Good Example Of Chipotle Mexican Grill Case Study

Chipotle Mexican Grill (Chipotle) is the Mexican restaurant established in 1993 in Denver, Colorado. Steve Ells founded this restaurant with the principle of utilizing the local resources to produce the food menus. With the growth of the business in a short period, the second outlet of Chipotle was started on 1995. This second outlet was established from the profits whereas the company further opened its third branch with Business Administration Loan. Other fast food companies were interested in Chipotle. From the growth of casual Mexican Restaurant, McDonalds became the minor investor of Chipotle in 1998. After the six years of its establishment, Chipotle opened its restaurant in Columbus and Minneapolis, Ohio in 1999. By the end of 2001, McDonald acquired a big portion of Chipotle share and stood as the largest investor. This helped the company to grow further rapidly. However, it was in 2006, McDonalds took the decision to divest Chipotle by making the company public in New York Stock Exchange (Carpenter & Sanders, n.d.). At present, Chipotle operates more than 1500 outlets and has stood as a fast growing leader in the fast casual Mexican restaurant in the United States.

Corporate and Business Strategy of Chipotle

Business Strategy
The business of the Chipotle is driven by the differentiation strategy. The products of Chipotle is differentiated based on the price. The products of Chipotle are premium priced because the management believes that since the menus are prepared with organic and healthy ingredients, the customers will happily pay an extra penny for the healthy organic food. The premium priced products of Chipotle compete with other competitors in the same segment like Panera Bread and Qdoba (Carpenter & Sanders, n.d.). The business of Chipotle is driven by the mission “Food with integrity” which positions the company as the provider of healthy high-quality organic foods mission positions itself as a provider of higher quality food that is produced by using by using fresh and organic ingredients. The use of such ingredients differentiates its products from that of competitors as a healthy product.

Corporate Level Strategy

At the corporate level, Chipotle follows the strategy of market development and the market penetration. When the business of Chipotle is carefully analysed, then we can know that there is almost no diversification of the Chipotle’s business. We can say this because more than 95% of the Chipotle’s revenue is generated from its Mexican Grill. Despite the fact that Chipotle has tried to diversify its business by investing in Pizzeria Locale and ShopHouse Asian Kitchen, but this business are still in birth phase (Carpenter & Sanders, n.d.). The business is yet not well diversified. So, currently, Chipotle is more focused to develop the new markets for its Mexican Grill both in the domestic and international arena. In addition to this, the company is trying to penetrate the existing market by introducing the various menus in its serving list that could attract more customers to visit the restaurant.

Financial Highlights

The outstanding operating and financial performance of Chipotle has made the company as one of the market leaders. The growth in its financial and operating results is consistent and impressive. With the average growth of revenue by 20.2% since 2007, the company had the average sales growth of $928,000 in the four years period from 2007. The IPO issued at $22 in 2006 marked the historical growth in 6 years period reaching the stock price to $380-$385. In 2011, the operating profit grew to 15.45% which is more by 10% as compared to that of 2007. The EPS reached to $6.89 in 2011 which is more by $4.73 than that of 2007. This promising growth was due to the company’s new markets and efficient operation. The company serves more than 800,000 customers every day with each customer spending around $9 in average.
On the expense side, the company has the consistency in its expense. With the increased operations, the operation cost has increased. Because the company serves over more than 40 US States and few other countries like Canada and UK, its operation cost has increased. One major cost incurring activity was Food, Beverage and the packing cost. This cost was almost doubled in 2011, which was $346,393 in 2007. In 2011, the cost of labor reached to $543,119 from $289,417 in 2007, and the other operating cost was also doubled to $251,208 in 2011 from $131,512 from 2007. This clearly highlights that the company is doing well with its operations and management. The higher growth in its revenue than the expenses is a clear indication that the company’s operation activities are in line with its overall strategy.

Menu Focus

Chipotle’s menu preparation is the critical strategy because it happens to be their core competency. Being in the restaurant business, the menu preparation is the major activity. The very first element to provide the unique value to its customer is its menu. Chipotle considers its menu preparation as a critical strategy because the competitors find it difficult to copy the menu or the competency as well as find it difficult to compete against the unique menu of Chipotle. Chipotle tests and proves its menu at times and confirm that there is no variation in their core menu while the competitors lack the ability and resource to do test their menu (Packaged Facts (Firm), 2010).
In my opinion, Chipotle is heavily focused on its menu integrity. The company is driven by its mission statement “Food with Integrity”. Chipotle primarily focuses its menu on using the organic ingredients. The company adheres the zero tolerance policy against the inorganic ingredients. Chipotle understands that its basis of differentiation is its high-quality organic ingredients that creates a superior tasting meal as well as provides the differentiation to its products from that of competitors. So, the company is focused on its menu integrity.

Marketing Strategy

Not only in its menu, but Chipotle also adopted its differentiation strategy in its marketing strategy as well. Chipotle used various kinds of marketing media and initiatives to market its products. Chipotle has used the mix of online media, print, transit, outdoor, theater and radio to market its products. While its competitor uses one or few of the media, Chipotle was using almost all the possible media as a marketing media. In addition to this, Chipotle involved itself in several community events where the company placed its stall with the main motive of making the customer aware of its menu. Apart from this, it started the food and music festival with the name “Cultivate” where the festival attendees were made aware of the cooking and the Chipotle (Packaged Facts (Firm), 2010). The company has put itself forward on the technological aspect as well. By incorporating the technological upgrades in its business, the business allowed the customers to place their orders by phone, online, fax, and even by an iPhone.

Competitive Environment and Significant Strategies

Porter’s Five Forces
The rivalry among the competitors is moderate because there are very few true competitors in this business. Due to the differentiation of its products, the company has been able to place itself as healthy food provider segment where there are very few competitors. The new entrant threat is very low because other companies find it difficult to provide organic food with tested and proven menu and place them in the superior segment. The brand loyalty of Chipotle is also very high which makes it difficult for others to enter in the industry. The entry barrier is high because the Chipotle has high brand value and presence in the international market, their access to suppliers and resource is very high. They can impose any restriction on the new firms. The substitute threat is moderate because of the existence of another Mexican dish. Chipotle’s main dish is Mexican grill, and there is another Mexican food in the markets as well. The cost of switching is also low for the customers so they can easily switch their preference. Buyer’s bargaining power is low because there is no other restaurant providing the food like that of Chipotle. The number of buyers is very big which reduces their bargaining power. Suppliers’ bargaining power is high because Chipotle uses the selected organic ingredients only. Since the supplier of organic ingredients is very few in number, they have strong bargaining power.

Chipotle’s Strategy for Success

The success strategy for Chipotle is its differentiation strategy. Because the company is able to differentiate its products from that of the competitors, it is being able to lead the industry. With the healthy organic food it provides, it is attracting the customers to its business. The distinctive food experience and their integrated menu make them different in the industry where customers are so eager to taste their food and service.

Overall Evaluation and Conclusion

In the case, if the company wants to continue with its market development and market penetration strategy, it will have a hard time in finding the sufficient supply of organic ingredients. Hence, the company will be forced to use inorganic ingredients, which might affect the company’s business and ultimately the profit of the company. At present situation, the financial and operating performance of the company will provide the shareholders with above average return.

References

Carpenter, M. A., & Sanders, W. G. (n.d.). Chipotle - Fast-Food Chic? SSRN Electronic Journal. doi:10.2139/ssrn.1309774
Packaged Facts (Firm). (2010). The U.S. foodservice landscape: Restaurant industry and consumer trends, momentum and migration. Rockville, MD: Packaged Facts.