To: Professor Robert Atkin, Mr. Alec Davis (TA)From: Lauren Steen, Sara Briggs, Ambria Smith, Qian Cheng, Xiao LiuZack Glick, Andrew Luzzi, (Team 243)Date: April 19, 2013Re: Chipotle Mexican Grill report, 5:00/ 6:30 sections, outline

Attached please find our team’s final draft for the Chipotle Mexican Grill report. The authors, listed above, are all registered in the 6:30 section of MCE except for Andrew Luzzi and Zack Glick who are registered in the 5:00 section. We took and applied your advice and comments from our first draft and hope you will find improvements in our research, organization and overall coherence. Please note that we changed our objective. Feedback should be directed to Lauren Steen (les133@pitt.edu), our contact person.  If required, she can also be reached at 412-337-5396. Thank you for all of your advice, we look forward to receiving our grade.

Zack Glick Responsible for: Report objectives/business themes,Zag8@pitt.edu industry analysis, financial performance 914-320-1142Section 1700

Qian Cheng Responsible for: Report objectives/business themes, Qic18@pitt.edu market performance, industries, businesses/business412-889-9783 unitsSection 1839

Andrew Luzzi Responsible for: Report objectives/business themes, Awl15@pitt.edu market performance, product lines, industries, 610-937-5416 businesses/business unitsSection 1700

Xiao Liu Responsible for: Report objectives/business themes, Xil105@pitt.edu operations performance, industry analysis412-980-4350Section 1830

Ambria Smith Responsible for: Report objectives/business themes, Ams432@pitt.edu financial performance, executive summary, editing717-756-0535Section 1830

Sara Briggs (Team Leader) Responsible for: Report objectives/business themes, Sqb1@pitt.edu operations performance, cover sheet, introduction, 412-977-1674 general background, industry analysis, editingSection 1830

Lauren Steen (Contact) Responsible for: Report objectives/business themes, Les133@pitt.edu CSR performance, transmittal memo, future, editing412-337-5396Section 1830

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Executive Summary:

The objective of this report is to examine whether Chipotle will continue to expand; by 2015, Chipotle’s store number will grow to 1800.

For reasons outlined below, we conclude that Chipotle will most likely continue to expand and continue to profit. The likely scenario is that Chipotle continues growing as a company, with expansions nationally, as well as internationally in both Europe and Asia. Chipotle may also expand through ventures in sub-corporation ShopHouse, by creating even more restaurants.

We base these conclusions on the following findings:

Chipotle has successfully targeted specific market segments, of which have maintained high levels of brand loyalty through both quality product provided by Chipotle, as well as promotional tactics by the firm.

Demand for Chipotle’s product, as well as market share have both increased over the past decade for the firm, and future increases are likely in both.

Chipotle keeps up with the motto of “Food with Integrity” in all aspects of business, a model by which many competing firms cannot also seem to comply with, and a segment of customers specifically desire.

Chipotle has successfully utilized technology for operational practices; the systems the firm uses increase efficiency.

Financially, Chipotle has stood out against competition, even in a well-established market.

Rising consumer spending will continue to support revenue growth, as will rising employment by reducing free time for consumers to make their own meals

Our sense, from the above information, along with market data, shows that not only is further expansion possible for Chipotle, but it is likely to happen both rapidly, and widespread.

Having said that, several aspects of Chipotle’s operations and finances must remain in the same good standing they are currently, along with no unforeseen national crisis, if the firm wishes to grow at current rate and keep expanding by 2015.

Please take note: This report was written by a group of all freshman students which of whom have little to no prior background in this industry, relying on data available to the public, who have had very minimal training in functional and strategic business function.

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Introduction:

Chipotle Mexican Grill Inc. is a Delaware corporation, founded and based in Denver, Colorado. After 20 years and over 1400 restaurants, Chipotle restaurants serve a focused menu consisting of cuisine such as burritos, the self-named “burrito bowls” (burritos with no tortilla), tacos, and salads. The firm continues to expand quickly. Recently the firm began experimenting with a new chain; a restaurant called ShopHouse Southeast Asian Kitchen (1 store open currently) that implements the same idea as the bulk of the stores: a limited choose-your-own ingredients menu, except incorporating Pan-Asian food. The firm prides itself on serving fresh, high-quality food fast, or “Food with Integrity”, which is the firm’s philosophy. It outlines the specific goals the firm has: carefully sourcing high-standard, fresh raw ingredients while always maintaining social and environmental responsibility. The sustainable-food approach may have an industry-wide effect as other firms begin to adopt the strategy.

Section: Page #:

Executive Summary 3

Objective 4

General Background 5

Business themes 6-7

Industries 8

Business/business units 8

Product Lines 8-9

Industry analysis 10-11

Performance of the firm:

Market Performance 12-18

Operations Performance 19-24

Financial Performance 25-32

Corporate Social Responsibility 33-35

Future 36

References 37-40

Objective: Chipotle will continue to expand; by 2015, Chipotle’s store number will grow to 1800.

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General Background:

Capsule History

Opening the first restaurant in 1993, Steve Ells founded Chipotle, with the dream of redefining how people see the “fast food experience.” The goal was to serve the kind of high quality food a sit-down restaurant might provide, with the speed of a fast-food restaurant. A limited menu is provided and assembly line style set up allows the consumer to customize his order. This was created to provide the customer with, as Steve Ells put it, “A few things, thousands of ways.” The first Chipotle opened in an old Dolly Madison ice cream shop in Denver, and began to expand quickly. After bringing in outside investors in in 1998 (McDonald’s), Chipotle expanded outside of Colorado into Minnesota and Ohio in 1999. The firm began setting more specific standards for its ingredients—naturally raised chicken, pork, beef, cooked in zero trans fat frying oil, served with (mostly) organic greens and vegetables. They call this vision “Food with Integrity”. It involves knowing where all the firm’s ingredients come from, and understanding the impact the firm has on society and the environment. “Food with Integrity” provides a guideline for how Chipotle runs its business. Chipotle reached 500 stores in the year 2005. The firm went public in late January of 2006 (divesting with McDonald’s). It continued to expand, opening two stores in Toronto, Canada, and in 2010 opening its 1000th store in London. In 2011, Chipotle opened its first ShopHouse Southeast Asian kitchen in Washington D.C. Chipotle opened a store in Paris in May 2012. Today, the firm operates 1410 stores domestically and internationally, including five stores in Canada, six in London, and one in Paris1.

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Business themes:

1. Keeping up with consumer tastes

Although not an entirely unique challenge, Chipotle’s healthy food movement has forced firms in the food service industries to keeping up with consumer tastes. Chipotle itself has manipulated menu items to ensure that needs for consumer wants are met. Chipotle has, for example, introduced items such as the “burrito bowl” and salad to its simple concentrated menu due to health and low carb diet trends. The company’s choice to serve organic food also shows how the company has kept up with an ongoing trend in popular consumer tastes.

2. “Food with Integrity”/Improving the fast food experience

One of the visions Steve Ells built Chipotle on was his vision of “Food with Integrity.” Maintaining this is integral to the company’s objectives. From the time he founded Chipotle, Steve Ells has pushed his goal of improving the “fast food experience”, by giving customers high quality food fast. Customers have come to expect the sustainably grown, great tasting ingredients served as speedily as they can decide their burrito’s toppings. Serving “Food with Integrity” has created the “fast-casual” dining experience that many consumers have come to love, and many competitors have attempted to duplicate.

3. Supply chain

One main goal of the firm is serving “Food with Integrity”. High standards of raw materials are needed to do so, which poses a challenge for a large chain. The firm must deliberately and carefully choose suppliers. When seasonal and other effects come into play, pricing can become an issue as well. Another big problem the chain faces is that of getting its high quality, sustainably grown ingredients to each restaurant while the food is still fresh and intact. Chipotle must ensure that it is delivering the correct amount, to the correct place, at the correct time.

