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CHIPOTLE MEXICAN GRILL INC filed this Form S-1/A on 12/05/2005
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      Chipotle DSL (Don't Stand in Line) online ordering system. These changes allow us to accommodate more customers and larger orders without disrupting store traffic. We'll also consider additions to our menu that could enable us to enhance sales. For example, in 2005 we rolled out a salad that uses the same ingredients as our burritos and tacos, with the addition of a chipotle-honey vinaigrette. Given the brand loyalty that our customers have shown, we believe that another way we can grow sales is by getting more people to try our food. We hope to keep expanding brand awareness in various ways, including through free food giveaways, word-of-mouth marketing and innovative ads and promotions.

Our Industry

        Research shows that people need to eat. Where and what they choose to eat, however, has been gradually changing over time. Studies show that, over the past 50 years, people in the United States have relatively steadily shifted toward purchasing food away from home, instead of preparing and eating food at home. And the restaurant industry has grown to accommodate that trend. The National Restaurant Association estimates that the U.S. industry's sales in 2005 will reach $476 billion (about 4.0% of the U.S. gross domestic product) at 900,000 locations nationwide. The Association further predicts that, by 2010, food purchased away from home will represent more than half of all consumer food purchases, and that the number of restaurants around the country will swell to more than a million locations.

        We believe that there are many reasons that the industry is expanding and eating out is becoming increasingly popular. A growing population means more customers for restaurants to draw from, higher income levels (particularly among dual-income families, "Gen-Xers" and "baby boomers") mean more discretionary income to spend eating out, and busier lifestyles mean people have less time to prepare food at home. As a result, more people are willing to pay for the convenience of quality food made by others. As the restaurant industry adapts to consumer trends, restaurants (including fast-casual restaurants in particular) have increasingly made available the higher-quality food that people want, as illustrated by the proliferation of premium coffee shops, beers, specialty supermarkets and the like.

        Restaurants today come in many shapes and sizes, ranging from high-end full-service restaurants to fast-food establishments. But that hasn't always been the case. When Steve Ells opened the first Chipotle in 1993, consumers had few dining options between traditional fast-food establishments and high-end full-service restaurants. Steve was frustrated by this lack of options and thought he could fill the void. Relying on his view that "fast" didn't have to mean "fast food," Steve opened the first Chipotle store and served food made from higher-quality ingredients, using many traditional cooking methods and prepared to order rather than in advance. Steve tried to avoid formulaic approaches that were common in quick-service restaurants and looked to fine-dining restaurants for inspiration, using architectural and design elements like those one would expect in a full-service restaurant. He also chose a simple menu that allowed him to price menu items closer to fast-food prices and decided not to use waiters, so that food could be quickly served directly to the customer.

        When we opened our first store in 1993, there wasn't even an industry category to describe what we were doing. Since then, others have moved to fill the gap between fast-food establishments and full-service restaurants and a new industry segment, dubbed "fast-casual," has emerged. These restaurants combined characteristics from both full-service restaurants (the more pleasant atmosphere, higher-quality ingredients and food that's made to order) and from quick-service restaurants (chiefly accessibility, lower prices and faster service), and blended them to create something that sets fast-casual restaurants apart from both. Like many fast-casual restaurants, our stores feature last-minute food preparation and assembly with menu items ordered directly from the employees preparing the food, and rely on a variety of fresh ingredients used in creative ways, all served in stores that emphasize design. Customers of fast-casual restaurants often have to pay a bit more for the experience—the fast-casual segment charges, on average, about $7 to $10 per person. The growing demand for fast-casual restaurants (particularly among "Gen-Xers" and "baby boomers") and the increasing popularity and acceptance of various ethnic foods work to our advantage.


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