Download - Chipotle Case 2016
Individual Case Analysis for: Chipotle Mexican Grill Curt Cordray 1
Chipotle Mexican Grill
Curt Cordray
4 April, 2016
Dr. Michael Collette
Individual Case Analysis for: Chipotle Mexican Grill Curt Cordray 2
I. Part One – Executive Summary
A. Introduction
I was appointed by Chipotle’s senior management to provide a current assessment of the Mexican
segment of the fast-casual dining industry and, in particular, Chipotle’s competitive position within that
industry. Chipotle is a key player in the Mexican segment of the fast-casual dining industry. A brief
review of my methodology to the analysis of the “Mexican segment of the fast-casual” Industry,
conclusions developed based on that analysis, identification of the significant issues facing the
company’s current strategic approach, and, the recommendations that had been developed around
these conclusions which are focused on these strategic issues can be found in the following Executive
Summary. The tools and actual outcomes of the analysis can be found in the appendices at the end of
the report. "
B. Conclusions
1. The fast-casual Mexican segment is dominated by three players: Chipotle, Qdoba, and Moe’s. It’s also
important to include Taco Bell, which currently has 49% of the market share of the Mexican segment of
fast food. Without even including local Mexican restaurants, and smaller chains such as Baja Fresh and
California Tortilla, this segment is completely dominated with strong players, who have a much stronger
capital, brand awareness, and marketing power. The cost of building and maintaining a fast-casual
restaurant in the Mexican segment is also incredibly high. A new entrant would also have to have strong
supply chain management skills if they were wanting to use healthy food options, due to the cost of
organic food being so high. With the competitive rivalry and saturation of fast casual Mexican
restaurants, supply chain management skills needed, and cost of maintaining a restaurant, this is not an
attractive industry to get involved with. The dominant players will easily budge you out.
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2. The differentiation in the Mexican segment of fast-casual dining is very weak. Almost all competitors
provide similar products in a similar fashion of “through put” service line.
3. The threat of the supplier is significantly strong due to that fact that organic vegetables and high
quality meat are so expensive. Organic vegetables and ethically raised meats also don’t always produce
the same amount of yield that a genetically changed crop yields.
4. The ease entry into the fast-casual industry is very difficult. This is due to the fact that the cost of
opening up and maintain a restaurant are very high. Chipotle averages development and construction
cost to be around $800,000. The fierce competitiveness of the restaurant industry should also hinder
the entry of new competitors.
5. Should regulatory influences and government policy change to a strict law of GMO free, organic, and
ethically raised crops, this would put Mexican fast-casual restaurants like Chipotle and Moe’s ahead of
the curve since they are already adopting such practices. This would also reduce the cost of raw
materials significantly, due to the new demand for these kinds of crops and animals.
6. Moe’s Southwest Grill likely competitive moves is likely to keep trying to saturate the market through
franchising, in attempt to overtake fast-casual dining spots like Chipotle and Qdoba.
7. Taco Bell plays a serious role in the Mexican fast-food industry, by owning 49% of the market share.
8. Qdoba’s is the second leading Mexican fast-casual dining restaurant. They are likely to being
advertising nationally, and expanding their outreach across the country. Chipotle also serves breakfast
as a competitive strategy.
9. Taco Bell is the low-cost lead in the Mexican segment of dining and Taco Bell is the overall leader in
the market. Chipotle is second, which medium prices, then Qdoba and Moe’s. Taco Bell also serves
breakfast as a competitive strategy.
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10. The key success factors for being successful in the Mexican segment of fast-casual dining industry
are: efficiency, having a simple menu, having an aesthetically pleasing interior in the restaurant, strong
employee staffing, strategic expansion, and strong supply chain management.
11. Chipotle’s current business strategy is built around: Serving a focused menu of burritos, tacos,
burrito bowls (a burrito without the tortilla), and salads, using high quality, fresh ingredients and classic
cooking methods to create great-tasting, reasonably-priced dishes prepared to order and ready to be
served one to two minutes after they were ordered, enabling customers to select the ingredients they
wanted in each dish by speaking directly to the employees assembling the dish on the serving line,
creating an operationally efficient restaurant with an aesthetically pleasing interior, building a special
people culture that consisted of friendly, high-performing people motivated to take good care of each
customer and empowered to achieve high standards, doing all of this with increasing awareness and
respect for the environment and with the use of organically grown fresh produce and meats from
animals raised in a humane manner without hormones and antibiotics.
