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Chipotle Mexican GrillDr. Thomas

MKTG 445-002

May 13, 2013

Arnold Farmer, Daniel Garmon, Wangui Muthaka,

Niravbhai Patel, Michelle Yang

Executive Summary

Chipotle Mexican Grill has become one of the most well-known Mexican-style fast food

restaurants. With locations spanning across the United States, Canada and the United Kingdom,

Chipotle has grown extensively in popularity while keeping its commitment to integrity to its

food and consumers. In the following report, we have prepared a marketing plan for Chipotle

Mexican Grill and have examined the qualifications necessary to expand Chipotle’s operations

into the country of Mexico. We have recommended expanding into Mexico City specifically

which has a population of about 19.5 million people, as well as a few other cities within Mexico.

The following addresses Chipotle’s growth strategy, justification of entering Mexico, target

markets, positioning and competition, entry strategy, as well as Chipotle’s marketing strategy.

P a g e | 1CHIPOTLE MEXICAN GRILL

Company Description

In 1993 Steve Ells founded Chipotle Mexican Grill, a restaurant which serves Mexican style

food such as gourmet burritos, tacos and more (We've Got History, 2013). Chipotle focused on

using high-quality ingredients to make great food at an affordable price. The first Chipotle was

opened at a former Dolly Madison ice creamery in Denver, Colorado (We've Got History, 2013).

Ells later opened 7 more Chipotle locations in the Denver area by 1996 (We've Got History,

2013). In 1998, McDonalds invested in Chipotle and helped expand the company from 14

locations to over 500 locations by 2005. In 2006 McDonalds divested and Chipotle went public

on the NYSE. Currently, with over 900 locations in the U.S, UK and Canada combined, Chipotle

is known as a “fast-casual restaurant” which means that they serve great quality food at the speed

and convenience of fast food (About Us, 2013). Typically store hours for a restaurant is Mon-

Sun from 11a.m to 10p.m. Prices are generally slightly higher than you would expect at a regular

fast food restaurant.

Product Description

Chipotle serves gourmet burritos and tacos made with the best ingredients (Food With Integrity,

2013). They source 100% of their pork from producers that follow strict guidelines, including a

vegetarian diet and pigs that are raised outside (Food With Integrity, 2013). They also source

100% of their beef from ranches that meet and exceed naturally raised standards (Food With

Integrity, 2013). Chipotle serves cheese and sour cream that comes from pasture-raised cows.

These cows have access to outdoor pastures, are never given added hormones, and are fed an all

vegetarian, plant-based diet. Chipotle currently offers the following products on their menu:

burritos/burrito bowls, crispy/soft tacos, salads, chips, and guacamole (Menu, 2013). All


ingredients are part of Chipotle’s Food with Integrity commitment, promising to use the best

ingredients in their products (Food With Integrity, 2013).

Growth Strategy

The best growth strategy for Chipotle to enter Mexico is through market development. Although

Chipotle is a Mexican style restaurant, they are not currently operating in Mexico. Thus,

Chipotle will be entering a new geographic region looking to sell their existing products.

Identification & Justification for Entering Mexico:

Geographic Location

Mexico, officially called the United Mexican States, is the southernmost of the three federations

in North America (The World Factbook, 2013). It is the third largest country of Latin America

and shares a 2,000-mile border with the U.S (U.S Relations With Mexico, 2012). The close

proximity between the U.S can potentially provide cost saving opportunities in the transportation

of goods, logistics, and ingredient sourcing.

Political & Economic System

Mexico is a federal republic with 31 states and 1 federal district. Like the U.S, it follows a civil

law system (Constitution and Government). Mexico shares the same economic structure as the

U.S, a free market economy, and is classified by the World Bank as an upper-middle-income

country (The World Factbook, 2013). Most importantly, Mexico has a free trade agreement with

the U.S and Canada through (NAFTA) North American Free Trade Agreement. In addition,

Mexico has trade agreements with over 50 countries, which, makes more than 90% of their trade

under free trade agreements (The World Factbook, 2013). Mexico and the U.S are key strategic


partners and have a long history of cooperation (U.S Relations With Mexico, 2012). They are the

U.S’s second-largest export market and third-largest trading partner. According to the World

Bank, Mexico’s ranks 48 out of 185 countries for the ease of doing business index, which

measures how conducive the regulatory environment is to the starting and operating of a local

firm (Doing Business, 2012).