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4. Expansion

Chipotle has grown rapidly since when it was first founded. Steve Ells and the other executives plan for even further expansion. They plan to open 165-180 stores this year1. The firm has also established a new restaurant concept, ShopHouse Southeast Asian Kitchen, opening a store fairly recently.

5. Local and chain competitors

Taco Bell and Qdoba stand as Chipotle’s major competitors. Chipotle has the challenge of price competing with both rivals, as well as lining its limited menu against the other restaurants’ more extended and diverse menus. Not only is Chipotle competing with large public chains, but smaller, more local chains and restaurants that may pose similar threats. Chipotle’s “natural” menu also pits it against Panera Bread and Chik-Fil-A, restaurants that also have reputations for quality.

6. Financial trends in net income growth

NI growth is a rate, which shows the pace at which firms grow profits, with higher rate being generally more desirable than slower rates.  Chipotle, being a newer firm, over the past ten years had volatile levels of NI growth, in comparison to the well-established competing firms (Taco Bell, Qdoba), which have had much more stagnant and predictable levels of NI growth.  Over the past decade, Chipotle has shown to be a competitor in the industry by keeping positive levels of NI growth, when competition has failed to execute this goal.

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Industries, businesses, reportable segments, and product lines:

Industries

Chipotle’s place in the restaurant industry can be defined in many different ways. In this report, we refer to the firm as participating in the Mexican fast-food segment. Competitors we consider are Qdoba and Taco Bell. Mexican fast food is the most relevant industry because the rivals provide very similar, substitutable food; customers looking for a burrito would look to Qdoba, Taco Bell, or Chipotle, among other local stores.

Chipotle could be considered as participating in a more general segment of the industry: fast food. The biggest competitors include McDonald’s, KFC, Wendy’s, Taco Bell, Burger King, and Chick-fil-A.

The firm also competes in a category of dining now called "fast-casual" which is the fastest growing segment of the restaurant industry2. Consumers in this segment expect food quality that's more in line with full-service restaurants, coupled with the speed and convenience of fast food1. Chipotle is considered a pioneer in this industry. Major competitors in “fast-casual” include Panera Bread, Qdoba, Five Guys, and Au Bon Pain2.

In addition, the firm could put in a category with restaurants that serve more healthful food. Restaurants with the reputation of serving organic, sustainably grown, or fresher ingredients in casual settings could be considered major competitors within the restaurant industry. Examples include Panera Bread and Chick-fil-A.

Business/Business Units and Reportable Segments

Chipotle Mexican Grill operates two business units: Chipotle restaurants, and ShopHouse Southeast Asian Kitchen. Chipotle restaurants serve the focused Mexican-style menu, while ShopHouse restaurants serve Asian-inspired meals.Chipotle added a Shophouse store in 2011, which currently operates in Washington D.C. The firm operates a total of 1410 stores (as of December 31. 2012), so the ShopHouse business makes up a very small percentage of the entire company1.

Chipotle manages its operations and restaurants based on six regions that aggregate into one reportable segment2.

Product Lines

Chipotle currently operates two product lines: the majority of the product the firm sells is considered Mexican-style cuisine, and a fairly new set of products sold in restaurants called ShopHouse Southeast Asian Kitchen.

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Within the company’s businesses, a unique approach is offered: a concentrated menu with endless customizable possibilities. With an assembly line type ordering system, each customer can customize to his liking a burrito, taco, burrito bowl and salad with a variety of different meats, beans, and sauces. A choice of chips and guacamole on the side1 is offered as well, and some of Chipotle’s restaurants also serve beer and margaritas. Also implementing the “make-your-own” style, ShopHouse South Asian kitchen offers a choice of rice, noodles, meats, vegetables, toppings, and sauces in Southeast Asian style cuisine. The customer walks through the familiar assembly line and customizes his meal. Chipotle claims that with extras, its menu offers more than 65,000 choices3 (as founder Steve Ells insists, “A few things, thousands of ways1”).

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Industry Analysis:

Primary industry

Sector: ServicesIndustry: RestaurantSegment: Mexican fast food

Consider five factors:1. Competition among rivals2. Potential new entrants3. Substitutes4. Relative consumer power5. Relative supplier power

Competition among rivals

Chipotle is chiefly engaged in the Mexican fast food industry.  Currently, the main competitors the firm is facing are from rivals including Taco Bell and Qdoba Mexican Grill.  Even in the recession demand for Mexican food in the market is still booming; revenue for the Mexican restaurants industry as a whole has grown at an estimated 1.4% annualized five-year rate to $30.7 billion2.  Price competition and menu extension provide challenges for all firms in the industry. Competition among rivals is moderate, considering high demand. Potential new entrants

Start up costs for entering the industry are relatively high, between $330,000-$530,0003. As a first mover in the industry, Chipotle enjoys first mover’s advantages of brand association. Customers tend to have a brand loyalty to the main existing products in the market. However, despite this barriers to entry are low in this industry. High demand invites prospective sellers, and the market share for large players in the industry adds up to less than 50%2.

Substitutes Major substitutes that appear in the market are McDonald’s, KFC, Wendy’s, and Burger King.  The competition among those substitute firms is fierce, which leads to a lower level of profitability (attractiveness) of the Mexican fast-food industry. According a report from MarketWatch, the intense competition in the fast food chains even threatens top firms like McDonald’s4. This high competition environment decreases industry attractiveness. Threat of substitutes is relatively high.

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Relative consumer power

Although Taco Bell, Qdoba and Chipotle provide similar kinds of food, customers often have a particular preference when choosing which of these firms to buy from, called “brand loyalty.” This lessens consumer power. However, switching costs for customers are non-existent, increasing consumer power. Overall, consumers have moderate power; this does not have significant effect on profitability of the industry.

Relative supplier power

Firms in the industry must obtain food from suppliers, which are subject to shortages due to weather conditions, and other random occurrences1. As quality of food each firm wishes to source increases, supplies become increasingly more costly. Chipotle’s has the extra challenge of finding suppliers that meet the “Food with Integrity” standards and must source that much more carefully than the rest in the industry. However, there is a large number of suppliers for the industry, and the number is still expanding. Firms in this industry have the luxury of choosing from a wide range of suppliers. Supplier power is relatively low

Implication of overall attractiveness

With moderate competition among rivals, high threat of potential entrants (low barriers to entry), high threat of substitutes, moderate consumer power, and low supplier power the Mexican fast food industry is moderately unattractive. Overall, trends indicate that the industry will increase profitability as the industry is still in the growth stage.

Operators in the Mexican Food Restaurants industry have enjoyed increased market acceptance and booming demands for Mexican-style food in recent years. With the expanding immigrant population, international foods have become more and more popular, especially the Mexican cuisine. As industry analyst Agata Kaczanowska points out, “Mexican-style food has been introduced into mainstream American culture through rapid growth in brands like Chipotle Mexican Grill.” Expansion expected to be largely underpinned by further market acceptance of Mexican food in the five years to 2017. In addition, rising consumer spending will continue to support revenue growth, as will rising employment by reducing free time for consumers to make their own meals. As a result of this, the Mexican Food industry's revenue is predicted to continue growing steadily over the next five years, although the industry’s chain restaurants will likely grow at a much faster pace than small independent operators2.

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Performance of the firm:

Four sections:1. Market performance2. Operations performance3. Financial performance4. Corporate Social responsibility performance

1. Market Performance:

Customers

Chipotle targets those who value the “Food with Integrity” goals. A major promotional focus it has is on customer education and engagement. For example, one of Chipotle’s programs is a web-based promotion called Farm Team, created to educate customers about the firm’s sourcing methods4. The firm’s target market values the freshness and quality of each product’s ingredients enough to pay premium price for meals. As a result, majority of Chipotle’s consumers come from middle and upper middle class families, mostly of ages 18-342 who can afford the slightly higher prices that result from the higher quality of the ingredients.