12. Chipotle has a winning strategy in place that gives them a sustainable competitive advantage over
the competition.
13. A SWOT analysis reveals that Chipotle’s biggest strength is their use of organic vegetables and
ethically raised and high quality meats. Chipotle’s biggest weakness is its lack of supply chain
management when it concerns the scarcity of organic foods making the cost of food much higher.
14. The SWOT analysis reveals that Chipotle has opportunities in franchising, breakfast, and their
catering program.
15. Chipotle’s core competencies are: high quality meats and vegetables served, simple menu items,
and its efficiency with serving customers quickly.
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16. Chipotle prefers to market through word-of-mouth publicity from customers telling their
experiences to other people. Chipotle typically does marketing for their restaurants when their entering
a new community. Chipotle’s advertising and marketing costs were $44.4 million in 2013. They’re
biggest competitor in advertising and marketing is Taco Bell, who runs a lot of national television ads
and promotions.
17. The competitive strength analysis shows us that Chipotle and the other Mexican fast-casual
restaurants all operate very similarly. Taco Bell has significant lead over them by having strong
advertisement power, and undercutting the price of the fast-casual Mexican dining spots.
18. The financial analysis reveals that since 2009, food, beverage, and packaging cost have gone up
almost 3%. This is mostly due to the cost of organic vegetables and high quality meats being so high,
due to scarcity and the lack of yield that they produce. Chipotle must find a way to reduce these cost, so
that they can continue to show a profit in years to come.
19. Chipotle has a great opportunity to spur sales and marketing through the catering program that
they recently launched in 2013. Catering allows for Chipotle to enter into new customer’s life, without
them entering into the restaurant. Catering is currently around 1% of average sales in restaurants. With
better marketing and awareness, I think this can provide a boost in sales for Chipotle and create more
brand awareness.
20. Chipotle must continue to build customer awareness of the pros and cons of ingredients grown with
genetically modified seeds, the pros and cons of organically grown fruits and vegetables, the reasons
people ought to consider eating meats that come from animals raised humanely and without the use of
antibiotics, the benefits of eating nutritious foods, and the reasons Chipotle is so deeply committed to
its Food with Integrity mission. Using high quality vegetables, ingredients, and meats is one of the
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sustainable competitive advantages that Chipotle has. Chipotle must continue to build awareness of
why these things are important, to try to attract new customers, as well as retaining old.
21. The cost of developing and constructing new restaurants is unsustainable for Chipotle. Competitors
will be able to quickly oversaturate Chipotle through franchising. The comparable – restaurant sales
increase has continued to decrease from year to year.
C. Strategic Issues
1. The cost of food, beverages, and packing has risen from 30.7 percent in 2009, to 33.4 percent in
2013. This is due to the rising market prices for organically grown ingredients and natural meats. In the
long run, this poses a very serious threat for Chipotle if changes aren’t made swiftly. Chipotle will begin
to see their revenue decline if this isn’t addressed appropriately within the supply chain management.
2. Chipotle does very little national marketing and advertising. Chipotle mostly uses word-of-mouth
publicity from customers to share their message, but are missing a large market share from consumers
who have never heard of Chipotle, or maybe have heard a bad experience, rather than a good one. Taco
Bell is dominating the national advertising of the Mexican segment, which steals customers straight
from Chipotle.
3. Chipotle isn’t building up enough brand awareness of its key competitive strategy: high quality
meats and vegetables. Customers who are unfamiliar with Chipotle have no idea just the kind of quality
meats and vegetables Chipotle truly uses. Consumers also don’t have a good understanding of why
these high quality meats and vegetables are important. Chipotle needs to do a better job at informing
the consumer about the pros and cons of the foods they consume. Chipotle pays WAY too much money
for these meats and vegetables to not have their customers understand the importance.
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4. The cost of developing and constructing a new restaurant will eventually become unstainable, and
cause Chipotle profits to take a big hit. Chipotle will eventually be behind the pack in the amount of
fast-casual Mexican restaurants, due to the competitors offering franchising options. This takes a major
financial load off the competitors, and is an opportunity that Chipotle is not offering.
