Chipotle’s CFO says the company is crushing it by spending $2.5 billion on its employees who average $17 an hour—and cutting costs on logistics

Chipotle Mexican Grill, Inc. reached a milestone this month.

The fast-casual restaurant founded by Steve Ells opened its doors 30 years ago on July 13, 1993, on Evans Avenue in Denver, Colo. Chipotle CFO Jack Hartung wasn’t there yet as he joined in 2002. But Hartung vividly remembers his first impression of the company.

“I’d be lying if I said I knew that we’d be exactly where we are today,” Hartung tells me. “But I was bullish when I joined Chipotle. It kind of blew my mind that you’ve got a young chef, who started this fast-casual restaurant company based on what fine dining restaurants do.” For example, lots of prep work with fresh ingredients that’s done hours before the restaurant ever opens, he says. 

When tasting a Chipotle burrito for the first time, he savored the ingredients, like rice. “I used to think rice was kind of bland and didn’t have much flavor,” Hartung says. “But not if you make it right. If you cook it where it’s not too starchy, not too sticky, you season it correctly with the right amount of citrus and cilantro, it’s delicious.”

Now Hartung, and his strategic partner, Chipotle CEO Brian Niccol, are steering the direction of 3,000 restaurants, with the goal of adding 7,000 units across North America. And that includes navigating the company through an uncertain economy.

Food spend and a heat wave

I sat down with Hartung following Chipotle’s Q2 2023 earnings call on Wednesday. He says the company’s sales will be in the $10 billion range this year.

“We’ll spend $3 billion on food this year,” Hartung says. Chipotle tends to not look to food to save money or to cut costs, he explains. “One thing we won’t do is say, ‘I wonder if we can buy cheaper chicken?’ he says. “We tend to invest in higher quality food that’s better tasting, better for the animals, the environment, and better for the health of our consumers.”

Areas where he does cut costs? In logistics, like getting food from the small, organic farms or distribution centers to restaurants, for example, Hartung says. “We’ll also look at diversifying suppliers to make sure we’re getting scale plus efficiency.”

But with the heatwave in the U.S. this summer, does he expect Chipotle’s food spend to increase? “From an ingredient standpoint, we don’t know where or when the climate challenges are going to be and sometimes, it’s storms in a certain area of the country or extreme heat,” Hartung explains. “We’ll continue to closely monitor our ingredient availability and cost and diversify our supply chain as appropriate when supply is challenged.”

Chipotle’s partners know that they can “confidently invest” in their business long term because of “our strong and growing demand,” he says. Whether it’s to expand capacity or to bring along new technology so they can best deal with some of the weather-related challenges, he says.

Hartung also says Chipotle will be spending $2.5 billion on the company’s people at the restaurant level—in salaries, bonuses, and benefits. “Over the last few years our effective average hourly rate is now $17,” he says. Five years ago, it was more like $10 or $11, Hartung says. “What we will do is make sure we invest in our people,” he says.

Taking a look at Chipotle’s Q2 earnings, revenue increased 13.6% to $2.5 billion, but slightly less than the $2.53 billion expected. The increase in total revenue was driven by a 7.4% increase in comparable restaurant sales and 47 new restaurant openings, according to Chipotle.

In-restaurant sales increased by 15.8%, compared to the same time last year. And net income was $341.8 million, up from $259.9 million. Coming into the report, shares were up about 50% year to date. But after a slight miss on the top line, shares dropped 9.8%.

Chipotle has taken “zero price increases this year,” Hartung says. The last national price increase was in early August 2022, he says. And then a targeted one in about 700 restaurants. But inflation could still have an affect on pricing, he says.

Hartung also tells me that Chipotle’s “Autocado,” a robot designed to perform tedious tasks like peeling, cutting, and can also core avocados for guacamole, is still a prototype. “It still needs a few more iterations,” he says. But you still need a human touch to mash the avocado, Hartung says. “That’s where it turns into delicious guacamole,” he says.

Another ingredient that stands out to him.

Have a good weekend.

