Case Study - Chipotle Mexican Grill

Company Overview

Chipotle’s founder is Steve Ells. Chipotle opened their first store back in 1993, with a simple

idea of serving quick serve food without the typical fast food image attached to it. They achieve

this through the ingredients they use in their food. They use high quality ingredients, classic

cooking methods, and comfy interior design for their stores. They buy their great quality

ingredients from local farmers, in order to get the freshest ingredients. Chipotle brings a fresh

new concept in the quick serve industry, this allows them to receive a lot of attention quickly.

Expansion become easier as their brand is widely recognize faster and faster every day. During

the early day of expansion, Steve Ells cooperate with McDonald’s to boost their expansion and

growth that lead to their success today. Over the years, Chipotle has been receiving great success

with their quick high quality food that caters to greater market. People has started to move away

from the unhealthy lifestyle of fast food, and Chipotle come to provide the solution. Chipotle

offers the customers the efficiency of fast food without the unhealthy ingredients. This

combination of healthy and efficiency interest a lot of people, because the trend of people to start

to be more health conscious.

Environmental Scanning/ Stakeholder Analysis

Demographics. Chipotle’s customers main demographic is people with range age of 18-30. This

demographic incudes college students, young working professionals, and working professionals.

The reason being is that fast casual Mexican food is a new concept that has been for less than

two decades. It is a new ideas for older generation and the younger generation prefer more

American food. Another reason that their demographics are people between the ages of 18-30 is

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the speed. Chipotle provides their customers with great quality food in a short period of time.

This is very beneficial for most young generation who are always in a hurry, living in a fast

paced life. They can always choose other fast food chain such as McDonald’s, Burger King, or

KFC, but the quality there is not very good. Also they have an image that their food is bad for

your health, which will be avoided by a lot people, as American has become more concern in

living a healthy lifestyle.

Economic. Pricewise, Chipotle is more expensive compared to other fast food chain. This does

not imposed any problem because the current economy of United States of America is doing

well. Therefore people are more willing to spend more money in order to receive better quality

food. Chipotle also less expensive compared to casual dining restaurant, they provide lower

prices and generally they do not have to tip. This is a big advantage for chipotle, because during

expansion economy people has higher purchasing power, allowing them to spend more on eating

out. People could receive same good quality food as they would in casual dining, but pay less.

By providing customers with both quality and price, Chipotle will be able to cushion the drop in

sales during bad economy.

Sociocultural. Sociocultural factor plays a big role in helping the growth of Chipotle among

young generation. Reference group plays major role in the expansion of Mexican food in general

in the market. The most effective marketing tool to reach customers is not TV advertising

anymore. There was a time when TV advertising is all a company need in order to sell their

product. Now, work of mouth is the most effective, yet least expensive tools. People would

believe people they trust or follow in making decision, therefore reference group plays a major

role shaping people preferences. Another factor is the increasing level of health conscious people

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in United States of America. This increasing awareness has led to people start adopting healthier

lifestyle, which what Chipotle offers to their customers.

Technological. The technological factor that help in spreading of Chipotle popularity is the rapid

growth of social media. This allows Chipotle to spread faster by word of mouth through social

media. People are more aware on the existence of Chipotle, as we can see through the graph how

fast the Chipotle has expanded due to the help of social media1.

Global. There is no global factor that affect Chipotle in an impactful manner. They have

expanded into two countries so far, Canada and London. However, through their expansion, they

have not change their strategies and concept. They decided to keep their original concept and

apply them to the global market, because they believe that their concept of simplicity would fit

and accepted by the global market2

1 Jones, Adam. “Chipotle Mexican Grill’s Double Digit Revenue Growth”, Market Realist. http://marketrealist.com/2014/12/chipotle-mexican-grills-double-digit-revenue-growth/ (accessed by: 10/15/15)2 Unknown. QSR Growing Global, “Chipotle: London Calling”. http://www2.qsrmagazine.com/articles/features/138/global_growth-3.phtml (accessed by: 10/15/15)

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Physical. Chipotle does not face any major problem with their physical environment factor,

because all of their materials to produce their product is very common and easily attainable. One

thing that is more difficult for Chipotle is their concept of keeping fresh and good quality

products. This means that not only they are not able to use ingredients that have been frozen for a

long period and also that contains a lot of preservatives. However this is not a major

problem/difficulties, because their ingredients are rather common and easily accessible in various

places.

