WHEN: Today, Wednesday, December 16th
WHERE: CNBC's "Mad Money w/ Jim Cramer"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Chipotle Co-Chief Executive Officers Steve Ells and Monty Moran on CNBC's "Mad Money w/ Jim Cramer" (M-F, 6PM-7PM ET) today. Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000466605.
All references must be sourced to CNBC.
JIM CRAMER: How worried should be about Chipotle in the wake of the E.coli outbreak and the newer novo virus episode in Boston? We know sales have weak-- we know the company's taken extraordinary steps to find out what's wrong and to put through a comprehensive food safety plan. You may have seen these ads in today's papers all across the country about the steps they're taking. And because the show is called Mad Money, the company's stock's been hit, down 17% for the year.
Although it is worth noting that it has stabilized of late. I think we need to dig a little bit deeper which is why I'm thrilled to have Steve Ells and Chipotle's founder, chairman and co-CEO, Monty Moran, the co-CEO, find out more about what they've done to fix this problem. Mr. Ells and Mr. Moran, welcome to Mad Money.
STEVE ELLS: Hi, Jim, thank you.
MONTY MORAN: Hi, Jim, thanks.
JIM CRAMER: Good to see you gentlemen. Steve, let me start with you. Just tell me, how did it happen?
STEVE ELLS: Well in the Pacific Northwest we heard of an outbreak of E.coli. And so we believe some tainted food at one of our ingredients was introduced into the system and it had E.coli on it.
JIM CRAMER: Well let me ask you because in that particular area you had to close 43 stores. We now know all of them are opened. Are people coming back like they used to?
STEVE ELLS: Well traffic has slowed. And we announced this in Nikkei recently released. But we're doing everything in our power to ensure that we're creating a food safety system that will put us well ahead of industry standards.
We want to show all of our customers that the industry standards that we have been employing before which are considered great standards were not good enough. And they're not good enough because something like this could happen. So we've been working with leading epidemiologist and his team to develop systems that he estimates will put us ten to 15 years ahead of these industry standards. We want to be the safest place to eat, Jim.
JIM CRAMER: All right, well, Monty, let me ask you from a public – your public – here's something you say, you say, "We may be at a higher risk for food borne illness, illness outbreaks than some competitors due to our use of fresh produce and meats rather than frozen and our reliance on employees cooking with traditional methods rather than automation." Is this the price we have to pay for food with integrity?
MONTY MORAN: I don't think so at all, Jim. You know, as you know we work very hard and we've been very innovative in our sourcing at the very best raw ingredients we can find. We do not believe there's anything less safe about eating that way. And we believe that what we need to do is pr – put that same innovation that we put towards food with integrity and that we put that we put towards our very special people culture we've got to put that same kind of innovation into food safety now.
We've already begun those efforts and we believe those innovations are going to yield the risk profile that's very near zero in our restaurant which we're told by our epidemiologist, another expert, you can never be sure that the risk is absolutely zero. But we're doing everything within our power to get that risk as near to zero as possible in our restaurant. And that's why we're undertaking this very comprehensive work.
JIM CRAMER: Well, I, you know, it's this has been around and I've covered a number of restaurant chains over the last 30 years that have had problems. Is it possible that there have been other problems at other restaurant chains that we don't even know but what you decided to do was a drastic shut down of a lot of stores that didn't even have a problem and you called right called – you called it out basically, Monty.
MONTY MORAN: Yeah, that's true. I mean in the Pacific Northeast we were just alerted that there were a few restaurants that had a potential issue. And right away we decided to close every single restaurant in the area, 43 restaurants in total. Those weren't closures that we were asked to do or mandated. Those were closures we decided to do out of an abundance of caution because the number one priority for us is the safety of our customers and—
JIM CRAMER: All right, Steve—
MONTY MORAN: --we wanted to close those and understand the problem completely.
JIM CRAMER: Absolutely. Steve, you in your ad you say as a chef it starts with the chef. Now one of the reasons you know that you guys have schooled me, I mean, look, this is an important interview but I – you schooled me about farm to table. You schooled me about natural and organic. You schooled my kids. My daughter went there just this week said, "Yeah, well, dad, what's the problem?" But I come back and I see what you're trying to do that you got to ship vegetables to Chicago for cleaning, come back. Is it going to taste as good as it used to?
STEVE ELLS: Well, Jim, we're committed to food with integrity as much as we ever have been. You know, we're going to layer on this culture of food safety and make sure that we're the safest place to eat. That's priority number one. You know, I talked about tomatoes as an example at an investor conference.
And today we would not have the ability to have this kind of intense testing, this high-resolution testing, if we were to chop tomatoes in the commissary. So instead we're doing it in the central kitchen where we take many, many, many samples to ensure that it is as safe as possible. Now if I'm eating the burrito that had tomatoes that were chopped in the central kitchen in the salsa or one that was chopped in house I probably couldn't tell the difference.
