Chipotle Case 2016

Individual Case Analysis for: Chipotle Mexican Grill Curt Cordray 1

Chipotle Mexican Grill

Curt Cordray

4 April, 2016

Dr. Michael Collette


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.


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.


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.


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


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.


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.


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


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.


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


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


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.


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


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.


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.


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.


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


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.


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


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.


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.


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.


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-


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.

Date post:	15-Apr-2017
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Chipotle Case 2016

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