5. Chipotle is currently missing out on the market share for breakfast. Chipotle has the potential to
market to new customers who are looking for a quick and healthy breakfast, which could bring in a
substantial amount of profit for Chipotle. Currently the only fast-casual Mexican dining areas serving
breakfast are Qdoba and Taco Bell.
D. Recommendations
1. My first recommendation is to build better relationships and contracts with organic farmers and to
buy out local farmers and them solely provide your ingredients and meats. This will help cut the cost of
food, beverage, and package dramatically. The competitive edge the Chipotle has over its competition is
the high quality of meats and vegetables it uses. Chipotle can no longer risk to lose revenue due to the
ever fluctuating cost of these raw materials. Creating contracts with a fixed cost will keep the prices of
these meats and vegetables at a fair cost for both the farmer and Chipotle. Buying up surrounding local
farms that will provide the proper meats and vegetables cuts the middle man out of the equation, and
gives Chipotle their own farms that they can take care of, cutting cost in the long-term. This could also
help with quality assurance and food safety, having inspecting their own crops and meats regularly.
They could then database these crops and animals, making sure they know where each crop comes
from. This cuts down on having sicknesses such as E.coli and salmonella. This recommendation is based
off of conclusion # 18 and strategic issue #1.
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2. My second recommendation is that Chipotle begin to market nationally. This opens Chipotle up to
new customers who may not even know what Chipotle is, or who have never had any interest in going in
to a Chipotle. This could also help bring in new customers who may have heard something bad about
Chipotle from word-of-mouth publicity. Currently, Taco Bell dominates the Mexican segment of dining,
and national advertising could help Chipotle take customers away from Taco Bell. This recommendation
is based of conclusion #16 and strategic issue #3.
3. My third recommendation is to place a larger emphasis on catering. Chipotle only averages about 1%
of catering sales per yearly sales. Catering is a fantastic way to market, while making money. Catering
allows for Chipotle to enter the lives of consumers who wouldn’t normally go into a Chipotle restaurant.
Catering builds brand awareness and intrigue into a new consumer’s life. If the consumer is impressed
with just the catering service, how much more impressed will they be when they actually enter a
Chipotle restaurant and experience the friendliness and hospitality of the Chipotle staff. This
recommendation is a response to conclusion #19 and strategic issue #2.
4. My fourth recommendation to Chipotle is that they need to make consumers more aware of the pros
and cons of high quality meats and vegetables. When consumers don’t understand why it’s important,
they don’t understand your brand and why they should keep choosing you over your competitors.
Chipotle needs to launch marketing campaigns that allow the consumer to be informed, and want to
come back to Chipotle for their own health. Along with this concept, they need to alarm customers that
they don’t currently have that they do have these high quality meats and vegetables. Chipotle must do
a better job branding their awareness of health and wellness for every human being, as well as humane
animal rights. This recommendation is a response to conclusion #20 and strategic issue #3.
5. My fifth recommendation to Chipotle is to franchise. Franchising will dramatically cut the cost of
developing and constructing new restaurants for Chipotle. It will also allow Chipotle to keep up with the
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over saturation of the fast-casual Mexican restaurants. I propose that Chipotle have strict guidelines of
how these stores are ran by management, and where these restaurants are strategically positioned.
Chipotle likes the control and say that they have over their restaurants, which contributes a lot to their
success, and allowing each customer to have the same experience at every Chipotle worldwide. With
strict guidelines and follow up, Chipotle can still be successful at being in unison with every restaurant,
and keeping every Chipotle consistent. This recommendation is a response to conclusion #21 and
strategic issue #4.
5. My fifth recommendation is to begin serving breakfast at Chipotle. Currently, the breakfast
marketing in the Mexican segment of fast food is held by Qdoba and Taco Bell. Chipotle has an amazing
opportunity to brand itself as a healthy and fast breakfast option over its competitors. This will allow for
more revenue to come, while cost still remain relatively low, due to the similar menu options and the
simplicity of the breakfast menu. This will also attract new customers who are looking for a healthy and
quick breakfast as well. This recommendation is a response to conclusion #8 and #9, as well as strategic
issue #5.
