me because that’s the position I was in many years ago with Chipotle. What I’ve tried to do is make myself available so I can help them as they navigate through this because I’ve been through it before.
Zocdoc is a tech company that is in the healthcare field. Again, these are two areas that are foreign to me which I find very exciting because I’m learning a lot about areas that I’ve not dealt with before but from the business standpoint and the looking around the corners and looking ahead, those are things I’ve had to do in the early days at Chipotle. I make myself available.
They’re both great CFOs, by the way. I do what I can to make myself available, certainly during meetings, but I’ve told them even outside of meetings I’m here to help, coach and mentor them. My goal would be, if I can in some small way help you CFOs and help these companies go from where they are now to a bigger or more successful but importantly, more influential company in terms of doing good in the world, that would be fantastic. I’d love to be a part of that.
In my day job, I run an association for CFOs. A lot of the Boomers, of which I am one, are taking on that mentor role. We are making sure that the next generation of leaders has the same opportunities or maybe better opportunities than we had and they are prepared to take advantage of them. It’s great that you’ve got the opportunity to do that. I’m also curious. Being on a board and interacting with two other CFOs somewhat regularly, does that change the way you attack your own job back at Chipotle? Does it make you a better or maybe a different type of CFO than you otherwise would have been?
Yeah, it does. They’re different businesses. There’s not like a direct, “The Honest Company is doing this,” or, “Zocdoc is doing this. We’re going to do exactly the same thing.” The idea that you’re looking at a totally different business and collaborating with people to try to solve different problems stretches my imagination. While there’s not anything direct that I would say, “That exactly applies to Chipotle,” especially related to the audit committee, the idea of thinking about risk and how you’re going to deal with the risk.
There’s always a way to stretch your mind a little bit and think about, “What can we do at Chipotle that’s going to be better? What is the risk that we haven’t even thought about yet?” You could deal with any of the risks or challenges that you know about but what’s most important is how do you think creatively about, the thing you haven’t seen yet? What’s the thing that’s around the corner that might be coming?
I definitely think of this idea of stretching my mind and learning. I love to learn too. I know sometimes you can’t teach an old dog new tricks. I’m not saying I’m learning as fast as I once did but I love the idea of learning through new people that I haven’t met before and learning that through new businesses. I think that helps. I would encourage anybody that if you’re in a learning mode, you’re going to be better for it. Your mind is going to be sharper and you’re going to a better problem-solving mode.
When I’m hiring people, there are a lot of smart people out there in the world and well-educated but the quality that I value–there’s integrity and work ethic, but it is intellectual curiosity. It’s somebody who’s always looking to get better at their job and always looking to improve their company and whatnot. I have one more question and then I have a personal one. CFO roles changed a lot over the years. It used to be back office maybe at the start of our careers. Often, the best accountant would become the CFO but now, he or she is the right-hand person to the CEO. They interact a lot with the board of directors and they’re invaluable contributors across the C-Suite. What’s your relationship with those folks over at Chipotle?
I’m fortunate I have such a rock star [in my CEO]. I’m going to take your title. When Brian joined us years ago, he was fantastic. He is a good person and a good father. You talked about highest integrity but good instincts about the customer and Chipotle. For me, it’s taken a long time to learn Chipotle, especially those early days, but Brian came in and instantly had this good instinct about what makes Chipotle special and how we protect that.
To be honest, Brian came from other restaurant companies and I wondered how that transition would happen and there was no transition. He came in understanding what Chipotle was, how we were special to the customer, and bringing additional capabilities and strategies to bear so that we could take Chipotle to the next level. That was fantastic. In terms of all the other guys that I work with in the leadership team, I think they are the best in the industry. I’ve met a bunch of folks in other companies that are in this industry, but from a marketing, tech and operations, you name it.
In terms of our supply chain, our controller, our head of finance, all these folks are the best in the industry. They’re the best that I’ve met. It’s a privilege to learn from them. It’s a privilege to learn together and problem-solve with them, but they’re also good people to hang out with. They’re good to go have dinner with afterwards. They’re good to go to a sporting event or something like that. It’s a dream. I don’t think everybody gets this where you get to work with professionals at the top of their game and also people that you like to hang out with. That’s a real gift. I’m fortunate to be able to have that gift.