Cultural & Buyer Behavior Traits

Mexico is a collectivistic culture whose citizens are living busier lives. Lunch in Mexico is often

a key business venue. During the week, typical lunches take place from about 1:30pm to 3:00pm.

(Mexico:Culture). Saturdays or Sundays are reserved for family activities (Mexico:Culture).

Chipotle can provide a place for both families and businesses while still appealing to the fast

pace lifestyle.

Overall Market Size & Nature

There is a tremendous amount of market potential in Mexico. Mexico is classified as one of the

world’s emerging markets by the Market Potential Index (MPI), which measures various

indicators such as: market size, growth rate, consumption capacity, economic freedom, and

country risk (MPI for Emerging Markets, 2012). Mexico is home to a growing population of

around 115 million, with almost 55% of the population aged 24 years old or younger, one of the

highest percentages for an upper-middle-income economy (Mexico Food & Drink Report, 2013).

The population in Mexico is also largely urbanized. Roughly 78% of the population lives in

urban areas (The World Factbook, 2013). This growing population is also forecasted to increase

per capita consumption growth by 24% by 2017. (Mexico Food & Drink Report, 2013). Cafes &

restaurants make up a growing 30% market share and fast-food is roughly 8.30% market share.


(Foodservice Industry Profile: Mexico, 2006). Chipotle will appeal to both the fast food markets

and restaurant markets due to its unique fast dining experience. Mexico is also one of the biggest

tourist destinations and in 2011 was ranked the 11th most visited country. (Mexico Tourism

Report, 2013). In 2011, approximately 78% of tourists arriving in Mexico were from the U.S and

Canada (Mexico Tourism Report, 2013). This is important because Chipotle already has brand

awareness in these countries.

Buyer Power

Rising disposable incomes and solid appreciation of the Mexican currency has allowed the

Mexican consumer to be able to afford more (Mexico Food & Drink Report, 2013). In terms of

GDP per capita based on the purchasing power parity, Mexico has experienced increases in the

past several years and a 2012 estimate shows this number at $15,300 (The World Factbook,

2013). The disposable income is expected to increase in the coming years despite the world

economic downturn that has plagued many countries growth (Mexico Food & Drink Report,

2013).

Description & Justification of Target Market:

Segmentation

In Mexico, 78% of the total population lives in an urban area (The World Factbook). Mexico

City, the capital of Mexico, is the second largest urban agglomeration in the Western

Hemisphere with a population estimated at around 20 million people and would be a huge

consumer segment target for Chipotle. Not only does this geographic segmentation contain a

huge population, it also is the economic center of the country. GDP per capita in Mexico City is

twice as high as the national average and compared with the rest of the world’s urban


agglomerations it was ranked eight out of the top thirty in 2008 (Research & Insights, 2008).

Therefore, we want to go after the urban professional consumer segment. In Mexico, urban

professionals often eat meals at restaurants or street side stands (Axiom Press, 2010).In fact,

many Mexicans eat four daily meals: a light breakfast, an early lunch, a main meal in the late

afternoon, and a light snack called a cena or merienda at night (Axiom Press, 2010). Lunches

can last several hours and are typically eaten between anywhere 1:30pm -3:00 pm or later

(Mexico: Culture). We want to target the urban professional and not just give them a place to eat

but also a place to talk business.

Positioning & Competition:

Description of Positioning

Chipotle will be using the local consumer culture positioning strategy to enter Mexico in order to

put its brand in the consumers’ minds over and against its competitors. This will allow us to

identify with the local cultural meanings since we will be serving Mexican food. The Mexican

nation has traditionally been characterized by strong local cultural identities (Ember, 2001).