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II. Part Two – Analysis
A. An analysis of the industry in which Chipotle operates:
Industry
This analysis will investigate how Chipotle Mexican Grill competes in the fast-casual dining
segment that includes Mexican food. This includes restaurants such as Moe’s Southwest Grill, Qdoba
Mexican Grill, and Taco Bell via the Mexican food sector.
Economic Dominant Factors
Market Size: Restaurant industry sales were forecast to be a record-high $683 billion in 2014 at 990,000
food establishments in the United States. The compound average growth rate is forecast at 3.9 percent
since 2010. The fast-casual segment represented less than 2% of food establishments in the United
States and accounted for about 5% of total industry. Fast-casual restaurants were the fastest growing
restaurant category, having boosted their share of all quick-service restaurant sales from 5 to 15 percent
over the past 10 years. Traffic at fast-casual restaurants was up 6% in 2010, 6% in 2011, 8% in 2012, and
9% in 2013, while quick service restaurants rate remained flat. 85 percent of consumers surveyed said
they ate at fast-casual restaurants at least once per month.
Degree of Product Differentiation: The product differentiation isn’t necessarily in the food for the fast-
casual dining industry, but rather the way that it is presented. Consumers are presented with high
quality food that is served quickly, and is inexpensive. Consumers are also presented with a pleasant
and inviting dining room, that allows the consumer have an enjoyable experience, different from that of
a quick-service restaurant. Consumers are also presented with healthier, organic options from
restaurants like Chipotle and Moe’s Southwest Grill. Chipotle offers GMO-free meat and all organic
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vegetables and fruits. Chipotle goes through a series of regulations to make sure that each animal that
is treated with ethical care. Moe’s Southwest Grill also uses all natural, and café free chicken, steroid-
free and grain-fed pulled pork, 100% grass-fed sirloin steak, and organic tofu. These restaurants have
differentiated themselves by providing high quality, and ethically treated meats and vegetables, at a low
cost for the consumer.
Buyers: The amount of buyers in this industry is enormous, due to the fact that everyone has to eat.
The forecast for sales in the restaurant industry is at record-high with $683 billion projected in 2014.
64% of consumers said they were more likely to visit a restaurant that offered locally produced items;
72% said they were more likely to visit a restaurant that offered healthier food options; and 54% said
they were more likely to visit restaurants pursuing environmental sustainability initiatives.
Scope of Competitive Rivalry: Chipotle competes with national and regional fast-casual, quick-service,
and casual-dining restaurant chains, as well as locally owned restaurants and food service
establishments. The number, size, and strength of the competitors varied by region, local market area,
and a particular restaurants location within a given community. There are a multitude of dining
establishments that specialize in Mexican food. The leading fast food chain in the Mexican-style food
category is Taco Bell. Chipotle’s two biggest competitors in the fast-casual segment were Moe’s
Southwest Grill and Qdoba Mexican Grill. Two smaller chains, Baja Fresh and California Tortilla, were
also competitors in a small number of geographic locations.
Ease of Entry/Exit: The ease entry into the fast-casual industry is very difficult. This is due to the fact
that the cost of opening up and maintain a restaurant are very high. Chipotle averages development
and construction cost to be around $800,000. The fierce competitiveness of the restaurant industry
should also hinder the entry of new competitors. Even removing the fast-casual segment, you still have
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competitors in the quick service industry, gourmet-dining, etc. you still have a lot of restaurants trying to
get your attention.
Porters Five-Force Analysis
Threat of New Entry: The threat of new entrants is low. Despite the restaurant industry being $683
billion dollar industry, the capital that is takes to develop and maintain is very high. The fierce
competitiveness in the industry is also very high. You must have a lot of capital or a strong differentiator
help you be profitable in the industry
Threat of Buyer Power: The buyer power in the fast-casual industry is medium. The buyers don’t obtain
the power to drive the prices of the meal down, due to the fact that all human beings has to eat. The
prices of the fast-casual meals average to $7.40. 85% of consumers surveyed said they ate at a fast-
casual restaurant at least once a month. The factor that makes the force of buying power medium is
how many food options the buyer has. The buyer could very easily switch from your restaurant, to a
different restaurant option. The buyer also has the ability to make their own food, and totally skip out
on going to any restaurant option.
