Fast Casual | November 2017 | By Danny Klein

Chipotle's Founder Steve Ells to Step Down as CEO

The fast casual chain begins its search for a new CEO as Ells turns his focus to restaurant innovation.
Chipotle founder Steve Ells is stepping down as CEO.
Chipotle will begin a search for a new CEO to lead the company's turnaround. FLICKR: Kerry Lannert
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Chipotle announced Wednesday that Steve Ells, chairman, CEO, and founder of the beleaguered fast casual chain, will step down from his current role following the completion of a search to identify a new CEO. Ells will become Chipotle’s executive chairman, with a primary focus on innovation. He will also be part of the board’s search committee, which includes directors Robin Hickenlooper and Ali Namvar, and will be tasked with finding a new leader “with demonstrated turnaround expertise to help address the challenges facing the company, improve execution, build customer trust, and drive sales.”

“I am incredibly proud of Chipotle and our people—and grateful to our loyal customers—and while we are continuing to make progress, it is clear that we need to move faster to make improvements,” Ells said in a statement. “Simply put, we need to execute better to ensure our future success. The board and I are committed to bringing in an experienced leader with a passion for driving excellence across every aspect of our business, including the customer experience, operations, marketing, technology, food safety, and training.”

The fact Chipotle is seeking a leader with “turnaround expertise” sums up the kind of year the more than 2,350-unit brand has weathered.

It actually began on a rather promising note. Chipotle’s first-quarter earnings showed a revenue increase of 28.1 percent year-over-year and same-store sales growth of 17.8 percent. Ells said in a call following the news that he was “as optimistic as I’ve ever been since starting Chipotle nearly 24 years ago. Since last fall, when I acknowledged that many of our restaurants were not meeting my expectations, we have made incredible progress.”

Chipotle appeared to be writing the first serious chapter in its comeback story, a rebound from 2015’s disastrous E. colo outbreaks that ended up affecting 14 states, triggering a yearlong sales downturn, and erasing around half of Chipotle’s market cap.

And then Sterling, Virginia, happened in July. Some 130-plus customers reported falling ill from norovirus at the location. Chipotle shut the restaurant down for two days and watched its stock and customer sentiment tumble again. Additional issues surfaced, including a lawsuit claiming the brand might have hidden earlier outbreaks, and a viral cellphone video that showed rodents falling from the ceiling in a Dallas-area restaurant.

Chipotle’s third-quarter earnings reflected the mounting problems, as well as rising avocado prices. Chipotle’s adjusted earnings per share came in at $1.33, significantly short of Wall Street’s expected $1.66. Same-store sales climbed just 1 percent. The chain’s stock dropped 14 percent after the announcement and another 14.5 percent the following day, giving it a nearly 50-point tumble beneath $300—the first time since March 2013 its shares were valued so low.

The news that Ells was shifting roles initially halted trading. They were up more than 6 percent in premarket action on Wednesday. Heading into the day, Chipotle was trading at $285.85. To put that in perspective, shares opened at $406.99 on November 28, 2016. They were $584.48 on November 27, 2015, and $661.49 on November 28, 2014.

Ells said in the statement that the move will allow him to divert his attention to his strengths.

“Bringing in a new CEO is the right thing to do for all our stakeholders. It will allow me to focus on my strengths, which include bringing innovation to the way we source and prepare our food. It will ultimately improve our ability to provide our guests with delicious food that is prepared with high quality ingredients that are raised responsibly and served in a way that is accessible to everyone. I am confident that this will allow us to deliver value for our shareholders, and provide rewarding opportunities for our employees,” he said. “Chipotle has vast unrealized potential. As we work hard to restore our brand, I believe we can capitalize on opportunities, including in areas such as the digital experience, menu innovation, delivery, catering, and domestic and international expansion, to deliver significant growth.”

Chipotle lead independent director Neil W. Flanzraich said in a statement that Ells “is a visionary leader and one of the most successful restaurateurs in history, having grown Chipotle from a single restaurant in Colorado to more than 2,350 restaurants today. Steve made the decision, and the Board agreed, that now is the right time to identify a new CEO who can reinvigorate the brand and help the company achieve its potential. We are committed to recruiting a world-class CEO for this incredible opportunity.”

Chipotle retained the services of leading executive recruitment firm Spencer Stuart to assist in the search for a new CEO.