Item 1. BUSINESS

General

Chipotle Mexican Grill, Inc., a Delaware corporation, together with its subsidiaries (“Chipotle,” “we,” “us,” or “our”) owns and operates Chipotle Mexican Grill restaurants, which feature a relevant menu of burritos, burrito bowls (a burrito without the tortilla), tacos, and salads. We strive to cultivate a better world by serving responsibly sourced, classically cooked, real food with wholesome ingredients and without artificial colors, flavors or preservatives. We are passionate about providing a great guest experience and making our food more accessible to everyone while continuing to be a brand with a demonstrated purpose. Steve Ells, founder and former executive chairman, first opened Chipotle with a single restaurant in Denver, Colorado in 1993. Over 25 years later, our devotion to seeking out the very best ingredients, raised with respect for animals, farmers, and the environment, remains at the core of our commitment to Food With Integrity.

As of December 31, 2020, we owned and operated 2,724 Chipotle restaurants throughout the United States, 40 international Chipotle restaurants, and four non-Chipotle restaurants. We manage our operations based on eight regions and have aggregated our operations to one reportable segment. Our revenue is derived from sales by company-owned restaurants.

Business Strategy

We are a brand with a demonstrated purpose of cultivating a better world. Our mission is to win today while creating a bright future by focusing on five key fundamental strategies:

Making the brand more visible and loved;

Utilizing a disciplined approach to creativity and innovation;

Leveraging digital capabilities to drive productivity and expand access, convenience and engagement;

Engaging with customers through our loyalty program; and

Running successful restaurants with a strong culture that provides great food with integrity while delivering exceptional in-restaurant and digital experiences.

Food with Integrity

Serving high quality food while still charging reasonable prices is critical to ensuring guests enjoy wholesome food at a great value. In all of our Chipotle restaurants, we endeavor to serve only meats that are raised in accordance with criteria we have established in an effort to improve sustainability and promote animal welfare, and without the use of non-therapeutic antibiotics or added hormones. We brand these meats as “Responsibly Raised®.” One of our primary goals is for all of Chipotle restaurants to serve meats raised to our standards, but we have and expect to continue to face challenges in doing so. For example, some of our restaurants periodically serve conventionally raised chicken or beef due to supply constraints for our Responsibly Raised brand meats or stop

serving one or more menu items due to additional supply constraints. When we become aware of such an issue, we clearly and specifically disclose this temporary change on signage in each affected restaurant so that guests can adjust their orders if they choose to do so. We also seek to use responsibly grown produce, by which we mean produce grown by suppliers whose practices conform to our priorities with respect to environmental considerations and employee welfare. Some of the beans we serve are organically grown or grown using conservation tillage methods that improve soil conditions, reduce erosion, and help preserve the environment in which the beans are grown. We call these beans “transitional.” Some of the other produce items we serve are organically grown as well as we continue our commitment to find high quality ingredients.

Purchasing

Maintaining the high levels of quality and safety we demand in our restaurants depends in part on our ability to acquire high-quality, fresh ingredients and other necessary supplies that meet our specifications from reliable suppliers. Our 24 independently owned and operated regional distribution centers purchase from various suppliers we carefully select based on quality, price, availability, and the suppliers’ understanding and adherence of our mission. We’ve also sought to increase, where practical, the number of suppliers for our ingredients to help mitigate pricing volatility and reduce our reliance on one or several suppliers, which could create supply shortages. In addition, we closely monitor industry news, trade tariffs, weather, exchange rates, foreign demand, crises and other world events that may affect our ingredient prices. Certain key ingredients (certain cuts of beef, tomatoes, tortillas and adobo) are purchased from a small number of suppliers.

Quality Assurance and Food Safety

We are committed to serving only safe, high quality food. Our food safety and quality assurance teams work to ensure compliance with our food safety programs and practices, components of which include:

supplier interventions (steps to mitigate food safety risks before ingredients reach Chipotle);

advanced technologies (tools that reduce or eliminate pathogens while maintaining food quality);

small grower support and training;

enhanced restaurant procedures (protocols for handling ingredients and sanitizing surfaces in our restaurants);

food safety certifications;

internal and third-party restaurant inspections; and

ingredient traceability.

These and other food safety practices underscore our commitment to be a leader in food safety while continuing to serve high quality food that our guests love. Our food safety and quality assurance teams establish and monitor our quality and food safety programs and work closely with suppliers to ensure our high standards are met throughout the supply chain. We maintain a limited list of approved suppliers, many of whom are among the top suppliers in the industry. In addition, we have a team approach where our training, operations, culinary, legal and safety, security and risk management departments develop and implement operating standards for food quality, food preparation, restaurant cleanliness, employee health protocols, and safety in the restaurants. Our food safety programs are also intended to ensure that we not only continue to comply with applicable federal, state and local food safety regulations, but also establish Chipotle as an industry leader in food safety. To help achieve this goal, we have a Food Safety Advisory Council comprised of some of the nation’s foremost food safety authorities. The Food Safety Advisory Council is charged with evaluating our programs, both in practice and implementation, and advising us on ways to elevate our already high standards for food safety. Our food safety and quality assurance team members hold board seats and participate in technical working groups with several associations. This gives us the opportunity to learn and share our knowledge and expertise with other food safety professionals and regulatory agencies.