Threat of Competitive Rivalry: Competitive rivalry is a strong force in the fast-casual industry. The fast-
casual industry is saturated with a number of capable competitors, especially in the Mexican food
segment that Chipotle is in. Competitors like Qdoba and Moe’s Southwest Grill offer very similar menu
options, and even include perks that Chipotle doesn’t include, such as Moe’s offering free chips and
salsa with every meal for free. The Mexican food, fast-casual industry must position itself in the heads
of the consumers that it is more superior to the other restaurants. Taco Bell also plays an important role
in competitive rivalry by offering similar products at a much cheaper price. There are also local Mexican
restaurants that offer a similar or more extensive menu than Chipotle.
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Threat of Substitution: The threat of substitution is very high in Mexican food, fast-casual industry.
With such high saturation in the food industry, restaurants and food chains are constantly trying to steal
you away from the other segments and restaurants. Consumers aren’t always craving Mexican food,
eliminating Chipotle or any of the other Mexican, fast-casual dining spots, from their decision process.
These Mexican, fast-casual dining spots, can be easily substituted for a McDonalds, Wendy’s, or any of
the other similar Mexican dining spots.
Threat of Supplier Power: The threat of supplier power is very strong concerning the Mexican, fast-
casual dining, especially when it concerns organic, GMO-free meats, and locally grown, which Chipotle
and Moe’s both use. There are ongoing challenges concerning supplies of organic products, locally
grown produce, and natural meats being constrained because consumers are purchasing growing
volumes of these items at their local farmers’ markets and super markets and because the chefs at many
fine-dining establishments are making concerted efforts to incorporate organic, locally grown produce
and natural meats to their dishes. The cost incurred by organic farmers and by those raining animals
naturally are typically higher. Organic crops also take longer to grow, and have a lower yield than
nonorganic. Consequently, supply demand will periodically be imbalanced and produce market
conditions under which certain organic products and natural meats are sometimes either unavailable or
prohibitively high-priced.
Drivers of Change
Regulatory Influences and Government Policy Changes: Should policies be changed concerning organic
vegetables, GMO-free vegetables and meats, cage free animals, etc. companies like Chipotle and Moe’s
are already ahead of the curve. This is would also cultivate a new landscape of farmers who have to use
ethically sound methods and organic food, and sell to restaurants and food chains alike. This would
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drive down the prices of organic foods and meats for Mexican, fast-casual dining restaurants like
Chipotle and Moe’s, reducing their cost. In 2013, 33.4 of Chipotles cost was accounted for organically
grown ingredients and natural meats.
Changing Societal Concerns, Attitudes, and Lifestyles: If society made a stronger effort to eat ethically
and more organically, Chipotle could see an increase in sales, due to their company already being on the
forefront of healthy and ethical eating habits. If society became more aware of GMOs, steroids, caging
of animals, etc. sales would be huge in the markets of Mexican, fast-casual dining.
Marketing Innovations: Building a brand in the food industry is very important. All of the Mexican, fast-
casual restaurants have all done an excellent job at doing that. But, one of them must become the clear
leader of the pack. Whether it’s by oversaturation, having the best product, being the most efficient,
etc. these restaurants must come up with a marketing campaign that truly exemplifies its true
superiority over the other competitors. The marketing campaign must be memorable, and relatable to
the consumer.
Strategic Moves of Rivals
Moe’s Southwest Grill:
There are currently 500 fast-casual Moe’s Southwest Grill locations in 37 states and the District
of Columbia. Most of these Moe’s locations are franchises.
Moe’s currently is planned to open up 100 new restaurants in 2014.
Moe’s uses high-quality ingredients, which includes all-natural, cage-free, white breast meat
chicken; steroid free and grain fed pulled pork; 100% grass-fed sirloin steak, and organic tofu.
None of the dishes that Moe’s serves include trans-fat or MSG.
Moe’s is likely to keep trying to saturate the market through franchising, in attempt to overtake
fast-casual dining spots like Chipotle and Qdoba.
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Moe’s has the funding to continue to expand and advertising due to the ownership of their
parent company, Focus Brands.