Jack, I think a bunch of people are going to be sending you resumes after hearing this episode. It’s not often you hear one speak so enthusiastically for their employer. One of your colleagues shared with me, you are a father of five and you are a grandfather of 12.
I’m counting what I had to. As a CFO, you’ve got to be not only looking behind. You got to be looking ahead. My joy is around my family and my five kids and my grandkids. When I’m not working, I spend as much time as I can with my family and as much time with my grandkids. I would tell you, if you were in my house, you would think that I have a second job, my wife and I, as a daycare center because when I walk in the house after a long work week, I’m stepping over toys.
Depending on what day of the week it is, there might be a sleepover going on and there might be kids still rustling in the family room and stuff. It’s that kind of chaos that I love. When I’m on the airplane heading back home and I know that there’s going to be either that night or the next day where you spend time with family or with the grandkids, it’s fantastic. They’re the stars in my life. They’re the ones that I want to spend the most time with when I’m not at work.
The second guest we had was one of nine brothers and sisters. I challenged him to name all of his brothers’ and sisters’ birthdays. I’m not going to do that for you but how old are your grandchildren?
I would fail on the birthdays but they’re forgiving. I think I could probably get their months if I thought about it, but it would take me a little bit of time. The oldest is 9. The youngest is 10 months. There are little clusters of them which is neat. There are a couple of 8-year-olds and 4-year-olds. They end up being almost like brother and sister because they’re with each other so much. They’re about the same age. They’re growing up together. It’s so neat to have a relationship with each and every one of them. I’m lucky to be able to spend as much time as I can with them so I can build an individual relationship with each of the grandkids.
Like a lot of people my age, I was very close to all of my cousins growing up. Unlike a lot of young people now, people move to different parts of the country, but your family has all settled in Illinois.
All stayed in Chicago. My wife and I are blessed. We encourage it too because we have fun things to do in Chicago. We will take vacations together and we’ll say, “We’re going to so and so. Who wants to go?” As long as mom and dad are paying, they’re in. We try to make it fun. There’s a lot of chaos. When you get 22 or 23 people together, there’s going to be a little bit of loud talking. There’s going to be kids who are fighting over toys and stuff, but it’s the chaos my wife and I enjoy.
You said you’re a Bears fan, too, right?
Unfortunately, yeah. The Bears are going to be on. We’re going to the game. We tailgate every game. We have a group of about 30 of us. I will be coming with family. Even if I’m coming with friends, the rest of the group feels like I’ve known them for decades. We’ve been trying to follow the Bears to see if they can ever win another Super Bowl. There’s a lot of family and a lot of bonding that happens there as well. Even when we leave the field afterwards with another Bears loss, we still have a great time.
I’m a Patriots fan. 1986 still rubs me a little bit but I’ll say it’s still probably the best football team that’s ever been, in my view. They beat us 46-10 and we’re a pretty good team.
You guys are a very good team and that was a fun year. Unfortunately, they didn’t follow it up, but I’ll tell you what. The Patriots have won Super Bowls since then so I’m jealous.
People who hear I’m a Patriots fan, their heart isn’t breaking for me. Jack, this was great. I want to give you the last word. Are there any last thoughts or advice you can give to the upcoming generation of CFOs?
Just this one piece of advice as it might sound repetitive. It’s easy to get into the details of being a CFO and the day-to-day CFO. I think the most important thing is to take a step back and look at your business, and understand the key levers to make your business go. Also, make sure you focus on those few levers that are going to make your business successful.
I would pair that with this idea of having a strong balance sheet. Don’t go through the spreadsheet where it says, “If you go out and borrow a debt and buy a bunch of stock back, you will add to shareholder value.” You will but it’s at the margin. The way you add shareholder value is to allow your company to make the right investments all along the way in the short-term and in the long-term that are going to make you a special sustainably successful company. That’s the most important advice I can leave with.
You certainly worked with two of the best. In that regard, I’m sure that’s great advice. Jack, this is wonderful. Thanks again for your time.
Thanks, Jack. It’s great to be with you.