Industry Analysis

Industry Definition. Chipotle is the pioneer of Fast Casual Restaurant industry. Since this is a

new segment developed by Chipotle, it is still considered as part of the Quick Serve Restaurant

industry. Therefore the NAICS code for Chipotle is 722513.

Industry Competitive Structure. The industry competitive structure is Oligopoly, where a few

major company is controlling the majority of the market. In this case, Chipotle rival in this

industry is Panera Bread and Moe’s, which provide the customers with similar concept and

selling point. Chipotle came into the market with unique and different concept that differentiate

them from other quick serve restaurants. However, their business model of providing better

ingredients and store decorations are easily copied by other competitors. This helped Panera

Bread, who succeeded in copying Chipotle, to expand their business and become Chipotle’s

main rival in the Fast Casual Restaurant Industry.

Industry Life Cycle. Quick serve restaurants and fast casual restaurant industry has been around

for quite a while and are currently in the maturing stage. In recent years, most fast food chain has

started to face slower growth and expansion. It is harder to sell hamburgers and sodas to the

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customers, as more people are adopting healthy lifestyle. The fast food market has been very

saturated over the years, that the big names in the industry are not able to attract new customers

into the industry. Instead their strategy now is to steal customers from the competitors. This

strategy can be seen by how Burger King run a massive campaign on their chicken nuggets,

trying to attract people who usually have the chicken McNuggets. Also how Wendy’s use real

sea salt for their fries, in order to steal customers who always have McDonald’s fries. All of

these are caused due to the saturated market with no more room left for expansion.

This also applies to the fast casual restaurant, which is the sub-branch of the quick serve

industry. Even though the industry is still fairly young, but it is already saturated, but has more

room for improvement. Because Chipotle adds healthy to the fast food industry, which attracts

customers who usually would avoid fast food restaurants. However, Chipotle does have

competitors that compete in the same sub market with similar concept, such as Panera Bread,

Qdoba, and Moe’s Mexican Grill. Especially Moe’s Mexican Grill that serve a very similar food

with Chipotle.

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Porter’s Competitive Forces Model

The first factor that could affect Chipotle is the threat of new entrants. This threat comes from

the concept that, every industry or line of business that yields great profit will attract other

people to join the industry as well. This is very true, because a lot of people are looking to

venture in an industry that yields highest above average return, and fast casual dining industry is

a profitable industry. However, Chipotle do not have to worry about the threat from new

entrants, because the market is highly saturated, therefore the barrier to entry is extremely high.

Chipotle is a big company, therefore to compete against them would require an enormous

amount of resources that is very hard to come by.

The second factor that could affect Chipotle is the threat of a substitute. This is a very dangerous

threat to Chipotle, because substitute can be easily found in food industry. Therefore Chipotles

has to keep on innovating and keep their customers. One method that they have developed is

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introducing new menu, such as Guacamole. Guacamole is a great success because it is very

healthy and goes really well with their menu. Chipotle has to keep on innovating new strategies

or menu in order to stay on top of its industry.

The third factor would be the Suppliers power, which Chipotle do not have to worry about, as it

is not difficult to switch suppliers for a company as large as Chipotle, there are numerous other

suppliers that are willing to do business with Chipotle. There might be a substantial initial cost in

switching customers, however it is not a problem if Chipotle are able to increase their

productivity/profitability by switching.

The fourth factor is the buyer’s power, which is the customers. This plays major role in the

success of Chipotle, as they are B2C business. Customers have the upper hand in the business,

because Chipotle is not the only healthy food in the market, customers can always change to

Moe’s or Panera Bread. This power is mainly due to the high number of substitute and very low

switching cost to other brands. Therefore Chipotle has to be very careful in their pricing strategy

and also ingredients choice.

