Chipotle: Rise of a fast-food empire

FORTUNE -- As a kid, I watched Julia Child and Graham Kerr, the Galloping Gourmet, on television while my friends were watching cartoons. In grade school I learned how to make hollandaise from my mom, and during high school in Boulder I started throwing dinner parties and collecting cookbooks. After college I went to the Culinary Institute of America [in Hyde Park, N.Y.] and then to San Francisco to work at Stars restaurant. I aspired to have my own restaurant, but quickly realized I didn't know the economics of full-scale restaurants.
One day, while sitting in a taqueria called Zona Rosa close to my house, I watched how the line crew took care of people in very short order. I took out a napkin and jotted down what I thought the average check was and how many people were going through the line, and I timed it. I thought, Wow, this thing makes a lot of money -- it could be a little cash cow that could fund my real restaurant. My dad gave me $85,000 -- part loan, part equity. I packed up within a couple of weeks and drove back to Colorado. It was the summer of 1992. The first Chipotle opened in Denver on July 13, 1993.

he tipping point came in October, when the restaurant reviewer from the Rocky Mountain News gave Chipotle (CMG) an A rating and described how we made the marinade to grill the chicken, how we used only the ripest of avocados -- all the little details.After that people came from all over Denver, and down from Vail and Aspen. Suddenly the line was out the door and down the block.

Steve Ells's secrets of success

Don't bow to convention. When I started Chipotle, I didn't know the fast-food rules. People told us the food was too expensive and the menu was too limited. Neither turned out to be true.
Find incentives that work. The best Chipotle restaurant managers get the title "restaurateur" and a $10,000 bonus for each person they hire who starts as crew and goes on to become a manager. We have 170 restaurateurs out of 1,000 managers, and the turnover rate among them is very low.
Pick the right message. I thought we were going to get customers excited by telling them there were no antibiotics in our meat or no growth hormones used to raise the animals or no RGBH in our cheese or sour cream. Well, that's not a very appetizing message. So now we have a marketing program that's going to start a dialogue about why better ingredients make for better-tasting and more healthful food. http://money.cnn.com/2010/10/06/smallbusiness/chipotle_started.fortune/index.htm

25 stock picks from 25 great investors #2

2. Hartford Financial Serv. Group Pref. conv. shares

• 4 smart bond plays
• 3 undiscovered mutual funds

Ticker: HIGPRA

Chuck Akre
Akre Focus FundChuck Akre just launched his own fund, Akre Focus, after leaving FBR Focus, where he returned 12.6% annually from 1996 through 2009.
Akre, who keeps a third of his portfolio in financial services stocks, has a creative idea: convertible preferred shares of the Hartford Financial Services Group. These must be converted into common stock in 2013. Based on a price of $25, they offer a 7.25% yield, and Akre thinks a sizable gain is likely on the conversion. Over three years, he estimates, investors will reap annual returns of 18%.
The Hartford was hit hard during the financial crisis, but Akre thinks it's in good shape after recapitalizing. "It's an interesting, low-risk, decent turnaround play in a market with a lot of uncertainty," he says.
--M.K.

When can consumers buy a Google driverless car? And why would they?

October 12, 2010 12:38 PM

Big carmakers say they're developing driverless cars, but only the search engine company has taken to California's highways with one. If driverless cars can pick up people at their home or office, the need to buy one at all may soon be gone.
By Doron Levin, contributor
Google's (GOOG) dramatic experiments on California roads with driverless-vehicle technology, publicized with mild fanfare within the past week, could legitimize a once far-fetched concept for personal transportation.
The general public hasn't closely followed breakthroughs in artificial intelligence and digital control systems as they apply to so-called autonomous vehicles. But the military's drone aircraft, which can take off, land and carry out military missions by remote control may provide some hints as to how far driverless cars can go. Achievements in the automotive realm have been made partly by university scientists who receiving funding from the U.S. Department of Defense's research and development arm, DARPA, as well as by automakers.
Thanks to the the financial resources and creativity of Google, driverless technology is moving toward mass-market application sooner than anyone predicted, in the same manner that Internet technology migrated from university laboratories to personal computers once it was embraced by companies like Aol (AOL).
Why it took Google to build a working driverless car
What Google brings to the table is an outsider's perspective and an understanding of tech-savvy consumers.  Automakers have long known that cars could be built to drive themselves, but have been cautious about overselling the idea to the public or predicting their imminent arrival.  In the meantime, automakers have developed a raft of features to mitigate driver distraction, which ultimately could be used to take driving out of human hands.
"The industry knows the long road that has to be traveled to make driverless technology successful,'' said Tom Kowaleski, a spokesman for BMW's U.S. operations.
Safety and litigation worries by the industry have previously slowed the introduction of features now considered basic, such as airbags. Conventional wisdom has held that no machine could process as much information as a driver or react as well – but the time may have finally come where perhaps the opposite is true. "Every new piece of technology we introduce takes three to five years of gestation before it can be introduced. I have no crystal ball," Kowaleski said.
While Google's latest experimental vehicle uses sensors to see its surroundings and respond appropriately, BMW, Toyota and other automakers have been experimenting with a different kind of technology: Their experiments revolve around communication systems that allow cars to exchange wireless signals.  A car that encounters a slippery road, for example, could inform others approaching the area, Kowaleski said.  In an early stage of the technology, the driver could respond to a warning; eventually cars could be taught to respond on their own by slowing down or engaging all wheel drive or some other feature.
Toyota was the first automaker to offer a feature that allowed a driver to overcome the difficulty of parallel parking by letting the car do so on its own.  John Hanson, a Toyota spokesman, said in an emailed message that the automaker has been working on autonomous vehicles and related technologies and "will be a leader'' when such vehicles are introduced.
Beyond the technological hurdles, which seem less difficult to surmount as companies like Google weigh in, automakers may have to consider a different model for personal transportation once a human driver is no longer essential. Here's where the technology might both empower consumers and startle car makers.
Cars that don't need drivers also may not need private owners – since they could be summoned remotely and returned once their journey is complete. Why take on a lease if you can purchase a subscription to a car instead? Netflix (NFLX) has already soundly proven that consumers will change their habits if enough of an incentive is provided. Car owners who never want to spend a Saturday under the hood or in the waiting room of a mechanic's shop again might quickly adapt to a car subscription model.
With Google's driverless leap forward, both in terms of technology and in presentation to an increasingly tech-savvy and tech-obsessed world, the joys of car driving and car ownership may give way to the convenience of forgoing the gasoline pump -- or the charging station -- for good.http://tech.fortune.cnn.com/2010/10/12/when-can-consumers-buy-a-google-driverless-car-and-why-would-they/

