University of Chicago
Type of paper: Thesis/Dissertation Chapter
Chipolte External Factor Evaluation
Analysis of the External Environment
Within the fast casual segment, there are certain external trends and forces that Chipolte must address. Some of these trends and forces can lend themselves to being opportunistic in nature; however there are some that can threaten the well-being of the restaurant. The success of a company ultimately depends upon how well it can use its strengths to take advantage of external trends. By utilizing an External Factor Evaluation Matrix (EFE) a company’s chief strategist can analyze and determine crucial external opportunities and threats important to the future of their organization. Another growing trend that the fast casual industry can capitalize on is the growing health trends among consumers. More and more people are becoming aware of the foods that they consume and are making strides to eat healthier. In fact, according to a recent survey by the National Restaurant Association, 19% of all customers are actively seeking out healthy alternatives when dining out (franchisedirect.com, 2011). This is a direct result of obesity rates constantly rising in the United States.
Furthermore, several restaurants competing in the fast casual sector have made conscious efforts to offer rather healthy meals to their customers. Certainly, realizing that customers are seeking out healthy options when dining out will prompt the industry to enjoy much success in the coming years. A third trend is the expanding interest in, and availability of, organic food ingredients. Several restaurant chains have dedicated their mission and vision statements to seek out the finest ingredients. It is no secret that many fast food chains use cheap ingredients that even compromise the nutritional value of the food it serves. However, several fast casual chains refuse to compromise the integrity of the ingredients used in its menu options. The use of produce that comes from sustainable practices is becoming more and more important to customers after so much light has been shed on how animals are treated before being used for food. This has even prompted many chains to purchase produce from locally-owned organic food producers.
In fact, according to the National Restaurant Association, 70% of adults say they are more likely to visit a restaurant that offers locally produced food items (franchisedirect.com, 2011). The recent advances in technology have also enabled various restaurants to offer customers a more customizable way to order food. There are currently applications that allow customers to order food via their smartphone. Capitalizing on an idea from pizza parlors, fast casual restaurants also allow customers to order food online and specify a particular time for pick up. As these restaurants offer its customers more ways to place an order, the business can maintain a larger propensity for growth as ordering food becomes more convenient. The fast casual segment has also begun to enter into the construction of sustainable restaurant designs. Currently, there are numerous initiatives for developing LEED and other sustainable buildings. These buildings are very environmentally friendly, and offer advantages to the communities that they are erected within. At the head of this curve is Chipotle, which has received the first certifications for LEED-designed restaurants (fastcasual.com, 2008).
Using sustainable buildings to house its restaurants is not only advantageous because it would appeal to customers, but there are also other governmental incentives in the form of tax credits and deductions (irs.gov, 2011). Thus, not only are sustainable buildings great for attracting and maintaining new customers, but it also makes great business sense too. Diversification of food concepts is a tremendous way to attract a wider audience with a differentiated taste. As the fast casual segment continues to grow and prosper, the companies competing can afford to implement spinoffs much in the same way as the giants of the fast food industry have done through the years. Many of the key players within the industry attract a customer with a specific taste profile. As these restaurants continue to expand and grow, they too can spinoff another brand of restaurant with a differentiated menu. Accompanying the numerous opportunities to the segment, there are also several existing threats that must be navigated in order to remain successful. The first of these potential threats pertains to rising food prices. The fast casual segment must especially take note of this because it already uses the highest quality ingredients which lead to higher costs.
However, if food prices continue to rise, the industry would be forced to either cut costs or raise the prices on its menu. This is a very touchy subject as the restaurants within the segment cannot afford to raise prices too high without facing adverse effects to its normal business operations. The ease of entry into the market is also another threat that the organization must combat. Although fast casual restaurants offer a distinct experience for consumers, its products are not necessarily revolutionary by any means. This leaves them somewhat vulnerable to competitors to enter the market and attack the brand; especially given the low startup costs for restaurants. However, with adequate marketing and utmost customer satisfaction, these restaurants can maintain their customer base and thwart any potential competitors. Increasingly inclement weather and the apparent increasing threat of natural disasters always remains a possible hardship. This would cause food shortages and a steep rise on the price of ingredients.
This makes it absolutely necessary for organizations to diversify their distributors to different parts of the U.S. in order to prevent catastrophic shortages. This way, if a flood destroys the supply of one supplier in an area, the restaurant can use another supplier elsewhere in order to maintain adequate distribution to its restaurants. The threat of recessions also can be a harmful blight to the segment’s success. Economic downturns often affect most businesses in negative ways and the fast casual segment is not protected from such an event. Although it did enjoy moderate growth and prosperity through the most recent recession, the segments growth was stunted a bit, as was the case for a majority of industries. However, restaurants were steadfast in maintaining prices and a quality experience and customers continued to support the food segment. The threat of consumers’ taste preferences changing is always of concern. Although most people are creatures of habit, differentiation of taste preferences can change, leaving the restaurant vulnerable. Knowing this, it is crucial that restaurants constantly improve upon food quality and the dining experience.
Doing so will keep the entire experience “fresh” and entice the customer to come back. One of the obstacles in restaurants expanding into different areas that most do not realize, is the fact that there are often difficulties in acquiring the necessary agreements to open new stores (Chipotle 10-k, 2011). These consist of building permits if the company is looking to build a brand new fixture for the new restaurant, to lease agreements for current buildings. Different cities have different zoning and ordinance codes, making the decision to rent a preexisting space a plausible alternative. However, the restaurant management typically has a target number of what it wants to pay on a monthly basis.
Often, there can be a discrepancy between what management feels is fair and what the lessor feels is fair. This can hinder the expansion rate of a restaurant until both parties come to grips on fair terms of a lease agreement. It is important that fast casual organizations constantly analyze opportunities and threats that are presented outside of the organization. If companies do not exploit its advantages within the market, it cannot grow at a pace that it should be. On the other hand, if it does not properly navigate and combat the external threats presented, it will surely not be in business for the long term capacity which is often hoped. Thus, an EFE is extremely important in developing and maintaining a successful business.
David, Fred R. Strategic Management Concepts: A Competitive Advantage Approach. Boston: Pearson, 2013. Print.