Digital Business

Our digital platform continues to be a strategic driver of our growth. In the past year, we significantly upgraded our capabilities by digitizing almost all of our restaurant digital-make lines, expanding our partnerships with third-party delivery services and building more Chipotlanes, which is our drive through format for customer pick-up of digital orders. Digital sales, which includes delivery and customer pick-up, accounted for 46.2% of our total sales in 2020, compared to 10.9% of total sales in 2019. Our strong digital platform gave us a competitive advantage during the COVID-19 pandemic, as more guests prefer to eat their meals at home and in-restaurant dining was prohibited or restricted. We have made digital ordering convenient with enhancements to the Chipotle App and website, such as unlimited customization, contactless delivery, and group ordering.

Human Capital

As of December 31, 2020, Chipotle employed nearly 88,000 people worldwide. In the United States, we employed 85,314 people in our restaurants and approximately 1,367 people in our Restaurant Support Centers (RSCs) and field support organizations; approximately 87,000 individuals are employed in the U.S. and approximately 1,000 are employed in Canada, France, Germany and

the United Kingdom. We do not currently have any employees represented by unions. We believe our efforts to manage our workforce have been effective, as evidenced by a strong culture and our employees’ demonstrated commitment to living our purpose and values.

Culture, Values & Diversity, Equity & Inclusion

As a people-first company rooted in values, our purpose of Cultivating a Better World extends beyond serving nutritious food using real ingredients. It means hiring world-class individuals dedicated to investing in their future and partnering together to positively impact the communities they serve. Most notably, it means fostering a culture that champions diversity, ensures equity, and celebrates inclusion.

As of December 31, 2020, more than 50% of our U.S.-based employee population is female and approximately 66% of our U.S based employee population is comprised of racial and ethnic minorities. U.S. diversity statistics were as follows:

Gender		Race/Ethnicity
Female	54%	Hispanic or Latino	38%
Male	45%	White	31%
Not Indicated	1%	Black or African American	18%
		Asian	5%
		Two or More Races	4%
		Not Indicated/Specified	3%
		American Indian/Alaskan Native	1%

We provide opportunities for our employees to drive our Diversity, Equity & Inclusion (DE&I) strategy by creating programs that raise awareness, allowing courageous conversations and a more inclusive culture. These programs empower our employee-driven Employee Resource Groups (ERGs) to challenge the organization to consider additional opportunities to Cultivate A Better World in the DE&I space. Our current ERGs are as follows:

Employee Resource Groups	Year Established
HUSTLE: Humans Uniting to Support the Ladies’ Experience Supporting our Female Community	2019
PRIDE: People Respecting Inclusivity, Diversity and Education Supporting our LGBTQ Community	2019
SERVES: Community Outreach Supporting the Communities we Serve	2019
WELLNESS: Employee Wellbeing Supporting our employee’s mental, physical and financial wellbeing	2019
UNIFIED: United Network or Influencers Furthering Inclusion and Ethnic Diversity Supporting our Communities of Color	2020

Total Rewards

The financial, physical and mental wellness of our employees remains our top priority. We conducted an independent pay equity analysis of our U.S. workforce to identify risks and pay gaps in our organization by gender and race/ethnicity. The results did not identify preferential treatment to any class of employee, which supports our commitment to ensuring we pay our employees equally across gender and race/ethnicity. This commitment is evidenced by our investment in our compensation packages and robust suite of benefit offerings such as:

Eligible Crew members who work at locations that meet team sales and output goals may qualify for a quarterly Crew Bonus (equivalent to one week’s worth of pay on average). In addition to quarterly performance bonuses, full-time crew members with at least one continuous year of service may be eligible for an annual bonus. In 2020, we paid out approximately $4 million across these bonus programs.

Debt-Free Degrees are offered to those eligible Chipotle employees who work toward Associate's and Bachelor's Business and Technology degrees through six specified colleges. The program covers 100% of tuition costs upfront.

Personalized mental health assistance is available to all Chipotle employees and their family members through a partnership with Health Advocate. Support is available 24/7 via in-person, phone or virtual visits with a licensed counselor.

Following ten years of uninterrupted service, our restaurant General Managers and Support Staff employees are eligible for a paid eight-week sabbatical.