#1 OF 25 STOCKS FROM 25 GREAT INVESTORS

25 stock picks from 25 great investors

We talked to money managers with gold-standard track records and asked them each for their single best stock pick.

1 of 25

1. Qualcomm

• 4 smart bond plays
• 3 undiscovered mutual funds

Ticker: QCOMTodd Alhsten
Parnassus Equity Income
Todd Ahlsten's $3 billion Parnassus Equity Income Fund has returned 5.5% annually over the past decade, trouncing the S&P 500's 0.5% yearly decline in that time.
Ahlsten looks for four qualities in stocks: long-term relevance, a competitive edge, strong management, and potential double-digit returns. Right now he thinks Qualcomm meets all four. The company licenses technology that enables smartphones to connect to 3G and 4G networks. As demand for the devices increases, Ahlsten says, Qualcomm will reap the benefits.
"They have myriad patents locking up the technology way out into the future," Ahlsten says. "We see long-term, solid returns." The stock is trading near its 52-week bottom, in part because phone prices are falling, but Ahlsten thinks investors overestimate future price cuts.
--Mina Kimes

A new hedge fund's question: Where to invest if Israel strikes Iran?

Posted by Dan Primack

September 27, 2010 9:55 am

War profiteering has accompanied almost every armed conflict in human history, but rarely has it been so explicit.
With each passing day, Israel and Iran move one step closer to military conflict. A recent Atlantic article even put the odds of an Israeli strike by next July at better than 50%, based on an informal survey of American, Arab and Israeli government officials.
It's nightmarish: A non-official nuclear power attacking a regional enemy before it too has the bomb. Even were Israel to be successful, side-effects would almost certainly include death and global economic disruption.
For Randy Slifka, however, war could equal returns.
Fortune has learned that the New York fund manager, whose father formed Halcyon Investment Management in the early 1980s, may raise a "geopolitical volatility fund" based on an investment thesis that Israel will strike. It's called GeoVol, and draft marketing documents suggest a bifurcated structure of two long/short portfolios in commodities, equities, currencies and debt:

• "Portfolio A" would aim for medium returns on between 25 and 30 positions, and would be "designed to preserve capital in case of no strike or a delayed strike, but provide significant upside when the event occurs."
• "Portfolio B" would aim for high returns on between 10 and 15 positions, and is "designed to maximize returns through the use of options, derivatives and leverage with a higher degree of risk due to option decay."

There have been plenty of  funds predicated on economic events, including ones that make certain geopolitical assumptions. But a fund entirely based on war? That seems new.

Source: GeoVol marketing materials

"I've never heard of anything like it," said one hedge fund formation lawyer, who has not met with Slifka. "I guess you could call it novel."
Slifka began his career at E.M. Warburg Pincus. He then spent eight years as a principal and senior portfolio manager at Halcyon, before launching a series of funds where he is the sole investment adviser.
His colleagues on GeoVol include principal Nathan Troutman (ex-Vulcan), CFO William McEnroe and research and intelligence director Shai Baitel (ex-Israel and UN legal official). The draft documents name Alston & Bird as legal counsel and Goldman Sachs as prime broker, but neither has formally committed.
The listed target capitalization is $500 million.
When contacted by Fortune, Slifka would only say the following on the record:

"While Slifka Asset Management has generated strong investor returns by pursuing risk-adjusted strategies that account for special situations, including geopolitical events, the strategy in question is purely a concept. We developed materials to test this concept but no such fund currently exists."

Slifka also sent a revised page of marketing materials, which claimed that at least 20% of fund profits would be distributed to Israelis affected by a possible counter-attack.
My sense here is that Slifka honestly believes what he's selling: This fund would be a hedge in its most literal sense, protecting investors -- including those who have invested in other Slifka-managed funds -- from future market instability. I also believe that his devotion to the well-being of Israel is sincere, and that he'd be thrilled if Iran voluntarily halted its nuclear program.
The reality, however, is that Slifka is not a diplomat nor a full-time philanthropist. He's a fund manager, and the vehicle he's proposing is designed to make money based on a specific act of military aggression.
The road to war profiteering can be paved with good intentions, even if some of those profits are given to charity.