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Chipotle Mexican Grill, Inc. Is Investing in Its Future With Major Hiring Push

By James Sullivan - Sep 8, 2015 at 8:44PM

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Chipotle understands that quality employees are a key component of successfully growing its business.

Source: Chipotle.

Much-loved burrito chain Chipotle (CMG -1.80%) has grand growth ambitions ahead of it. The company plans to expand from its already large 1,800+ store footprint by adding 190-205 new stores in 2015, and many more in years to come.

To successfully grow a great business, a company must focus on its systems and processes, but should also continue to acquire the best talent. To that end, the company is holding its first ever National Career Day on Sept. 9.

Chipotle is seeking to hire around 4,000 new employees, which would be a significant single-day boon to its current workforce of more than 60,000. This shows management's confidence in the future direction of the company, and bodes well for shareholders. 

Growing fast and operating lean
Chipotle's financials have been a thing of beauty during the past decade. Rapid store-count growth, same-store sales growth, and economies of scale have led to wonderful business results and a stock price that's up around 1,600% during that period.

Revenue has risen from $628 million in 2005 to more than $4 billion. Because of margin expansion and relatively stable share count, net income growth has been even more spectacular, rising from $38 million in 2005 to more than $500 million on a trailing-12-month basis. Even with Chipotle being very particular about its commodity inputs, as was seen with the recent carnitas shortage, the company has managed to drive down its cost of goods sold by nearly 10% of revenue, which has led to much of its operating margin growth. 

I trust management to continue to execute on this growth plan. While it's hard to imagine the next 10 years being as good as the past 10, I think this is still a wonderful business to be invested in for decades to come. While management's hiring push is not the only reason for my bullish sentiment, it shows me that they believe growth opportunities are abundant, and good people are going to be needed to help Chipotle continue to grow.

A job or a career?
The sentiment behind the hiring push is exciting to me as a shareholder because of how Chipotle views its employees. If this were simply churn, where disgruntled short-term employees were leaving in droves and needed to be replaced, that would be one thing. It doesn't appear to be the case here.

Co-CEO Monty Moran was quoted in the press release announcing the hiring day as saying: "Working here isn't just a job, but a career where employees learn how to make others better, run a successful business, master culinary skills, and most importantly, lead teams of top performers." This is an important sentiment for a company and reminds me of the culture of CostcoStarbucks, and others that really cultivate and prioritize human capital.

For some, working at Chipotle -- or Starbucks or Costco -- might end up leading to a fruitful career. In fact, "more than 95 percent of the company's restaurant managers are promoted from within." For others, it may provide a set of skills, or act as a steppingstone on the path to other things. Either way, as a shareholder, this is a good thing. Creating a culture where people feel valued, are given internal advancement opportunities, assistance with furthering their education, and above-market pay, leads to a few positives for the company.

First, there will generally be less turnover. One can look at Wal-Mart and Costco for a comparison as to how higher pay, benefits, and advancement opportunities lead to a more knowledgeable, satisfied, and pleasant workforce. (Costco gets the win here.) This reduces the costs associated with training and increases productivity. 

Second, letting high performers leave will make future high performers want to join. College basketball provides an interesting parallel to this situation.

Kentucky under John Calipari has developed into a pipeline for many of the top high school players on their way to the NBA. He makes it very clear that this is his main goal. As a result, he has continued to recruit classes full of high-school all-Americans, and the wins have come as a byproduct.

It would be easy to lie and convince a star freshman that it's in his best interests to return for his sophomore season. This would provide a short-term boost for the coach and the program. It would also make it less likely that future stars would sign up.

In the six NBA drafts since Calipari has taken over as coach, 19 of his players have been first-round picks. When one or two leave, there always seems to be one or two more to step into the program, because of the culture and success that he has built at Kentucky.

Why this matters for investors
A company like Starbucks providing free online college, or Chipotle providing a clear career advancement path and valuable training, may cause some of their workers to move on to other things. It will also assure that they continue to win the talent war against their competitors.

Chipotle has a wonderful business model, great products, and an extremely talented CEO tandem at the top. These are helpful, but not sufficient, for making a business thrive. Great employees are the key to future growth, and Chipotle is making sure that they get them.

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