Our Response to COVID-19

The health and well-being of our employees and guests has always been and continues to be our top priority. To ensure the health and well-being of all of our employees during the COVID-19 pandemic, we also provided the following incremental COVID-19 benefits:

Expanded our paid emergency leave benefits to accommodate employees directly affected by COVID-19

Provided 30-day personal leave with automatic approval for any COVID-19 related reason.

Extended access to telemedicine coverage to employees and their families.

Expanded Employee Assistance Program coverage and Concierge Service with a focus on mental health support for employees and their families.

Removed the minimum hours worked requirement for access to our Tuition Assistance & Debt-free-degree programs.

Provided hourly assistance pay: 10% increase to all hourly base wages.

Discretionary Bonus: Provided a minimum bonus for our salaried restaurant managers during each quarter.

Assistance Pay Bonus: Provided an additional bonus to our salaried restaurant managers.

Implemented work from home for our support centers.

Government Regulation and Environmental Matters

We are subject to various federal, state and local laws and regulations that govern aspects of our business operations, including those governing:

the preparation, sale and labeling of food, including regulations of the Food and Drug Administration, which oversees the safety of the entire food system, including inspections and mandatory food recalls, menu labeling and nutritional content;

employment practices and working conditions, such as minimum wage rates, wage and hour practices, requirements to provide meal and rest periods, Fair Workweek legislation, employment of minors, anti-discrimination, anti-harassment, classification of employees, paid and family leave, workplace safety accommodations to certain employees, immigration and overtime pay, among others;

privacy and data security, laws governing the collection, maintenance and use of information regarding employees and guests and consumer credit protection and fraud;

compliance with the Americans with Disabilities Act and similar laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas;

environmental practices, such as the discharge, storage, handling, release and disposal of hazardous or toxic substances, and regulations restricting the use of straws, utensils and the types of packaging we can use in our restaurants;

building and zoning requirements, including state and local licensing and regulation governing the design and operation of facilities and land use; and

licensing and regulation by health, alcoholic beverage, sanitation, food and other agencies.

Compliance with these laws and regulation has not had, and is not expected to have, a material effect on our capital expenditures, results of operations or competitive position. See “Risk Factors” in Item 1A for a discussion of risks relating to federal, state, local and international laws and regulations applicable to our business and our Deferred Prosecution Agreement with the U.S. Attorney’s Office for the Central District of California and the United States Department of Justice’s Consumer Protection Branch.

Seasonality

Seasonal factors influencing our business are described under the heading “Quarterly Financial Data/Seasonality” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Competition

The fast-casual, quick-service, and casual dining segments of the restaurant industry are highly competitive with respect to, among other things, taste, price, food quality and presentation, service, location, convenience, brand reputation, cleanliness, and ambience of each restaurant. Our competition includes a variety of restaurants in each of these segments, including locally-owned restaurants, as well as national and regional chains. Competition from food delivery services, which offer meals from a wide variety of restaurants, also has increased in recent years, particularly during COVID-19, and is expected to continue to increase. Many of our competitors also offer dine-in, carry-out, online, catering, and delivery services. Among our main competitors are restaurant formats that claim to serve higher quality ingredients without artificial flavors, colors and preservatives, and that serve food quickly and at a reasonable price.

Our Intellectual Property and Trademarks

“Chipotle,” “Chipotle Mexican Grill,” “Food With Integrity,” “Responsibly Raised,” “Chipotle Rewards,” and a number of other marks and related designs and logos are U.S. registered trademarks of Chipotle. We have filed trademark applications for a number of additional marks in the U.S. as well. In addition to our U.S. registrations, we have registered trademarks for “Chipotle” and a number of other marks in Canada, the European Union and various other countries, and have filed trademark applications for “Chipotle Mexican Grill,” “Chipotle” and a number of other marks in additional countries. We also believe that the design of our restaurants is our proprietary trade dress and have registered elements of our restaurant design for trade dress protection in the U.S. as well.

From time to time, we have taken action against other restaurants that we believe are misappropriating our trademarks, restaurant designs or advertising. Although our policy is to protect and defend vigorously our rights to our intellectual property, we may not be able to adequately protect our intellectual property, which could harm the value of our brand and adversely affect our business.

Available Information

We maintain a website at www.chipotle.com, including an investor relations section at ir.chipotle.com, on which we routinely post important information, such as webcasts of quarterly earnings calls and other investor events in which we participate or host, and any related materials. Our Code of Ethics and our Code of Conduct for Suppliers also are available in this section of our website. You may access our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as well as other reports relating to us that are filed with or furnished to the SEC, free of charge in the investor relations section of our website as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.

The contents of the websites mentioned above are not incorporated into and should not be considered a part of this report. The references to the URLs for these websites are intended to be inactive textual references only. ‎