Chipotle’s target market segment appears to be growing. According to the firm’s full year report for the year 2012, demand for Chipotle’s product has increased. Restaurant sales increased by 7.1% during the year, primarily due to increased traffic1. Chipotle’s customers are specifically loyal because of the firm’s persistent focus on “Food with Integrity.” The natural way of producing animals and other natural ingredients is one reason why Chipotle customers keep returning. No fast food company has committed to food standards like Chipotle has, and customers have responded with unforeseen gusto6. They are offered great tasting naturally produced meat with the luxury of speedy preparations (this is also one of Steve Ells’ original goals: improving the fast food experience). The firm seems to have a handle on the needs of the market segment that draws most customers, since store traffic continues to increase.

Customer’s tastes are constantly changing. America’s latest health fads include vegan, vegetarian, organic, and gluten-free diets6. Chipotle is already a step ahead when it comes to the current food trends. The firm has strived to source only organic vegetables and only sustainably raised meats since. Increasingly, it has done so (Chipotle began its unconventional sourcing methods in 19991). In the past, Chipotle has added things to its menu to keep up with health trends. For example, in the early 2000’s burrito bowls (a burrito without the tortilla) were added to the concentrated menu to cater to customers because of the new “low-

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carb” trend1. Now related segments in the restaurant industry are looking into changing the way they produce their food.

Chipotle conducts market research using an internal public relations team, and has found that customers respond to higher-level messages told in an approachable way10. The firm has come up with several ways to educate its target market on Chipotle’s ideals, and stays current on technology and social media to find new ways communicate to the consumer.

Aggregate Demand and Market Share

During the past decade, Mexican-style food has become a mainstream constituent of the American diet7. IBISWorld’s interpretation of the industry demand for Mexican food indicates that it is growing:

During the 10 years to 2017, the industry is projected to benefit from an increasing consumer base for Mexican-style food. An estimated 1.8% average annual increase in immigrants during this time will support this growth, as will rising consumer spending on Mexican cuisine from the American population at large. The prominence of Mexican-style food throughout the United States is supporting this trend, especially as more people turn to convenient eateries like those in the industry due to decreasing leisure time and rebounding consumer spending during the next five years 7.

Factors that may affect demand for Mexican fast food include the current economy, consumer income and spending, changing consumer tastes and health trends, consumer leisure time, and consumer habits for eating out.

Chipotle’s current market share in the Mexican fast food industry (as compared to Qdoba—Jack in the Box Inc.—and Taco Bell—Yum! Brands Inc and smaller players.) is 9%. Jack in the Box takes about 3%, with Yum! Brands Inc. holding about 23.8 of market share7. Other smaller chains and local competitors make up the rest. This chart shows the major players in the Mexican food industry; Brinker International (Chili’s which we did not analyze in this report) is shown here instead of Jack in the Box Inc. (which, as stated above possesses 3%)

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Chipotle’s net income, total revenue, and market share have all risen at a steady pace1. In the past few years, Chipotle has been steadily gaining market share. Taco Bell, the most famous brand of Mexican food, is a subsidiary of Yum! Brands, Inc. and takes up most of the Mexican Food market share (23.8%). In the past few years Taco Bell has seen a decrease in its market share. Qdoba, owned by Jack in the Box Inc. possesses much less of the market (3%). Qdoba has seen a very slow increase in market share (increasing less rapidly than Chipotle). Chipotle has been at the top in comparison to its competitors Taco Bell and Qdoba.

Chipotle is attempting to increase market share in the industry; it has expanded rapidly since its founding. As shown in this graph, projected expansion for the company by 2018 is close to 2200 stores9.

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Branding

Branding constitutes a large part of Chipotle’s business. As demands in current market for fast food keeps rising, to make the firm’s food special and outstanding, branding is a significant process. Since Chipotle doesn’t change its menu very often (only occasionally adding to the concentrated menu), branding part is very important in the expansion process. According to Chipotle’s self-definition, it is trying to demonstrate that “food served fast doesn’t have to be a fast-food experience1”.

Chipotle develops its own brands; it has redesigned its logo several times. At first it just included Chipotle’s name, but then it was changed into the “pepper” logo. Later, the “pepper” logo is revised into the image we see today. By making improvements in the logo, Chipotle demonstrates its objectives more clearly. Using the the logo, the firm directly shows that it is a Mexican food restaurant as well as showing its values; the pepper is a symbol for both specialty of Mexican food and the program “Food with integrity.”

Chipotle’s Logo Changes over time

Original logo Pepper logo Revised pepper logo

Chipotle also makes progress in relating itself with words of “natural” “healthy” and “environmentally-friendly”. Sensing that customers in the contemporary world are more concerned about a healthy diet, Chipotle started its primary mission “Food with Integrity” in 20011, which helps to build the brand loyalty in customers. For example, the company established a non-profit organization to assist those who are making efforts in areas such as animal welfare and sustainable farming4. This shows the Chipotle’s target market how seriously it

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takes the “Food with Integrity standards. The uniqueness of the firm’s practices keeps customers returning.

Taco Bell and Qdoba have very different branding strategies than Chipotle. Qdoba recently launched new branding campaign that focuses on its innovative menu and showcases brand variety11. Taco Bell emphasizes variety as well, and has been using aggressive advertising techniques to put its branded content where its audience already goes: social media12. Chipotle emphasizes ethical sourcing practices resulting in fresh, quality ingredients, while its rivals Qdoba and Taco Bell emphasize variety and recognition.

Product Promotion

Chipotle’s major promotional goal is to educate its target market on its “Food with Integrity” mission. Through online videos and ad campaigns, Chipotle educates its target market about what makes the firm’s food unique. Chipotle produced and promoted an animated short film exposing customers to traditional farming techniques, and the benefits of sustainable farming4. This was meant to target customers’ emotions. Educating customers and participating in charitable activities (as mentioned above, Chipotle established a non-profit organization that supports ethical farming practices among other things) increases positive brand associations, bettering the public relations image of the company. The firm also promotes products via billboards and world-of-mouth advertising, increasing the firm’s exposure to the public.

Chipotle emphasizes its “healthy” side by continually advocating its mission. Chipotle’s 2011’s annual report the firm reports enjoying the success of a few new less traditional advertising techniques, creating an event called the Cultivate Festival, held in Chicago, which drew over 15,000 people. This summer, Chipotle will hold the Cultivate Festival in San Francisco, Denver, and Chicago.

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The firm also has an emerging music label to use for promotional purposes with similar techniques1. Chipotle enlisted the help of country music legend Willie Nelson to cover a Coldplay song (“The Scientist”) and donated 60 out of the 99 cents per purchase on iTunes to the Chipotle Cultivate Foundation10. The cover plays behind a video the firm hired CAA marketing to create14. It features a story about a frog that appeals to the viewers’ emotions.

As mentioned earlier, the company utilizes a web-based program called the Farm Team, created to educate customers on the firm’s unique goals.

Chipotle has also used sales promotion to increase sales; for example, a $2 burrito is offered to anyone who comes into stores in a costume on Halloween (the “Boorito” deal). The firm also holds many promotional contests. The Foursquare Burritos-for-a-year Promotion, which involves registering for a mobile service operated by Foursquare Inc. for a chance to win free burritos for a year, among other prizes.1. The personal selling technique the firm uses includes hiring friendly, personable workers to tend to the customers. Chipotle utilizes technology, specifically apps, for direct marketing. For example, within Pandora’s iPhone application (Pandora is a music radio site), Chipotle runs audio and expandable ads13. The ad, as per the firm’s campaign, celebrates local farms and the fresh ingredients Chipotle sources from them.