Qdoba Mexican Grill:
Qdoba is the second-largest fast-casual Mexican brand in the United States as of early 2014
As of 2013, there were 615 Qdoba Mexican Grill restaurants in 46 states, the District of
Colombia, and Canada.
Qdoba management believes that they have long-term growth, and can open as many as 2,000
locations.
Qdoba is likely to follow the management belief of expansion, and try to saturate the market
through franchising.
Qdoba is yet do undergo any sort of national advertising or promotion. I expect Qdoba to begin
to advertise nationally to build brand awareness and generate customer traffic.
Taco Bell:
Taco Bell is the leading fast-food chain in the Mexican-style food category.
Taco Bell currently holds 49% of the market share in the U.S. Mexican quick-service segment.
Yum! Brands, Taco Bell’s parent company, announced in 2013 that they will be opening up 3,000
new locations worldwide.
Taco Bell is likely to keep innovating new and creative menu options that appeal to the target
market. These menu options will continue to maintain a viewpoint of higher quality.
Taco Bell will continue to undercut the price against other fast-casual Mexican options.
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Strategic Group Map
Key Success Factors
Efficiency: One of the main keys of being successful in the fast-casual Mexican industry is being able to
quickly serve your customers. The fast-casual dining experience only works if the customer is able to get
their meal as quickly as possible, but still being able to enjoy a nice dining experience if desired. These
fast-casual Mexican dining restaurants are constantly looking for ways to improve their speed of getting
customers through the service line.
Simple Menu: Having a simple menu at a fast-casual restaurant makes it much easier to do create those
few items exceptionally well. The simple menu also helps speed up the service line, helping with the
desired efficiency that is essential to the fast-casual industry. The high quality of meats and vegetables
also helps drive the sales of the simple menu.
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Aesthetically Pleasing Interior of Restaurant: It’s important not only give the customer great tasting
food, but also allow them to have an experience. Customers want to feel like they can sit down and
have nice meal in the fast-casual industry if desired. Customers want a fast-casual experience to feel
different from a fast food experience.
Strong Employee Staffing: It is important for every company to have employees who buy into the
culture of the company, so that the customer can have the best possible experience. The fast-casual
Mexican segment believes that strong customer service goes a long way in the industry, and helps bring
customers back to their store. This is driven by having strong top-executive managers who buy into the
culture, and pass it down to their employees.
Strategic Expansion: Expanding in this industry is essential. All of these companies are attempting to
oversaturate the market place, to try to get ahead of the competitors. Yet, while expanding, it’s
important to strategically position the restaurant in a location that will bring in sales, and caters to the
right demographic of customers. The cost of building, or even investing in freestanding locations is very
expensive, and companies must perform the effective amount of market research.
Strong Supply Chain Management Practices: The fast-casual industry must be able to cut cost, to
maintain the similar, lower level prices. Customers are willing to pay for the fast-casual experience, only
if the price doesn’t exceed a certain price point. The fast-casual Mexican industry must have strong
relationships with the suppliers that help keep the cost down.
Attractiveness of Industry and Personal Assessment
The fast-casual Mexican segment is dominated by three players: Chipotle, Qdoba, and Moe’s. It’s also
important to include Taco Bell, which currently has 49% of the market share of the Mexican segment of
fast food. Without even including local Mexican restaurants, and smaller chains such as Baja Fresh and
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California Tortilla, this segment is completely dominated with strong players, who have a much stronger
capital, brand awareness, and marketing power. The cost of building and maintaining a fast-casual
restaurant in the Mexican segment is also incredibly high. A new entrant would also have to have strong
supply chain management skills if they were wanting to use healthy food options, due to the cost of
organic food being so high. With the competitive rivalry and saturation of fast casual Mexican
restaurants, supply chain management skills needed, and cost of maintaining a restaurant, this is not an
attractive industry to get involved with. The dominant players will easily budge you out.
B. Competitive Analysis (analysis of this company and its major competitors):
Chipotle’s Current Competitive Strategy
Chipotle’s competitive strategy is built upon six elements. The six elements are as follows:
Serving a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla), and
salads.
Using high quality, fresh ingredients and classic cooking methods to create great-tasting,
reasonably-priced dishes prepared to order and ready to be served one to two minutes after
they were ordered.