People identify closely with their own state/region so Chipotle would fit right into the Mexican

market (Ember, 2001). The three main products found in a Mexican meal are: corn, hot peppers

and beans, all of which are key ingredients that Chipotle serves, as well as different types of

meats and tortillas (Ember, 2001). However, due to the fact that food is extremely

environmentally sensitive product we will adjust the taste of our food to fit the wants of the

Mexican people. This will require local adaption of our products so that the local people will

consume our food. Chipotle will also be using the positioning strategy of having the highest

health quality food at a reasonable price. Unlike the United States, Mexican meals are healthy


and correctly portioned. This is an opportunity for Chipotle to cut cost strictly from portion sizes

because inventory will be able to be stretched as compared to American counterparts. Chipotle’s

positioning strategy will be to provide healthy, high quality, organic foods that match the taste

preferences of the Mexican culture for a reasonable price. We see Chipotle positioned above

regular fast-food restaurants and on par with in-house dining restaurants without the

waiter/waitress services.

Description of Competition

There are many competitors that Chipotle will have in Mexico. These competitors would be

other fast-casual, quick-service and casual dining restaurants (Chipotle's Annual Report, 2012).

We would compete based on a number of factors which include: taste, quality, speed of service,

price, value, name recognition, location, menu variety, customer service and the ambience and

condition of the competitor. Just like Chipotle’s main competitors in the United States,

McDonalds, KFC, Burger King and Subway will also be its competitors in Mexico (Chipotle's

Annual Report, 2012). The table below shows the revenues of some of the main competitors in

the Mexican food industry including: Alsea, McDonald’s, Burger King, and Yum! Brands.

Top Mexican Competitors in Fast-Food Industry

Net Income MXN million (loss) 2006 2007 2008 2009 2010

Alsea 228.6 489.1 1.2 (21.7) 151.2

McDonald’s 3,544.2 2,395.1 4,313.0 4,551.0 4,946.0

Burger King 27.0 148.0 190.0 200.1 186.8

Yum! Brands 824.0 909.0 964.0 1,071.0 1,158.0

Source: Company Filings


We will face additional competition from local vendors in Mexico that serve similar food. These

local vendors serve tacos and burritos on food carts at substantially lower prices than our

products. Most of the multinational competitors are using the same strategies that they use in

their home countries. The main difference in their strategies is that they have their menus in

Spanish instead of English. An example of a restaurant that implements the same strategies is

Subway. According to their menu on their Mexican website, every product is the exact same as

its American counterpart (Subway Restaurants International Menu, 2013). There are many

competitors in Mexico, but most of them are implementing the same strategies they use in other

countries, that’s where we are different. We will be implementing different strategies and

adapting based on the location we are targeting our products.

Description and Justification of Entry Strategy:

Chipotle will use wholly owned subsidiaries as part of their strategy to enter the Mexican market.

Currently, all restaurants are fully owned by Chipotle and not franchised out like other restaurant

chains such as Burger King, Wendy’s, and McDonalds. There are multiple reasons for this. The

first reason is that owning each restaurant allows the company to retain all the profits from sales.

In comparison, franchised chains only receive a percentage of sales and royalty fees collected

from the franchisee who owns the restaurant. The second reason is because Chipotle focuses

heavily on high quality food and in order to achieve this they must have complete control of

operations from start to finish. The third reason for this strategy is because it promotes clearer

communications and shared visions throughout the company. This is important in building a

brand culture and an organizational culture. Both these cultures have a direct effect on Chipotle’s

customers. The disadvantage to using this strategy is that growth cannot be achieved as quickly

as say a franchised chain like McDonald’s. This can lead to a decline in overall market share due


to limited exposure/locations or brand awareness. Another disadvantage is that adapting to the

country’s culture may be harder with a wholly owned subsidiary if they aren’t familiar with the

country. Lastly, the startup costs are higher for the company using this strategy. This requires

more financial resources to expand, which as previously mentioned can delay rapid growth.

Chipotle will focus on Mexico City as its initial launching spot into Mexico. A pull strategy will

be used to market to customers. Due to the necessary financial resources required to obtain a

restaurant, Chipotle will start off slow into Mexico City with two to three locations spread out

over a large area in the city. The success of these locations will then determine how many

additional locations will be added.

