University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Chipotle Grill Case Study
What does a SWOT analysis reveal about the attractiveness of Chipotle Mexican Grill’s situation and future prospects? There are a lot of things about Chipotle that have kept them successful in previous years. Opportunities and strengths depict that presently the company has a strong and positive image in its established markets which is mainly in the U.S., U.K. and Canada. Strong brand recognition drives the company. Customer loyalty allows a long-term positive impact to Chipotle, which enhances company value. Targeting a group who is health conscious, environment friendly and loves Mexican fast food keeps Chipotle on the forefront of success. Chipotle has an extensive line of nutritionally balanced menu items derived from both organic and naturally raised ingredients. This idea led to the concept of “Food with Integrity” (Gamble, Thompson, Jr., & Peteraf, 2015, p. 303). Chipotle’s reputation encases ethical and charitable standards along with healthy choices for the consumer. Chipotle is “company-owned”, not a franchise so maintaining integrity is easier. Customers may choose to dine-in, take-out, and even order online to pick-up in the restaurant. These options have strengthened the company by offering convenience and availability to the customer. The brand also has a bright future in the untapped regions and with ample scope of introducing new food items in its menu. The creator of Chipotle came up with five core elements in which to base the strategy of the establishment:
•Serving a focused menu
•High quality, reasonably priced, convenient menu items
•Awareness and respect for the environment
Chipotle’s strategy is one of differentiation. Specific types of food that can be produced through local, environmentally conscious, farmers at an affordable price point is a primary goal. Offering natural food raised from local, organic vendors that customers respect yet still at an affordable, fast food price, creates a stand apart from the competition. Another way Chipotle differentiates from the competition is through human resource practices. People from all ethnicities are brought together to bridge cultural and linguistic gaps between both employees and customers. Chipotle has a team dedicated to empowering, educating, and training employees to increase internal promotions, cultural sensitivity, and communication skills. The company prides itself on hiring from within and providing employees with opportunities to grow. The key element of Chipotle’s strategy is “Food with integrity” (Gamble, Thompson, Jr., & Peteraf, 2015, p. 303). Sourcing supplies from natural, organic, and sustainable, and environmentally friendly growers/producers is an essential strategy is maintaining market standing. Not many restaurant chains, if any, can say they are consistent in this practice, which makes Chipotle rise above the rest. More and more people are making the choice to choose to eat healthier which makes Chipotle an excellent choice and places them in a strategic place in the fast food industry.
With more healthy choices than other fast food establishments such as Taco Bell, consumers are more likely to choose Chipotle. Another key element to the strategic plan is operating efficiently in an aesthetically pleasing environment. Even though it is fast food, Chipotle doesn’t offer a fast food setting when dining in. With a modern theme of bamboo or stained concrete flooring, pendulum lighting, and outdoor patios where available, Chipotle has reduced the cost of building and maintaining new establishments but still managed to keep the aesthetically pleasing, not-so-fast food ambiance. How does Chipotle Mexican Grill’s competitive strength compare against that of Taco Bell, Qdoba Mexican Grill, and Moe’s Southwest Grill?
Chipotle is not as visibly prominent here in the South as it is in other states compared to Qdoba Mexican Grill, but more so than Moe’s Southwestern Grill. In recent months, Chipotle expanded into the Memphis area in the Poplar/I-240 area in a new shopping center near Target and Best Buy, surrounded by a variety of other restaurants and businesses. Chipotle, Qdoba, and Moe’s all strive for market presence by positioning themselves in areas convenient to shopping centers, in strip malls, and near business centers. They are equal in the “Employment Practices” category as all strive to promote from within and offer strict training and development programs focusing on expanded knowledge through certification processes. The differences that stand out, allowing Chipotle to excel strategically are in Customer Service, Menu Selection, and Quality. Chipotle prides itself on having a genuine concern for the patron by hiring individuals from all walks of life and ethnicities. Whatever language a customer speaks, or ethnic background they are from, there is probably a Chipotle team member who can connect with them to walk them through the dining experience. Qdoba Mexican Grill and Moe’s Southwestern Grill have attempted to connect through customer service and experience but are not making as strong of a head wave as is Chipotle.
There is truly a unique dining experience to talk about at Chipotle that draws patrons back for more. The menu selection at Chipotle consists of the highest quality natural and organic selections from local growers and farmers. Fresh sweet corn, organically grown cilantro, organic chili and pablano peppers, grass-fed beef, and free-range chicken are just a sampling of the examples of quality raw ingredients used by Chipotle Mexican Grill. Through high measurements of sustainability in sourcing of these raw ingredients to construction of each restaurant, Chipotle has easily earned a 10 in this category regardless of the price point associated with the final product. The quality of the food served at Chipotle is always above par. The cooking methods allow flavorful, robust, creations to be made in a short amount of time without damaging the integrity of the raw materials. Through consistent accuracy and quality measures, aesthetically pleasing plating is also displayed with each order, down to the containers in which to-go orders are placed.
What does an analysis of the data in case Exhibit 1 reveal about Chipotle’s financial and operating performance? Financial201220112010
Earnings Per Share8.846.885.76
Gross Profit Margin27.1%26.0%26.7%
Operating Profit Margin16.7%15.4%15.7%
Net Profit Margin10.2%9.5%9.7%
Return on Capital22.3%20.6%22.1%
The inventory turnover ratio shows that they are able to turn over their inventory very quickly. The asset turnover ratio shows that they are able to convert their assets into sales. Their liquidity ratios are good because above 1 is good and above 2 is even better. Their Earnings Per Share show that the company is trending to increase profitability and their shareholders should see an increase in value. The profitability margins have been able to grow over the past years. The financial well being of Chipotle is stable and improving. Unless something drastic occurs, anticipating the rise in revenue and value years from now, a positive future will be in store for Chipotle.
Key Strategic Issues
Chipotle has many strengths that make it an attractive company but they also have some weaknesses. In recent years, competitors have started offering healthier menu options at lower price points. Taco Bell’s cantina menu is much like the Chipotle brand in which it offers more of a lighter southwestern flare than traditional Mexican dishes. The menu pricing at Chipotle is higher but is due much in part by the use of organic and natural selections, some of which are difficult to obtain in winter months. With difficult growing seasons across the United States, Chipotle may have to choose to change their menu in winter months. With limited menu items and ingredients that have price volatility it may not be a smooth establishment in new states and countries. Competitors are the largest threat to Chipotle. As previously stated, other fast food restaurants are adding lighter fare to their menu at a lower price that Chipotle. With the continued high costs of natural and organic menu options, menu prices may have to change to keep margins stable. Another impact to the bottom line could be rising healthcare costs that may require a shift in employment for many restaurants. Chipotle has multiple opportunities to expand into other states as well as internationally. With locations in the District of Columbia, Canada, the United Kingdom, and France, Chipotle managers should be well versed in the workings of International business management.
With expansion into other countries and the continued use of locally grown and raised staples, Chipotle would stand to make substantial profits in countries like China and India. Adding ingredients indigenous to each local area would promote the brand customers have grown to admire. As restaurants like Taco Bell and On the Border sell their products in grocery stores, Chipotle could follow suite and add profit to their bottom line. Restaurants like Swanky’s Taco Shop have alcohol and beer on the menu, now so does Chipotle in some states. Continuing this growth in other states would be a plus for growth as well.