Another technique Chipotle uses to lasso in customers is adding to the atmosphere and appeal of its restaurants. Chipotle’s decorations are different from the decorations in the usual fast food restaurants. The simple architecture adds to store appeal, and the assembly line set up allows each customer to walk through and customize his meal. The design in the restaurant is unique because each store has an open kitchen in it that allows customers to watch the preparations of ingredients that make up the final product. Another factor that adds to the general appeal and pleasant atmosphere of stores is the songs played in each restaurant, which are selected particularly1.

Chipotle’s marketing technique communicates “Food with Integrity” message and tries to make a complex message simple and appealing. Using less traditional methods to generate sales, the firm has created a unique and recognizable ad campaign that has proved effective; in 2011, total annual revenue reached $2.2 billion, same-store sales increased 11.2%, and restaurant-operating margins hit a staggering 25.9%14.

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Product development

Different from other competitors, Chipotle does not continually produce new products or differentiate existing ones. The company retains its small limited menu, which allows customization. The firm has, in the past added menu items to keep up with trends consumer’s tastes (added the salad and burrito bowl at the start of the millenium1).

The menus of Taco Bell and Qdoba are more diversified than Chipotle’s. Qdoba’s menu offers queso as a topping, and many specialized burritos and tacos. Taco Bell’s menu is extremely diversified. Customers can purchase specialized burritos, chalupas, tacos, sides such rice and beans, desserts such as churros8. Both of Chipotle’s rivals are constantly diversifying and differentiating product; customers that value a wider range of options may not shop at Chipotle because of its more focused menu.

Overview of Chipotle’s market performance:

Chipotle’s successfully targets specific markets segments. The firm’s target market has become increasingly brand loyal due to promotional tactics by the firm. Chipotle uses a very wide range of promotional techniques, but all are aimed at educating the costumer on “Food with Integrity” and sustainable farming practices. Demand and market share have both increased for the firm, and future increases seem likely. One thing Chipotle has not done that rivals have is develop product; the firm does not strive to do so, opting for a more focused customizable menu. In general, Chipotle has been successful in comparison to competitors Taco Bell and Qdoba as marketing goes.

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2. Operations Performance:

Production

Chipotle operates as both a manufacturer and a retailer, targeting the customer through a zero-level channel. As a retailer, Chipotles provides healthy Mexican-style food, such as burritos, tacos and salads for customers. The firm sells its own manufactured product (burritos, salads, tacos, etc), but also sells products from outside manufacturers (for example, the firm sells Coca-Cola fountain drinks10).

When the workers in the Chipotle restaurant manufacture the final product, they cook, cut, dice, and prepare all the ingredients from meats to the lettuce for the assembly line. They do the bulk of preparations before the peak rush hour before meals. Workers have their "aces in their places," an industry term which means that it has workers in the appropriate positions to serve guests at all times11. The each worker puts together a small part of the customer’s meal then hand it off to the next worker, as the customer dictates his ingredient choices. A manager stands behind the assembly and ensures efficiency11.

As a retailer, the firm creates its own menu, chooses which ingredients to sell, but allows the customers to choose the final design of the final products they each purchase.

Because of Chipotle’s “Food with Integrity” initiative, the firm must choose suppliers carefully, and often chooses local suppliers in support of small farms and rural communities1. This results in the firm sourcing from a large number of suppliers.

The firm sources only certain suppliers that meet the “Food with Integrity” standards1. This way, the customers’ needs for healthy, natural, better-tasting ingredients are catered to.

Facilities location

The majority of Chipotle’s stores are located domestically, with the few exceptions of stores in Canada, Britain, and France. The first European store opened in London in 2010, and in 2012 the firm established a location in Paris 1. London and Paris were chosen because they are similar to locations were the brand first thrived12—large metropolitan areas. Since the vast majority of restaurants are located in the U.S., the main focus for the firm is domestic. However, the company has begun considering opening more locations in London, Paris, and Munich12, so the focus is shifting increasingly toward international.

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Chipotle’s stores in London and Paris will use the same supply tactics as U.S stores—inspect and choose suppliers based off of “Food with Integrity” standards. The firm views the European market segments as easily accepting of the firm’s ideas (localized, organic foods)12 so the areas will most likely welcome or already have local suppliers. The firm provides transportation from the supplier to the stores to distribute raw materials.

Supply chain management

Because of Chipotle’s philosophy “Food with Integrity”, the development of close relationships with suppliers is an integral component of its strategy. As a result, suppliers are examined prudently and selected carefully based on their ability to comply with the Chipotle’s strict requirements. Once a supplier is chosen, Chipotle seeks to build a longstanding and mutually beneficial relationship so that it can reliably provide its ingredients.

Chipotle’s strict supplier standards are as follows:

Ability to follow the guidelines of our Food With Integrity program, which includes our requirements and goals for food safety, animal welfare, sustainability and social accountability

Willingness to provide detailed information about the practices on your farm or ranch, and the practices in your production facilities

Currently using processing facilities that have been registered and inspected by the USDA or FDA, and that have been inspected or certified for food safety by an accredited 3rd party (or the willingness and ability to switch to such a facility)

Produce growers should also maintain a written food safety program that includes Good Management Practices (GMPs) or Good Agricultural Practices (GAPs), as well as a current GMP or GAP audit with a passing score

Willingness to host periodic visits by our team to see your practices and facilities first hand

Eagerness to improve your practices over a year1

When Chipotle opens up two restaurants, it adds another naturally raised pig farmer into a farmers’ cooperative called Niman Ranch Pork Company; when the firm began this practice, there were about 50 or 60 natural farmers. Today, there are between 600 and 70016. Since Chipotle is expanding its locally grown produce program13, the firm decreases distances between retail restaurants and the farms. Chipotle "local produce" is grown on farms within 350 miles of the restaurant1. Because of the close distances, the firm can easily ensure that it can transport the correct amount of ingredients into stores every day. Chipotle’s 30,00 workers arrive at stores in the morning to see fresh produce, rice, and herbs16.

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Many of Taco Bell’s items are transported great distances to distribution centers15. This increases the food miles of its products, which in turn affects freshness and quality. Compared to Chipotle’s locally grown produce program, the Taco Bell sees less fresh ingredients into its stores. Qdoba has felt increasing pressures to begin sourcing from non-traditional suppliers. Jack in the Box Inc. issued this statement:

In 2012, we informed our pork suppliers of our goal to source all pork from supply systems in which pregnant sows are cared for in a group housing environment instead of gestation stalls. We have begun discussing with our suppliers how they will complete such a transition by the end of 202217.

Chipotle has done better than rivals in the area of sourcing fresh, sustainable ingredients.

Chipotle sources very carefully, ensuring that raw materials meet “Food with Integrity” standards. The carefully chosen suppliers meet the supplier standards above, and managers in the firm make visits to check that quality is kept up or is improving.

A major goal Chipotle has to increase supply using marketing strategies reads: “By increasing the demand for naturally raised meats, we can actually increase the available supply.14" Realistically, it is not this simple. The rapid expansion of the company means that, to keep up, small local farms need to enter the business as quickly as Chipotle grows. As the firm’s high standards for food ingredient persist, it may see problems such as increase in food costs due to factors such as economic conditions and inflation, weather conditions, possible food safety concerns (possible food-borne illnesses), governmental regulations, etc. Many factors are out of the firm’s control concerning supply of the high-standard ingredients, which creates inefficiencies in the supply chain.