Company Analysis

Vision/Mission/Strategic Intent. Chipotle’s vision in doing business is “finding the very best

ingredients raised with respect for the animals, the environment, and the farmers”. Steve Ells

build his company under the intention that it will provide the customers with high quality food

combined with quick serve time as well. Because usually people have to choose either one of

them, but Chipotle provide the customers with both value.

Current goals/objectives. Currently Steve Ells main objectives with Chipotle is to differentiate

their product from other competitors, and change the way people think of fast food. Chipotle is a

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fast food restaurant, providing their customers with convenience and ease of access. However

since their establishment, Chipotle has always wanted to be different with other fast food

restaurant. Therefore they use and offer healthier products with better quality compared to other

fast food restaurants. They have succeeded in the first steps of reaching this goals, because many

people do believe that Chipotle provide them with both the convenience and also quality. These

days when people want to eat something quick yet healthy, they would relate it to Chipotle,

which also important in order to be able to differentiate their company to their competitors.

Strategies. In order for Chipotle to achieve their first objective of differentiating them form

other fast food restaurant in the industry, they have used high quality ingredients. The high

quality ingredients of Chipotle products, comes from the freshness. Most fast food restaurant

would use frozen ingredients or ones that use a lot of preservatives. Chipotle moved away from

this method, because using those ingredients would make the quality of the food inferior. Other

fast food chain prefer those ingredients in order to maintain quality across all of their stores.

However in the process of uniform taste, they sacrifice quality. Chipotle approach it in a

different manner, where they put quality above uniformity. This allows Chipotle to be different

than their competitors in term of taste as well, because fresh ingredients would provide better

food. They do not really need uniformity/consistency, because even if the taste deviate from the

standard, it would still be a high quality food.

The second objective of Chipotle is to change the fast food image. Chipotle approach this goal

through two major strategies. The first one is the high quality fresh ingredients that they use, the

second strategy is through how they design their stores. Chipotle design their stores to be

comfortable for the customers and looks better than most fast food chain restaurants. Through

this method, Chipotle deviate from the regular fast food chain image where the store would be

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old and rundown. This strategy helps Chipotle to attract more customers, simply because the

place looks nice and better than other fast food chain.

SWOT analysis

Strengths: Quick Serve Fresh Ingredients Healthy food image Strong employee base Green marketing Not franchised Less expensive compared to casual

dining Strong financial Brand awareness Modern designed stores Strong market base Quick expansion

Weaknesses: Still related to fast food image More expensive than regular fast

food Low Number of stores Main market only in USA

Threats: Low switching cost Ingredients might be difficult in

some areas Many substitutes Mexican food is not widely

acceptable yet in global market Intense competition from similar

concept chain

Opportunities: Increasing health conscious

customers People start adopting healthier

lifestyle Global expansion Mexican food is more welcomed

Philosophical/Value Base. Chipotle philosophical value can be found in their vision statement,

which they will provide the customers with the very best quality ingredients. Chipotle wants to

be different than other fast food chains, and one of the main problem with fast food chains is the

quality. This is very important for the customers, because people are very skeptical with

ingredients used in fast food. A lot people questions the ingredients, used in hamburgers and hot

dogs. Chipotle philosophy focus on the ingredients they use is very important for the customers.

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Core competency/competitive advantage. The core competencies of Chipotle resides in the

ingredients they use. When Chipotle first started, this core competencies helped them to grow

really fast. However, it is not sustainable because other company can copy that and it is not

exclusively used by Chipotle. Over the years there have been a few competitors that grow using

similar strategy with Chipotle, such as Moe’s, Panera Bread, and Qdoba. In fact, Wendy’s have

been switching to similar strategy, focusing on their high quality ingredients.

Porter’s Value Chain.

Primary Activities:

o Inbound Logistics: This is one of the most important steps, where Chipotle has to

be able to select and provide the high quality ingredients to the customers,

because that is how they are different from other fast food chain restaurants. It

might be difficult to find high quality farmers in every area, however Chipotle

logistics management are able to provide fresh ingredients from different area.