Enabling customers to select the ingredients they wanted in each dish by speaking directly to
the employees assembling the dish on the serving line.
Creating an operationally efficient restaurant with an aesthetically pleasing interior.
Building a special people culture that consisted of friendly, high-performing people motivated to
take good care of each customer and empowered to achieve high standards.
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Doing all of this with increasing awareness and respect for the environment and with the use of
organically grown fresh produce and meats from animals raised in a humane manner without
hormones and antibiotics.
Supporting Business Strategies
Chipotle’s strategy for operating its restaurants is the principle that the front line is key. The
restaurant and kitchen designs are intentionally places most personnel up front where they can
speak to the customers in a personal and hospitable manner. There they can prepare the food,
and allow the customer to customize the meal to their liking.
Chipotle has a priority of nurturing a people-oriented, performance based culture in every
restaurant. Top managers believe that such culture led to the best possible experience for both
customers and employees. The foundation of that culture starts with hiring good people to
manage the staff and company’s restaurants.
Chipotle has also implemented a long-term campaign called Food With Integrity, which is a
movement use top-quality, nutritious ingredients and improve the Chipotle experience.
Chipotle would go about doing this by working with experts in the areas of animal ethics to try
to support more humane farming environments, and it started visiting farms and ranches from
which it obtained ingredients. As of 2014, all Chipotle restaurants normally served only meats
from animals that were raised without the use of subtherapeutic antibiotics or added hormones
and met other Chipotle standards. Almost all of the vegetables used are mostly organic. The
sour cream and cheese are rBGH free. Chipotle also works with local farmers to try to make
every product as fresh as possible.
Chipotle is known for being one of the biggest innovators of having the ability to have a
customer’s order ready quickly. Much experimentation and fine tuning are laid out to create
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the most efficient customer throughput. The throughput target was at least 200 and up to 300
customers per hour.
Chipotle embodies the principle of customer customization. Through the service line, customers
have their choice of cheeses, meats, rice, vegetables, salsas, etc. Customers seem to enjoy
having a say in what goes into their final product, and adds a unique experience for each
customer.
Is this a Winning Strategy?
Does the strategy fit the company’s present circumstance? Yes
Is the strategy helping the company achieve a sustainable competitive advantage? Yes
Is the strategy producing good company performance? Yes
Conclusion: This is a very good strategy that is working quite well for Chipotle. The strategy
is working so well that its competitors are even beginning to copy it.
SWOT Analysis of Chipotle
Strengths: Chipotle’s main strength is its use of high quality and ethically raised meats and vegetables.
Chipotle is one of the first restaurants to voice this issue, and act on it. Chipotle is well known as a
brand that is GMO free, and they seem to market this rather well. Another strength is restaurant
staffing and management, and the ability to employ from within. Chipotle has built a culture that
employees are buying into, and are wanting to be around for the long-hull. Chipotle’s strong urgency
for better efficiency and speed through the service line is a big strength. Chipotle has been one of the
biggest innovators in this ability to have a customer’s order ready quickly.
Individual Case Analysis for: Chipotle Mexican Grill Curt Cordray 21
Weakness: The biggest weakness that Chipotle has is there inability to keep cost for food, beverages,
and packing low due to rising market prices of organically grown ingredients and natural meats.
Chipotle must find a way to work with local farmers about finding a fixed, fair price that helps keep the
cost low.
Opportunities: Chipotle has a lot of opportunities concerning their catering program, breakfast, and
franchising. Catering is a good opportunity to make money, but also a way to market to consumers who
maybe have never had Chipotle. It removes the consumer coming into the shop, and brings the food to
a customer who may be unfamiliar with the restaurant. Breakfast could serve as a great opportunity to
make a profit on an earlier crowd who are wanting something quick, but can eat it at the diner. This
would also steal customers from Taco Bell, and open up a new market share for Chipotle. Chipotle
always has franchising as an option. Franchising allows Chipotle to saturate the market, while getting
paid to do it. Although they lose control of the business, they still reap a good majority of the profits
while only providing the brand and business model.