Quality

Chipotle maintains a reputation for high-quality ingredients its restaurants. The firm’s managers feel the high standards they try to keep up with are worth higher the higher costs. They assure quality through their Food with Integrity model:

Food with Integrity Through this mission, the firm supports farmers who raise their animals naturally, preferably without the use of antibiotics and added hormones. Currently, they serve 100% naturally raised pork, beef, and chicken. They work for the continued existence of family farms. Whenever possible, they use organic and locally grown ingredients. As of now, 40% of Chipotle’s beans are organic1. Chris Arnold, communications director for the firm said, "Our commitment to serving ingredients from more sustainable sources goes back more than a decade, and

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we do more of it than anyone. Chipotle serves more naturally raised meat — from animals that are raised in a humane way and never given antibiotics or added hormones — than any other restaurant. We are the only national restaurant company with significant commitments to local and organically grown produce9."

Some problems with this:The number of family farms is decreasing, as rural communities are facing economic challenges largely due to U.S. farm and food policy2. The firm cannot always find farmers who are certified-organic, and is sometimes forced to work with large distributors to obtain the supply for its restaurants. They tackle supply on a market-to-market, ingredient-to-ingredient basis1 which does not always bring desired results for the Food with Integrity vision. Often the firm cannot lock in food prices with consistent suppliers, which is a partial cause for the continuing price raise seen in stores3. Food prices have risen as a result of inflation; in 2011 prices rose for avocado, beef, chicken and dairy1.

Chipotle has done its best to maintain high quality suppliers, but occasionally needs to resort to suppliers who utilize conventional methods. Many of Chipotle’s restaurants sold conventionally raised meat for most of 20111. Despite increasing costs, the firm chooses to persist with its Food with Integrity mission. Chipotle hopes customers continue to value its brand, as well as its high quality ingredients enough to continue paying higher prices than offered by local competitors.

Low cost operations

The firm does not have a reputation as a low cost provider compared to rivals as it offers a premium product. Chipotle’s average burrito prices are 6.3% higher than industry rival Qdoba Mexican Grill’s (owned by Jack in the Box Inc.)—Qdoba’s average burrito price is $6.095 compared with Chipotle’s $6.49 average. Chipotle is currently facing fierce price completion from rival Taco Bell (owned by Yum! Brands), when the firm came out with the new Cantina Bell menu in summer of 2012, which imitates Chipotle’s popular ingredients and their “pay more for higher quality” idea. They sell burritos for under $5. Chipotle believes its customers recognize and appreciate the firm’s careful sourcing methods6.

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In addition, to already-high prices set for premium menu options, Chipotle’s prices continue to increase. The firm saw price increases in 20111, and continues to face price problems—CFO John Hartung says the firm is looking at raising prices again in mid 20134. These problems are caused by factors such as inflation and supply shortages.

Though Chipotle offers higher prices than rival, the firm believes the quality of the product is high enough to elicit continued consumer business, as founder Steve Ells made clear in the firm’s 2010 10K form:

Given the costs associated with natural and sustainable farming practices, many large suppliers have not found it economical to pursue business in this area. We believe that consumers’ increasing concern about where and how food is raised, and in the environmental management, animal husbandry and labor practices of food suppliers, will foster demand for these foods. We believe that increased demand for naturally raised meat and produce will in turn attract the interest and capital investment of larger farms and suppliers. That said, we understand that we’ll continue to be at the forefront of this trend and must balance our interest in advancing “Food With Integrity” with our desire to provide great food at reasonable prices. If our focus resonates with consumers, it should improve our sourcing flexibility, although we would expect that these ingredients and other raw materials will remain more expensive than commodity-priced equivalents for some time to come.1

Technology

Chipotle uses traditional cooking methods. Cooking material is as follows: gas stoves, grills, walk-in refrigerators, pots and pans, whisks, knives and other utensils1. Technology in the each restaurant’s kitchen proves to be fairly basic.

To ensure efficiency in the assembly line when catering to customers in stores, Chipotle uses a state-of-the-art checkout system. This makes payment as quick as possible.

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Chipotle provides ingredients to stores through 22 independently owned distribution centers. The firm’s managers pass to each center the firm’s specific sourcing guidelines and list of approved suppliers1. To track all of this, the firm uses the web-based application Altametrics. Chipotle uses Altametric’s Food Management module to manage food costs, supply chain and store operations. The site’s website explains, “The Food Management module tracks physical inventory levels and provides tools to accurately procure, receive, and analyze food purchases and usage8”. In addition to supply chain, information systems manage flow of information between each of the firm’s restaurants. Chipotle’s 10K form explains this:

This system includes a point-of-sales local area network that helps facilitate the operations of the restaurant by recording sales transactions and printing orders in the appropriate locations within the restaurant. Additionally, the point-of-sales system is used to authorize, batch and transmit credit card transactions, to record employee time clock information, and to produce a variety of management reports1.

Some of this information is sent to corporate offices in Denver, so the firm can keep up to date with each store. Rival Qdoba Mexican Grill provides an “order online” option on its website5 that Chipotle does not; however, the firm has developed a free iPhone app (called Chipotle Ordering) that allows customers to order in advance7.

The firm utilizes a Twitter account (@ChipotleTweets), Facebook page (with over 2 million likes) and an Instagram account (@chipotlemexicangrill) for advertising and promotional purposes, as well as YouTube for making “mini movies” raising awareness of the benefits of sustainable farming versus conventional. The company’s first animated short, title “Back to the Start” received almost seven million views7.

Overview of Chipotle’s operations performance:

Many operational challenges face the firm. Chipotle needs to keep supply costs low while maintaining quality and “Food with Integrity” standards; at any point the local sources could begin to deplete, so it also needs to ensure that enough local suppliers exist to begin with. Chipotle has done a lot to make this happen. In addition the firm needs to ensure the success of abroad locations so the firm can continue to expand internationally. Chipotle has successfully utilized technology for promotional and operational practices; the systems the firm uses increase its efficiency. Rival Taco Bell offers substantially lower prices, and Qdoba slightly lower prices, however Chipotle targets customers who care about the quality and freshness of their meals. Chipotle has beat out rivals in that aspect. If the company can keep demand from its target market, continue to source sustainable ingredients (meeting the challenges stated above) it should be successful with comparison to rivals.

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3. Financial Performance:

Firm level financial performance

The following includes a 10-year financial review for Chipotle, comparing the company to its rivals, Taco Bell (YUM Brands) and Qdoba (Jack in the Box Inc.). The following seven measures have been used to measure the financial performance of Chipotle in comparison to its rivals:

1. Revenue Growth2. Net Income Growth3. Return on Assets4. Stock Price5. Operating Profit (Income before taxes) 6. Diluted Earnings per Common Share7. Total operating Costs and Expenses (net)

These measures were chosen to provide a useful, as well as concise look into the finances of these firms to gain insight into the past, as well as to help predict the financial future of this industry.

1. Revenue Growth

As shown in this graph1, Chipotle has by far, by percentage, had the largest growth in revenue over the past ten years. Revenue can be defined as the turnover of income a company receives from normal business. Since the firm’s start in 19932 there has been significant growth, quickly, this could account for the initial showing of large percentages of growth in revenue in the beginning

2012201120102009200820072006200520042003

-20.00%

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0.00%

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40.00%

50.00%

60.00%

Revenue Growth (%)

ChipotleQdoba (Jack in the Box Inc.)Taco Bell (YUM Brands)

Year

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parts of this graph (2003-2007), and then leveling off around the 20% mark, which is still much higher than competing firms.

2. Net Income Growth

As with most starting companies, Chipotle went through a period of loss, or negative net income3, as do many starting firms, which was the cause for a huge spike in the net income growth during 2004, and 2005, as they pushed into making a positive net income and a large amount of growth by percent. Net income can be described as a company’s ‘bottom line’ or profit margin, or loss. As compared to Chipotle’s rivals, Qdoba and Taco Bell, they have had a much more stagnant and less predictable pattern of net income growth, but have not seen a negative percentage of growth.