Description & Justification of Marketing Strategy:

Product

Chipotle in Mexico will serve the same foods as they currently do in existing US, UK, and

Canadian Chipotle restaurants. However, a few changes and additions will be made to the menu

in order to appropriately suit the wants and needs of the Mexican citizens. Chipotle will offer a

variety of meats including: beef, chicken and pork. For over thousands of years, corn has been

the basis of the Mexican diet. It can be found in almost every meal, usually in the form of the

tortilla (Food in Every Country, 2013); Chipotle will offer corn and tortillas in its restaurants in

Mexico. Chipotle will also offer Mexican cheese and use creama which is the Mexican sour

cream. Much of the sophistication of Mexican cuisine comes from the use of more than one

hundred different types of chilies, which range from the large and "sweet" chile ancho to the

small and dangerously hot chile habanero (Ember and Ember 1447-1451). Chipotle will use

spicier ingredients in their food because Mexicans prefer spicier foods including the use of a

variety of chilies like jalapeño, poblano and serrano (Food in Every Country, 2013). Mexicans


generally have a light breakfast of coffee and/or fruit before they leave for work or school. Thus,

Chipotle will incorporate a breakfast menu with fruit salads and coffee. Chipotle will offer food

smaller portions than the US because Mexicans tend to consume less than Americans do.

Mexicans prefer their coffee spiced and sweet (café de olla) (Food in Every Country, 2013).

American soft drinks, such as Coca-Cola, have become popular in Mexico in recent decades, but

fruit-flavored soda drinks as well as fresh fruit juices are also widely consumed (Food in Every

Country, 2013). Chipotle will introduce these drinks in its restaurants in Mexico. Mexicans also

consume large quantities of beer therefore it would be a wise strategically for Chipotle to offer

Mexican beer at its restaurants.

People

Anyone who comes into contact with our customers will make an impression and that can have a

profound effect- positive or negative- on customer satisfaction (Chartered Institute of Marketing,

2009). Chipotle’s brand rests heavily on its employees. Therefore, Chipotle will hire highly-

motivated individuals who have the right attitude to work in the restaurants opening in Mexico.

Chipotle will ensure that employees are properly trained so they may serve customers to the best

of their ability in order to satisfy customer wants and needs. Chipotle will also hire Mexicans to

work in the restaurants as they are already familiar with the Mexican culture, they speak Spanish

fluently and thus they will be able to properly identify themselves with our customers.

Place

Chipotle’s location in which it will be able to service its customers will be in highly populated

area as well as heavy foot trafficking areas such as Mexico City, Ecatepec de Morelos, and

Guadalajara. According to a 2012 census, Mexico City has a population of about 19.5 million


people (City Populations, Largest Cities of the World, 2013). Chipotle will be located within

walking distance of popular city businesses. Having these locations, we are able to provide a

restaurant that is fast pace for customers in a rush as well as families looking to sit down and

enjoy their meals with each other.

Promotion

In order for Chipotle to reach their customers in Mexico, Chipotle will have to promote through

everyday activities. Mexicans are known to love their telenovelas, Spanish soap operas, which

Chipotle can take full advantage of through commercials. Unlike the typical American lunch

break, Mexicans leave work midday for a few hours to take their largest meal of the day. During

this time family members gather together as a whole to eat, relax, and nap. With the convenience

of families gathered at lunch, Chipotle could take advantage of televised advertisements during

the telenovelas. Chipotle will also utilize internet advertising, where it was reported to have been

“the fastest growing advertising medium” (Lead Generation and Internet Marketing in Mexico,

2010). In addition, Chipotle may also promote through televised advertisements during football

games. These ways of promotion will reach a large population of Mexico’s audience. Chipotle

will also promote through sponsorships of the Mexico national football team. This will allow

Chipotle to gain recognition by fans and fellow watchers. When promoting Chipotle we want to

ensure the consumers in Mexico that we are using organic, local, and family farmed products.

Chipotle currently provides the US, UK, and Canada with “Food with Integrity.” In Mexico,

Chipotle will continue to instill these same values: “finding the very best ingredients raised with

respect for the animals, the environment and the farmers” (Food With Integrity, 2013).