This process is where most of the value of Chipotle products resides, as their core

value is high quality ingredients.

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o Operations: The operations of Chipotle adds additional value to the customers, as

this process in the store allows customers to design/customize their own

preferences through vast selection of ingredients. This does not add monetary

value, but provide the customers with the freedom of customizing their product,

based on their taste preferences.

o Outbound Logistics: There are not many activities conducted in this stage, as it all

happen inside the stores. Therefore the value added into the product is not

significant.

o Marketing and Sales: With extensive campaigns and promotions, Chipotle is able

to attract more and more customers. However, compared to other fast food chain

restaurants Chipotle does not us advertisements as extensive. This is all caused by

the niche market Chipotle is aiming at, therefore mass marketing effort is not very

effective.

o Service: There are not any significant service that Chipotle did after the sale of the

product. Therefore the value added in this step is also insignificant.

Secondary/Support Activities:

o Firm Infrastructure: One of the investment made by Chipotle is their stores, where

it is located in strategic locations and also the design of the stores are designed so

that customers would feel comfortable. This is an important value adding strategy

that Chipotle has decided to adapt, in order to differentiate them from the

competitors.

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o Human Resource Management: Chipotle spends a significant effort in

maintaining their staff, because they are B2C businesses, where staffs and

customers would meet every day.

o Technology Development: Chipotle does not venture in technology side of

business, as their main product is food. They do however invest in computerized

ordering and payment system that allows them to make transactions faster and

more efficient. This adoption of technology help them to process order faster and

providing customers with ease of payment. Because a lot of people does not bring

cash anymore and prefer to use cards as a method of payment.

o Procurement: Procurement plays major role in maintaining value to the

customers. Because the main value adding comes from the ingredients used in

Chipotle’s products. Therefore the purchasing of the high quality ingredients is

very important, it added value into the food Chipotle is selling to the customers.

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Strategic Analysis

Corporate level. The corporate level strategy Chipotle adopt was during their early expansion

stage, by cooperating with McDonald’s in order to receive the funds and support to increase their

expansion. This is a great move taken by Ells, because through that strategy Chipotle face

enormous growth in short period of time and has become a massive restaurant chains today.

Another strategy that they have been using since they launch of the company is to work with

local farmers. In order for Chipotle to receive the freshest high quality ingredients, they have to

get it from the farmers. Chipotle works with farmers as their supplier for their food ingredients.

Business level. Chipotle operates using a differentiate strategy, separating them to other

restaurants in the fast food industry. In fact they are able to create a sub market in the industry,

the fast casual industry, serving quick serve company without all the bad image. By using high

quality fresh ingredients, Chipotle has differentiate themselves from the competitors who are

known to use low quality ingredients in their food. This is also a niche market, because a lot of

people want a quick and healthy food, but not willing to pay extra for it. Thus Chipotle has to

target people who are health conscious and also willing to pay extra for that. As Chipotle is not

as cheap as other fast food chain, they would be at disadvantage comparing the prices. However,

it is not a major problem, because people are switching to healthier lifestyle and the economy

allows them to have higher purchasing power.

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Functional level. Chipotle is able to achieve better production of their product, producing higher

quality product compared to competitors. All of this made possible through the use of higher

quality fresh ingredients they put into their products, providing the customers with more value.

Another method they use is through the marketing strategies they use to increase brand

awareness. Through digital media, Chipotle have been receiving great attention through their

advertisements. This is proven by the award they won for the “Scarecrow” advertisements they

conducted3 .

Organizational structure. Chipotle is rather unique as they are rather different compared to the

competitors. Most restaurant in quick serve industry would have franchises, allowing them to

expand very fast. However, this is not the case with Chipotle, as they own all of their stores and

does not provide franchises opportunity.

3 O’Reilly Lara. Business Insider, “Inside the magic that made these 5 ads among the most

effective digital campaigns of last year”, http://www.businessinsider.com/most-effective-digital-ad-campaigns-of-2014-coke-chipotle-nike-lays-land-rover-2015-4 (accessed by: 10/17/15)

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