3. Return on Assets

2012201120102009200820072006200520042003

-100.00%

0.00%

100.00%

200.00%

300.00%

400.00%

500.00%

600.00%Net Income Growth (%)Chipotle

Qdoba (Jack in the Box Inc.)Taco Bell (YUM Brands)

Year

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This graph depicts the Return on Assets (ROA) of Chipotle and rivals4. Return on Assets is a measure of how profitable a firm is in relation to its total assets, making it a crucial tool in determining the success or failure of a firm financially. Chipotle, as seen in the graph5 had started out far behind its competition, but in the past decade has caught up with, and even surpassed its rivals, moving still yet in the positive direction. Competitor Taco Bell (YUM) is a part of a much larger corporation, YUM, which could account for a steadier ROA, as in comparison to Qdoba, who is part of a much smaller corporation (Jack in the Box), and Chipotle, who in addition is relatively new to the market.

4. Stock PriceThe graph above6 depicts the growth of stock price over the past ten years for Taco Bell under YUM Brands (YUM) and Qdoba under Jack in the Box Inc. (JACK), as well as the Dow Jones Industrial Average7 (INDU). Chipotle (CMG) only has been publicly traded since 20068.

The Dow Jones Industrial Average is a great tool for comparison because it shows how 30 large publicly owned companies based in the US have been traded over a given trading period, and is a good base to compare stocks to. Chipotle has been a relative lucrative stock to own in the past few years and there has been substantial growth in price, also in comparison to its competition. There has been fluctuation in price, more than that of JACK or YUM, possibly because of the comparative newness of the stock, having only been introduced in 2006.

5. Operating Profit (Income before taxes)

20122011201020092008200720062005200420030.00%2.00%4.00%6.00%8.00%10.00%12.00%14.00%16.00%18.00%20.00%

Return on Assets (%)

ChipotleQdobaTaco Bell

Year

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The operating profit is the gross profit minus the total operating expenses, such as maintenance, advertising supplies, etc. It serves as a great indicator of a corporation’s success before taxes. Between 2008 and 2012, YUM! Increased its operating profit by 51% from $1.517 to $2,294, While Between 2009 and 2012, Chipotle increased its operating profit by 123% from $203.71 to $455.87, well more than doubling profit. This percent increase was in a span of 4 years, while YUM!’s profits showed a span of 5 years. Even though both of those companies shared great success during that span, the third company did not have that same success. From 2008 to 2012, Jack in the Box has decreased its earnings from operations by 46%, a huge decline. Compared to Chipotle, as well as YUM! Brands, it was the only rival to stay on a steady decline. Overall, the multi-year span proved of great value to Chipotle as it was able to more than double its profits and increase sales however, one of its rivals also enjoyed that same success as YUM! Was able to dramatically increase their profits as well. Finally, Jack in the Box Inc. proved to be the rival that suffered from competition as its profit margins have decreased at a steady rate over the past few years based on fierce competition from rivals.

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6. Diluted Earnings per Common Share Diluted earning per common share is more important than basic earning per share because it determines a true value of the company’s stock. The definition of diluted earnings per share is: a companies earnings per share calculated using fully diluted shares outstanding. Between 2008 and 2012, YUM! Brands increased its diluted earnings per common share by 72%, rising from $1.96 to $3.38 per share, almost doubling its amount per share. Although it may seem that YUM! Demonstrated a dramatic increase in price for share Chipotle’s success was even better. Between 2008 and 2012, Chipotle had a 270% increase in diluted earnings per share. This number is drastically higher than the firm’s rivals. Diluted earnings went from $2.36 to $8.75 per share since going public.

Compared to Chipotle and YUM! Jack in the Box is the least successful rival. Starting at $1.96 in 2008, diluted earnings per share fluctuated in both directions, never exceeding a one-dollar change. As of 2012, its diluted earnings per share is $1.40, decreasing by 29% since 2008. Overall, it is clear that both Operating Profit and Diluted Earnings per Common Share are related as in both categories Chipotle enjoyed the highest increase and YUM! demonstrated an increase that was less than Chipotle’s. Jack in the Box suffered a decrease in both categories.

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7. Total operating Costs and Expenses (net) It is important when comparing Total Operating Costs and Expenses to look at the percentages instead of the amounts spent because the percentages allow us to observe costs and expenses in a more effective way. Between the years of 2010 and 2012, YUM! Brands had an 18% increase in total operating expenses. As of 2012 10k, it recently paid $11.339 million in costs, compared to $9.574 million in 2010. As of the most recent annual report, Chipotle’s operating costs and expenses have increased by 47% since 2010. Net operating expenses rose from roughly $1.548 million to $2.275 million during these years. More than doubles expenses compared to YUM! Brands. Comparing Jack in the Box Inc. to Chipotle and YUM!, it has steadily been on decline in recent years. Jack in the Box has decreased its expenses by 30% since 2008. As this may sound like a good thing, its implications show that as profit, net income, revenue, etc. are on a steady decline, so is the future of this firm. Expenses exceeded $2 million in 2008 and are most recently down to $1.4 million.

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Business unit financial performance

Founder Steve Ells opened ShopHouse Southeast Asian Kitchen in 2011, adding the second business as a smaller division of the firm. The firm plans to open more locations this year. The business is modeled directly after Chipotle, assembling high-quality ingredients into customized meals in front of the customer. The only difference: the meals and ingredients are Asian-inspired instead of Mexican. Both businesses utilize the same supply chain. They report to the same reportable segment, so it is difficult to say how much the experimental chain has contributed to the firm’s success. However, since the addition of the new business, restaurant sales increased by 11.2% in 2011 from the previous year by 29.3% to $278 million by the end of 20121. Total revenue has increased each year since ShopHouse was added. As of Dec 31, 2011 it was $2.26 million. After 2012, TR increased to $2.73 billion, a 20.3% increase. The average cost of a new restaurant went down from $916,000 in 2008 to $800,000 in 2011, and the success of the entire firm should make up for the losses of adding ShopHouse Southeast Asian Kitchen.

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Over time, Chipotle has expanded tremendously and continues to increase its revenue, net income and sales. The firm is profitable, with expected increases in revenue and sales in future years.

Geographical Issues

Chipotle does not suffer from many geographical issues, as it operates few international stores; the company currently operates stores in London, Paris, and several cities in Canada. Supply chain issues are dealt with locally, so the only major attribution to geographical issues is Chipotle’s loss of about five million dollars due to tax loss internationally

Overview of Chipotle’s financial performance:

Chipotle has successfully come into the market as a fierce competitor against steady and well-established rival firms. Not only has Chipotle been able to keep up with competition, it has surpassed competitors greatly in certain measures. Revenue growth has surpassed both Taco Bell (YUM) as well as Qdoba (Jack in the Box) every year for the past decade. Over the past six years, all three firms have stayed on par with a steady level of Net Income growth, with Chipotle leading with the highest percent growth by a margin. Chipotle has shown, by adding in a smaller off shoot branch, ShopHouse, that even in times of expansion, they, as a firm can maintain financial security, and even growth. Chipotle has more than kept up with competition financially over the past decade.

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4. Corporate Social Responsibility Performance:

Legal

In May of 2012, Chipotle ran into legal trouble concerning immigration law violations. The company was accused and investigated by the SEC for hiring undocumented illegal immigrants. Chipotle had been accused of this before in both 2010 and 2011. Chipotle has since gone above what the law requires in their hiring process by adding online verification systems to allow accurate information and to ensure they have proper documentation for all workers. 2

Chipotle displays its corporate social responsibility by taking laws seriously and going above and beyond what is expected to ensure the firm’s integrity.Chipotle claims in its code of conduct to “be committed to the highest standards of integrity in all activities and compliance with both the letter and spirit of the law.” For the most part the Chipotle Corporation follows all FDA laws concerning their food safety and menu labeling. The firm often goes beyond simply following FDA guidelines. For example, when the FDA suggested the phasing out of agricultural production with medically imported drugs, Chipotle completely eliminated antibiotics in its production and opted for “naturally raised” animals1.