Process

To deliver food to our customers Chipotle has created an effortless assembly line that is simple,

easy, and convenient for the customer. Each ingredient is laid out in front of you so you can

choose the perfect combination to make your ideal meal. Customers watch the magic happen

right before their eyes from the beginning to finish product. Starting with the packaging,

customers may choose their product, whether it be burrito, tacos, etc… followed by a choice of

white or brown rice, black or pinto beans as well as meat selection ranging from chicken, beef or

pork (Menu, 2013). Additional touches such as corn, salsa, cheese, lettuce, creama, and

guacamole may then be added to conclude the preparation of the meal (Menu, 2013).

Supplementary products such as fruit salads, soft drinks, chips, etc… may then be ordered prior

to payment (Menu, 2013).


References

About Us. (2013). Retrieved March 23, 2013, from Chipotle Mexican Grill: www.chipotle.com/en-US/company/about_us.aspx

Axiom Press. (2010). Culture Grams. The Americas, 90-92.

Chipotle's Annual Report. (2012). Retrieved from Chipotle: http://ir.chipotle.com/phoenix.zhtml?c=194775&p=irol-reportsAnnual

City Populations, Largest Cities of the World - Worldatlas.com. (n.d.). World Atlas World Map Atlas of the World including Geography Facts and Flags - worldatlas.com. Retrieved May 10, 2013, from http://www.worldatlas.com/citypops.htm#.UZAtKMo1eSp

Constitution and Government. (n.d.). Retrieved from Europa World Plus: http://www.europaworld.com.proxy-tu.researchport.umd.edu/entry/mx.is.55

Doing Business. (2012). Retrieved from The World Bank: http://www.doingbusiness.org/rankings

Ember, Melvin, and Carol Ember. Countries & Their Cultures. 3. 2001. 1447-1451. Print.

Food in Every Country. (n.d) Retrieved May11, 2013, from http://www.foodbycountry.com/Kazakhstan-to-South-Africa/Mexico.html>.

Food With Integrity. (2013). Retrieved March 23, 2013, from Chipotle Mexican Grill: www.chipotle.com/en-US/fwi/fwi.aspx

Foodservice Industry Profile: Mexico. (2006). Foodservice Industry Profile: Mexico, 1.

Lead Generation and Internet Marketing in Mexico | MVF Global. (n.d.). MVF - Global Customer Acquisition. Retrieved May 12, 2013, from http://www.mvfglobal.com/mexico

Marketing and the 7Ps. (2009). Retrieved May 11, 2013, from Chartered Institute of Marketing: http://www.cim.co.uk/files/7ps.pdf

Menu. (2013). Retrieved March 23, 2013, from Chipotle Mexican Grill: www.chipotle.com/en-US/menu/menu.aspx

Mexico: Culture. (n.d.). Retrieved from Global Edge: http://globaledge.msu.edu/countries/mexico/culture

Mexico Food & Drink Report. (2013). Mexico Food & Drink Report,2, 1-139.

Mexico Tourism Report. (2013). Mexico Tourism Report,2, 1-59.

MPI for Emerging Markets. (2012, March 16). Retrieved from Global Edge: http://globaledge.msu.edu/knowledge-tools/mpi


Research & Insights. (2008). Retrieved from Pricewaterhouse Coopers: https://www.ukmediacentre.pwc.com/imagelibrary/downloadMedia.ashx?MediaDetailsID=1562

Subway Restaurants International Menu. (2013, April 13). Retrieved from Subway: http://world.subway.com/Countries/frmMenu.aspx?CC=MEX&LC=SPA&Mode=

The World Factbook. (2013, March 15). Retrieved from Central Intelligence Agency: https://www.cia.gov/library/publications/the-world-factbook/geos/mx.html

U.S Relations With Mexico. (2012, June 25). Retrieved from U.S Department of State: http://www.state.gov/r/pa/ei/bgn/35749.htm

We've Got History. (2013). Retrieved March 23, 2013, from Chipotle Mexican Grill: www.chipotle.com/en-US/chipotle_story/where_did_we_come_from/where_did_we_come_from.aspx

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