Sheryl Estrada
sheryl.estrada@fortune.com

Big deal

McKinsey's Technology Trends Outlook 2023 highlights the development, possible uses, and industry effects of advanced technologies. One of the findings suggests tech talent is a source of competitiveness, and the lack of it is a top issue constraining growth. McKinsey's survey of 3.5 million job postings found the growth of 15 tech trends requires companies to think strategically about tech talent management.

Fields related to tech trends grew at a "very healthy 15% between 2021 and 2022, even though global job postings overall decreased by 13%," according to the report. For example, in the categories of Applied A.I. and next-generation software development combined, there were one million jobs posted between 2018 and 2022. Next-generation software development saw the most significant growth in the number of jobs.

Another finding is generative A.I. innovation has accelerated and introduced new capabilities to A.I., adding to existing Applied A.I. technology. The result is a new way to create huge potential for impact across virtually every industry, according to McKinsey.

Going deeper

Here are a few Fortune weekend reads:

"Cancel the recession, Fed staff says. Whether the central bank’s governors agree is another matter" by Will Daniel

"Inside Illumina’s $8 billion deal that spurred a proxy fight with Carl Icahn and the ouster of 2 prominent Black Silicon Valley executives" by Lila MacLellan

"Billions in 9/11 aid has gone unclaimed. Now a new law will compel banks like JPMorgan and Goldman Sachs to alert survivors who worked near Ground Zero" by Shawn Tully

"How late in the day can you drink coffee? What time you can have your last cup and still fall asleep at night," by L'Oreal Thompson Payton

Leaderboard

Some notable moves this week:

Ruth Porat, SVP and CFO at Google and parent company Alphabet, was promoted to the newly created role of president and chief investment officer, effective Sept. 1. Porat will continue as CFO of Alphabet and Google until a successor is appointed.

Eimear P. Bonner, VP and chief technology officer at Chevron Corporation, has been appointed the next CFO, effective March 1, 2024, the company announced on Sunday. Bonner will succeed Pierre Breber, VP and CFO since 2019, who will retire from Chevron in 2024 after 35 years at the company.

Jason Marino was promoted to EVP and CFO at Marriott Vacations Worldwide Corporation (NYSE: VAC), effective Sept. 30. Marino will succeed Anthony “Tony” Terry, who announced his intent to retire earlier this year. Marino currently serves as SVP of strategy, financial planning and analysis and operational finance of Vacation Ownership. 

Diana Saadeh-Jajeh, CFO, GameStop Corp. (NYSE: GME) will be resigning from her role on Aug. 11. The company will be appointing Daniel Moore as its principal accounting officer and interim principal financial officer. Saadeh-Jajeh's resignation was not because of any disagreement with the company, according to SEC filings. She joined GameStop in 2020 and held several financial leadership roles before taking on the CFO role in 2022.

James Kehoe, EVP and CFO, at Walgreens Boots Alliance, Inc. (Nasdaq: WBA) is departing the company in mid-August to pursue an opportunity in the technology sector. Manmohan Mahajan, SVP, global controller, has been named interim global CFO while the company conducts a search to fill the role.

Alexandra Brooks was promoted to EVP and CFO at Hertz Global Holdings, Inc. (Nasdaq: HTZ), effective immediately. Brooks served as the company's interim CFO since April 2023 and chief accounting officer since 2020. She also previously served as SVP of Internal Audit at Hertz. 

Diego Reynoso was named CFO and treasurer at The Boston Beer Company, Inc. (NYSE: SAM), effective Sept. 5. Reynoso most recently served as the CFO of the Prepared Foods division of Tyson Foods. He was previously the SVP and CFO of the $5 billion beer division at Constellation Brands and held various senior financial and operational roles at spirits company Beam Suntory, Inc.

Overheard

"I promise you will enjoy the Barbie movie and you will thank me for recommending it. The Barbie movie is our first, and obviously a very important project for us."

—Mattel CEO Ynon Kreiz told Fortune’s Alan Murray and Michal Lev-Ram on the Leadership Next podcast in a conversation about turning the toy company into an IP powerhouse, and launching Mattel Films with this summer’s first blockbuster, Barbie.