Regulatory

Because Chipotle’s business oversees both the quality of their food as well as the quality of their workers, they face several regulations regarding their employees. As stated above, Chipotle goes above and beyond to follow FDA regulations of their produce and meet. They also follow all regulatory rules with regard to their employees. Their extensive code of conduct can be found on their website (www.chipotle.com). The code covers issues including: integrity, anti-discrimination and sexual harassment. Chipotle prides itself in not being in the public news for misdemeanors against regulations. In addition, Chipotle offers a confidential phone line and website where employees or customers can comfortably and privately file any complaint, concern, or violation.

Ethical

The “Food with Integrity” motto appears in every aspect of the corporation, including corporate social responsibility. Chipotle’s initiatives show it is truly concerned with the well being of its customers, local farmers, and the environment. According to the Chipotle website the hallmarks of “Food with Integrity” include things like unprocessed, seasonal, family-farmed, sustainable, nutritious, naturally raised, added hormone free, organic ingredients1. The high quality food served by the firm’s workers has started a trend for customers to be more concerned about the nutrition of the fast food they are eating and for

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competitors in the fast food industry to move toward higher quality standards as well.

Charitable activities

Chipotle has several philanthropic outreaches to surrounding communities. The Chipotle Cultivate Foundation is a nonprofit organization committed to creating a more sustainable and healthy food supply. In the past few years, they have raised over 2 million dollars that has funded initiatives that sustainable agriculture, family farming, culinary education, and innovation that promotes better food. The firm also provides fundraisers at restaurants that help local sport teams and community improvements.

Political

You would suspect Chipotle to be on the front lines advocating for political candidates and policies that lean toward environmental preservation, but we rarely see them in the political environment. The corporation states in their policy that they will not contribute money to “lobbying, political, or fraternal activities.” By staying out of politics, the corporation is able to focus on their business and what they can do on their own efforts with the abundant resources they have.

Environment

Chipotle’s initiatives strongly and positively impact the environment as well. By choosing sustainable family farms as their suppliers they keep them from disappearing. By choosing local farms Chipotle does several things; they cut down on carbon emissions, support rural economies, and add appeal to their food with fresher taste. Their initiative to buy locally is unique from anything their competitors do to support the environment. Other contributions to help environmental sustainability include: recycling at over 300 of their locations, and creating a green design to their buildings. Their restaurant in Gurnee, Illinois was the first ever restaurant to platinum certification in The Leadership in Energy and Environmental Design. They plan to make more of their restaurant models LEED certified3.

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General working conditions

The general working conditions at Chipotle far exceed its fast food competitors. They advertise, “no experience is preferred.” Instead, Chipotle likes to train their employees with the high quality standards that extend over their entire business. They use simple real cooking methods versus fast food strategies. The on the job training they provide contributes to their statistic that 97% of their general managers started as crewmembers.

Overview of Chipotle’s CSR:

Chipotle’s corporate social responsibility sector contributes positively to their performance and success in expansion both currently and in the future. When compared to their competitors, Chipotle is the forerunner in providing high quality food, creating an experience at their restaurants,  and contributing positively to the environment. Their ethical efforts to provide their customers with the highest quality ingredients that taste great, are fresh and sanitary, support local farmers, and sustain the environment. Some may prefer the taste of competitors like Moe’s or Qdoba’s ingredients but Chipotle takes the most efforts in having the highest quality produce and meet. They strive to create a dining experience, not a fast food quick fix. Like their competitors, they treat their employees with great conditions, an average wage, and do not discriminate in the hiring process.  They are also the first among their competitors to invest in eco-friendly building model to their restaurants. By having a team of dedicated employees managing their CSR Chipotle is able to create a business that provides high quality food, stays out of politics, and stays in front of their competitors with innovative strategies. Ultimately, their CSR contributes to their success and will allow them to expand their number of stores both currently and in the future. While they gain popularity and increase revenue it is important for their CSR to stay positive and innovative so they continually grow and stay ahead.

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Future of the Firm:

As we set out to explore on our research on Chipotle, our objective stated, Chipotle will continue to expand; by 2015, Chipotle’s store number will grow to 1800. After conducting hours of research and diving into the rivals, the environment, and the history of Chipotle Mexican Grill, we see the future of the firm in regards to expansion of the firm and success in general to be positive.

There is little Chipotle has going on in its business that is unattractive. The firm’s revenue continues to increase each month as it balances running a simple, profitable operating system and maintaining its customer basis. In the next few years, Americans will continue looking for fast, high quality food at a reasonable price, and they will find this food at Chipotle. In modern times this appeal for restaurant quality food and experience at a fast food restaurant price will only increase as Americans look for ways to be efficient and healthy admits their busy lives. Chipotle’s consumer demand is not going anywhere in the next few years.

Chipotle will also continue to challenge and rise above their competitors in the fast food industry by pushing for higher quality produce and meat. As they rise the standards of fast food, customers will look for more healthy and fresh food and rivals like Taco Bell and McDonalds will have to catch up to Chipotle by investing money to maintain such high standards.

Chipotle will also continue to be an attractive firm to customers and stock buyers because of their concern with the environment. Environmentalists are not a fad, and in the next few years to come we project Chipotle’s commitment to supporting local farmers will only make increasingly more attractive.

A big question is whether or not Chipotle will be able to maintain high positive profits with the high cost of their “Food with Integrity” policies. Founder Ells does not want to compromise the standards he started the company with but he has considered including breakfast on the menu, more advertising, and drive thru windows. This will keep Chipotle in competition with its fast food rivals but compromise their simple operating model.

Chipotle has several promising investments that will increase their number of stores. They continue to expand their brand domestically and abroad with long-term expectations projecting between 3,500 and 4,500 store in the United States and at least 2,500 more in Europe and Asia. Their ventures in ShopHouse will also create, if successful, around 10,000 more restaurants. These new restaurant opening will increase Chipotle’s earning by 2.7 million per restaurant annually. Chipotle’s future of both their popularity and number of stores has no reason not to be projected upwards.

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REFERENCES (by section)

Introduction/General Background:1. Chipotle Mexican Grill Inc.’s official website:"Chipotle Mexican Grill: Gourmet Burritos and Tacos." Chipotle Mexican Grill: Gourmet Burritos and Tacos. Chipotle Mexican Grill Inc, n.d. Web. 22 Feb. 2013.

Industries:1. Chipotle Mexican Grill Inc.’s official website:"Chipotle Mexican Grill: Gourmet Burritos and Tacos." Chipotle Mexican Grill: Gourmet Burritos and Tacos. Chipotle Mexican Grill Inc, n.d. Web. 22 Feb. 2013. 2. "Fast Casual - Insights for Innovative Restaurants | FastCasual.com." Fast Casual. N.p., n.d. Web. 08 Apr. 2013.

Businesses/Business units and Product lines:1. Chipotle Mexican Grill Inc.’s official website:"Chipotle Mexican Grill: Gourmet Burritos and Tacos." Chipotle Mexican Grill: Gourmet Burritos and Tacos. Chipotle Mexican Grill Inc, n.d. Web. 22 Feb. 2013. 2. "Chipotle Mexican Grill (CMG)." Form 10-Q. N.p., n.d. Web. 04 Apr. 2013.3. Hoovers: "Chipotle Mexican Grill, Inc.Company Information." Chipotle Mexican Grill, Inc. N.p., n.d. Web. 04 Apr. 2013.