Threats: The competitive rivalry that Chipotle is facing is fierce, especially since all of the models are
practically the same. Chipotle needs to find a way to truly differentiate themselves, especially from a
company like Moe’s whom also serves ethically raised meats and organic food. Chipotle must also fix
their supply chain management, and find ways to work farmers to help keep prices down.
Competitively Important Competencies
Chipotle’s dedication to serving the highest quality meats and vegetables allows Chipotle to
develop a strong sustainable advantage, even with Moe’s following the same model. Today’s
society is becoming more aware of the things that they consume and put in their bodies.
Consumers want a food that is not only good for them, but also good for the environment.
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One of Chipotle’s main core competencies is there dedication to efficiency and “through-put”.
Chipotle has a goal of getting 200-300 customers through the service line per hour. Consumers
will appreciate this by being able to enjoy the speedy quality of a fast casual meal, while also
being able to enjoy a nice dining experience.
Chipotle’s limited menu also helps them be able to get customers through the line quickly, while
also allowing Chipotle be able to serve the food at a reasonable price.
Chipotle Value Chain Analysis
Inbound Logistics: Chipotle’s inbound logistics is very high. Chipotle is spending a lot of money by
receiving one of their competitive advantages, higher quality meats and vegetables. Chipotle’s cost for
food, beverages, and packing are at 33.4 in 2013. Their biggest competitor with this Moe’s, who also
offers the highest quality of meats and vegetables. Qdoba and Taco Bell fair pretty low, because the
quality of the meats and vegetables is much lower, making the price lower.
Operations: Operations is very low in the value chain, due to the fast speed and efficiency of the
“through put” model they have. There isn’t much added value due to the fact that the competitors of
Chipotle all follow a very similar model of “through put”.
Marketing and Sales: Chipotle prefers to market through word-of-mouth publicity from customers
telling their experiences to other people. Chipotle typically does marketing for their restaurants when
their entering a new community. Chipotle has had ads for its newly expanded catering program. They
also have held a festival called Cultivate to try to inform consumers about healthy foods, organic
agriculture, and overuse of antibiotics in livestock. Chipotle also did viral video ads that were satire, to
spark conversation about issues in industrial food production. Chipotle’s advertising and marketing
costs were $44.4 million in 2013. They’re biggest competitor in advertising and marketing is Taco Bell,
who runs a lot of national television ads and promotions.
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Competitive Strength Analysis of Competitors
Taco Bell: Yum! Brands, Taco Bell’s parent company, provides a lot of marketing power by having such a
large marketing budget for advertising. Taco Bell is able to communicate its message very effectively to
consumers very quickly. Taco Bell is also priced lower than Chipotle, making it a more intriguing option
if you’re on a budget. Taco Bell also is introducing breakfast.
Moe’s Southwest Grill: Moe’s uses high-quality ingredients, which includes all-natural, cage-free, white
breast meat chicken; steroid free and grain fed pulled pork; 100% grass-fed sirloin steak, and organic
tofu. None of the dishes that Moe’s serves include trans-fat or MSG. They emphasize hospitality and
friendly service at every location. One of their biggest competitive advantages over Chipotle is that they
offer free chips and salsa with every meal, unlike Chipotle.
Qdoba Mexican Grill: Qdoba is currently owned by Jack in the Box, Inc. who could provide a lot of
national marketing power if they so wanted. Oddly enough, Qdoba has not undertaken and national
advertisement or promotions. Qdoba is the only fast-casual Mexican restaurant that serves breakfast,
making them the owner of that market share.
C. Financial Analysis (Ratio Analysis)
Major Trends and Red Flags
The major trends that are shown in the Chipotle Financials is that total revenue and net income are
rising every year. The company is still increasing money every year, despite the major red flag of food,
beverage, and packaging cost rising consistently every year. Since 2009, food, beverage, and packaging
cost have gone up almost 3%. This is mostly due to the cost of organic vegetables and high quality
meats being so high, due to scarcity and the lack of yield that they produce. Chipotle must find a way to
reduce these cost, so that they can continue to show a profit in years to come. The comparable-
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restaurant sales increases is also another red flag. In 2011, the comparable-restaurant sales increase
was at 11.2%, 2012 7.1%, 2013 5.6%. New restaurants aren’t making as much money in the first
calendar year, as they were in the past.