You know, eventually I think we want to try to come up with testing methods and have experts come up with testing methods so maybe we could bring tomatoes back in. I mean, it's our desire to cook as much in house as possible.
But we're not going to take the risk. We're still doing many, many, many things in house. It's just that the testing of tomatoes, for instance would be not possible. We couldn't do this high-resolution testing in the restaurants right now. And we wanted to assure that we are the safest place to eat. And it brings the risk of contamination in this tomato, for example, to near zero when we do it in the central commissary.
JIM CRAMER: Okay, but—
MONTY MORAN: It's still going to be delicious.
JIM CRAMER: But Monty, let me ask you one of the things I love is what you do for local growers. But, you know what, the local grower industry they're not as rich as agribusiness. Agribusiness has got a lot of money. We know that. I watch your YouTube videos. I know how you feel. Is it just possible that the local farmer can't afford to maybe they can't be as meticulous about safety as these big agriculture companies.
STEVE ELLS: Well, we're – we have worked with farms of all sizes in our food with integrity quest to remove antibiotics and to take RGBH to the milk producing growth hormone out of dairy. And all kinds of things like this.
And we're going to work with these smaller farmers to make sure that they can implement this testing. We're out of the local growing season right now. So as spring time comes, we'll start to work with them.
It's our desire to have all of our local smaller farmers be able to afford this testing and to be able to make that possible. You know, and I think over time as we become more sophisticated with this testing the costs of these tests will probably go down.
JIM CRAMER: All right. Now Monty, do you think that it's possible with so many different restaurants in Oregon and in Washington that this could have been local grow? Maybe it was the other part that is national?
STEVE ELLS: You know, we've worked very, very hard to try to find what the source of this contamination was and we've not been able to find it. We've done thousands and thousands of our own tests. We've tested our employees, we've tested surfaces, we've tested all the ingredients nothing came up showing any E.coli whatsoever.
The government test, likewise, didn't find any E.coli. So we really don't know exactly what the ingredient was here. The good news though is we are looking at every single ingredient we have, every single one from where it originates, where it's grown, all the way until it gets to our restaurant to make sure that we take every opportunity to make every single ingredient just as safe as it can be. And then once in the restaurants, we've got very robust policies and procedures now in place, every better than before, to ensure that we have the safest food we can have.
JIM CRAMER: All right Steve, does it matter whether it comes from this country or any area of the country? I mean, was there a sense of perhaps that you have to import a certain kind of tomato from Mexico it matters?
STEVE ELLS: No. We, you know, all of our farms were – we visited the farms – the CBC was on a lot of the farms. We had our epidemiologist on farms. And we could not pinpoint it to a certain location. I will say though that we can assure you today that there is no E.coli in Chipotle. We have thoroughly tested our food. We have thoroughly tested our surfaces. And we are confident that Chipotle is a safe place to eat.
JIM CRAMER: Now, Steve, you talked a lot about the safety measures, and they're extensive. Safety costs a lot of money. Are we going to see multiple price increases for our burritos at Chipotle?
STEVE ELLS: Well, first of all, let me say that we're not going to take any price increases in the near future. Safety is going to become a very, very important part of our culture. And this intensive testing now is going to be with us for the long term, forever.
And we think it is really an important part of our overall vision of changing the way people think about and eat fast food. It's got to be safe. You've got to come up with protocols that take the risk as close to zero as possible.
There will be costs. There's no question about that. But like there was cost in food with integrity we still manage to have industry-leading margin. We plan to do that. And as you know we're always very, very conservative when it comes to taking price increase. We just don't do it that often and we don't do it that much.
JIM CRAMER: All right, Monty, last question to you gentlemen. Yes, the company has a big buy back. I was trying to avoid just talking about the stock because this is a bigger issue in many ways. But you have a buy back. You obviously have faith in the long-term about food with integrity and the comprehensive food safety plan. You've been in there buying back stock during this period, haven't you?
MONTY MORAN: Yes, we have. We've been very aggressive during the softening of the stocks at the buyback opportunistically just as many shares as we can. We have a great deal of faith in the future of this organization. We have a great deal of faith in our 60,000 crews and managers throughout the country. We are all up for a challenge.
We are not going to let this crisis go to waste. And we're going to absolutely do – we're going to learn and do so much from this to be in much, much better company in the future. And so yes, we've got a lot of confidence and we're buying the stock actively.
JIM CRAMER: Gentlemen, thank you so much for coming on Mad Money. Always good to see you.
MONTY MORAN: Thanks, Jim. Appreciate it.
STEVE ELLS: Thank you.
JIM CRAMER: That's Steve Ells, founder, chairman and co-CEO, and Monty Moran, co-CEO of Chipotle.
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