Industry Analysis:1. Chipotle Mexican Grill Inc.’s official website:"Chipotle Mexican Grill: Gourmet Burritos and Tacos." Chipotle Mexican Grill: Gourmet Burritos and Tacos. Chipotle Mexican Grill Inc, n.d. Web. 22 Feb. 2013. 2. IBISWorld: "Major Players." IBISWorld. N.p., n.d. Web.3. Entrepeneur.com, 20134. MarketWatch: "Chipotle Mexican Grill, Inc." MarketWatch. The Wall Street Journal, n.d. Web. <http://www.marketwatch.com/investing/stock/cmg>.

Market performance:1. Chipotle Mexican Grill Inc.’s personal website:"Chipotle Mexican Grill: Gourmet Burritos and Tacos." Chipotle Mexican Grill: Gourmet Burritos and Tacos. Chipotle Mexican Grill Inc, n.d. Web. 22 Feb. 2013.2. Analysis of Chipotle’s target market Gaeta, Amanda. "Chipotle Target Market Analysis." Scribd. N.p., n.d. Web. 08 Apr. 2013.3. "Chipotle Second Quarter 2012 Revenue Increased 20.9%." :: Restaurant News Resource. N.p., n.d. Web. 04 Mar. 2013.4. "Chipotle Mexican Grill (CMG) Analysis & Valuation." Stockodo. N.p., n.d. Web. 08 Apr. 2013.5. "Can Chipotle Still Serve Up Spicy Growth in 2013?" - CMG, JACK, MCD, PNRA, YUM. N.p., n.d. Web. 04 Mar. 2013.6. "CHIPOTLE-nomics: A Short-Term Supply Struggle." - CMG, PNRA, YUM. N.p., n.d. Web. 11 Apr. 2013.

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7. IBISWorld: "Major Players." IBISWorld. N.p., n.d. Web.8. Taco Bell official website: "Menu." Taco Bell. N.p., n.d. Web. 14 Apr. 20139. MSN Money: "Top Stocks." MSNMoney. N.p., n.d. Web. 15 Apr. 2013.10. “Chipotle Cultivating Internal PR Experts." Textifying. N.p., n.d. Web. 15 Apr. 2013.11. "Qdoba Plans New Brand Campaign to Drive Sales | FastCasual.com." FastCasual.com. N.p., n.d. Web. 16 Apr. 2013.12. "Taco Bell's Content-First Ad Approach." Digiday. N.p., n.d. Web. 16 Apr. 2013.13. Mobile Marketer: "What Chipotle Could Have Done to Make Its Mobile Ad Campaign Successful." Mobile Marketer. N.p., n.d. Web. 16 Apr. 2013.14. Fast Company Website: The World’s 50 Most Innovative Companies.”34 Chipotle”,N.p.,n.d. Web

Operations performance:1. Chipotle Mexican Grill Inc.’s personal website:"Chipotle Mexican Grill: Gourmet Burritos and Tacos." Chipotle Mexican Grill: Gourmet Burritos and Tacos. Chipotle Mexican Grill Inc, n.d. Web. 22 Feb. 2013. 2. Official Website of the National Family Farm Coalition"NFFC Home." NFFC Home. N.p., n.d. Web. 22 Feb. 2013. <http://www.nffc.net/>.3. Reuters: Baertlein, Lisa. "Chipotle Food Costs Bite amid Rising Competition." Reuters. Thomson Reuters, 16 Jan. 2013. Web. 22 Feb. 2013. 4. Business Insider:"CHIPOTLE: We're Going To Soak You For More For That Burrito Bowl." Business Insider. N.p., n.d. Web. 22 Feb. 2013. 5. "Qdoba Mexican Grill: Home." Qdoba Mexican Grill. N.p., n.d. Web. 23 Feb. 2013.6. Brush, Micheal. "Burrito Battle: Taco Bell vs. Chipotle." MSNMoney. N.p., n.d. Web. 23 Feb. 2013. 7. Food Meets Tech: "Chipotle Uses Technology... Selectively." Food Meets Tech. N.p., n.d. Web. 28 Feb. 2013. 8. Altametrics: "Chipotle Restaurants Goes Hi-Tech with E*Restaurant by Altametrics." Chipotle Restaurants Goes Hi-Tech with E*Restaurant by Altametrics. N.p., n.d. Web. 28 Feb. 2013. 9. Sustainable Business Oregon: "Chipotle Strengthens Buy-local Stance in Pacific Northwest." Sustainable Business Oregon (Video). N.p., n.d. Web. 04 Apr. 2013. 10. "Chipotle Mexican Grill Menu Dish Ratings & Reviews for Chipotle Mexican Grill." Menuism. N.p., n.d. Web. 04 Apr. 2013. 11. "How Chipotle's Assembly Line Makes Your Burrito So Ridiculously Fast." Business Insider. N.p., 23 Apr. 2012. Web. 04 Apr. 2013. 12. "Chains Take Different Approaches To Global Expansion - QSR Magazine." Chains Take Different Approaches To Global Expansion - QSR Magazine. N.p., n.d. Web. 04 Apr. 2013.13. FastCasual.com: "Chipotle Expands Local Supplier Program | FastCasual.com." Chipotle Expands Local Supplier Program | FastCasual.com. N.p., n.d. Web. 09 Apr. 2013.

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14. "CHIPOTLE-nomics: A Short-Term Supply Struggle." - CMG, PNRA, YUM. N.p., n.d. Web. 11 Apr. 2013.15. Food FAQS www.tacobell.com/nutrition/foodfacts16. Fast Company Website: The World’s 50 Most Innovative Companies.”34 Chipotle”,N.p.,n.d. Web17. Humane society: "Jack in the Box, Qdoba Latest Food Retailers to Eliminate Controversial Pig Cages from Pork Supply Chains : The Humane Society of the United States." RSS. N.p., n.d. Web. 16 Apr. 2013.

Financial performance:1. Investors 10K reportshttp://investors.jackinthebox.com/phoenix.zhtml?c=94497&p=irol-reportsOtherhttp://www.yum.com/investors/annualreport.asp2. Chipotle Corporate Sitehttp://ir.chipotle.com/phoenix.zhtml?c=194775&p=irol-newsArticle&ID=1781728&highlight=3. Morning Star 10K reportshttp://quote.morningstar.com/stock-filing/Annual-Report/2012/12/31/t.aspx?t=XNYS:CMG&ft=10-K&d=26ad6f37e2dc43a98f02da9f16078e4e4. Stock Graphhttp://investing.money.msn.com/investments/charts?Symbol=CMG%2C%20YUM%2C%20JACK#symbol=$INDU,YUM,JACK,CMG&event=&BB=off&CCI=off&EMA=off&FSO=off&MACD=off&MFI=off&PSAR=off&RSI=off&SMA=off&SSO=off&Volume=off&period=Custom&linetype=Line&scale=Auto&dates=2/28/2003,2/27/2013&comparelist=$indu,$compx,$inx5. Dow Joneshttp://www.investopedia.com/terms/d/djia.asp#axzz2McfxeF6R6. Chipotle Stockhttp://www.marketwatch.com/investing/stock/cmg7.http://www.sec.gov/Archives/edgar/data/1058090/000119312512052969/d280751d10k.htm , 20128. Chipotle Investor Relations, http://ir.chipotle.com/phoenix.zhtml?c=194775&p=irol-newsArticle, 20139. Chipotle:Growth at Any Price http://seekingalpha.com/article/375121-chipotle-growth-at-any-price, 2013

Corporate social responsibility performance:1. “Chipotle Backing Stronger FDA limits on Farm Animals Antibiotics” by Elise Viebeck.

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2. “Chipotle Under Investigation for Immigration Law Violations” Interview by Jeremy Hobson, May 23, 2012. 3. Chipotle Mexican Grill Inc.’s official website:"Chipotle Mexican Grill: Gourmet Burritos and Tacos." Chipotle Mexican Grill: Gourmet Burritos and Tacos. Chipotle Mexican Grill Inc, n.d. Web. 22 Feb. 2013.

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