Global Growth Outlook of Restaurant Industry and Chipotle Mexican Grill - Example

Chipotle Mexican Grill Contents Company Background 3 Strategic Rationale 6 Need for Business Internationalization 6 Global Growth Outlook of Restaurant Industry and Chipotle Mexican Grill 6 Global Growth Outlook of the Host Country 7 Country Characteristics 8 Impact on the Chipotle Mexican Grill Inc 12 Country SWOT 15 Strengths 15 Weaknesses 15 Opportunities 15 Work Cited 17 Name of the University Name of the Student Course No. Date Chipotle Mexican Grill Company Background The research paper will throw light on the international business expansion process of Chipotle Mexican Grill, Inc. It is a publicly traded organization and conducts its business in the global restaurant industry. The Standard Industrial Classification Code (SIC Code) of the organization is 5812 (Nasdaq “Stock Report Details”). The North American Industry Classification System (NAICS) code of the company is 722513 (Yahoo Finance “Competitors”). The Company owns chains of restaurants in the United Kingdom (U.K.), United States (U.S.), Germany, France and Canada. It had commenced its business from 13th of July, 1993. Steve Ells was the original founder of the concern. The founder still heads the position of its chairman and CEO. The headquarters of the company is located in Denver, Colorado, U.S. Chipotle Mexican Grill, Inc. has its business branches in more than 1600 different locations, but its trade is only bounded within U.S., U.K. Canada, France and Germany (Chipotle “Are you Experienced”). The company generates employment opportunities for more than 45200 employees. Chipotle Mexican Grill, Inc. primarily offers Mexican and Spanish food and beverages in the market (Nassauer “Pizzerias Try to Apply the Chipotle Formula”). Burritos and tacos are two popular food items offered by the company. The company aims to offer high quality food with adequate amount of integrity in the market. Burrito, burrito bowl, crispy tacos, soft tacos, salad, gauc and chips are the primary food menus offered by the company (Chipotle “Are you Experienced”). Chipotle Mexican Grill Inc. also offers specialized food combo’s for children. The company prepares food from sustainably grown raw food products. The organization claims to serve nutritious and tasty valuable food products. Meat used in the food courses of the company are accrued from animals rouse without added hormones and antibiotics Chipotle Mexican Grill Inc.tries to offer organic food products to its customers. The company offers elegant restaurant services to its prospective clientele. Each restaurant of the company is uniquely designed and comprises kitchen that are entirely open in nature (Chipotle “Are you Experienced”). For supplying food with integrity, Chipotle Mexican Grill has satisfied the requirements of the California Transparency in Supply Chain Act, 2010 within its business (Nassauer “Pizzerias Try to Apply the Chipotle Formula”). The company conducts its business within the global restaurant industry. Over time, increased degree of industrialization and commercialization has enhanced the aggregate employability and per capita income thresholds of many individuals. Such economic outcomes have augmented the cumulative expenditure over entertainment and comfort products as well as services. All such aspects have pioneered growth of the global restaurant industry. Figure 1: Increasing Sales of Restaurant Companies (Source: Duff & Phelps “Restaurent industry insights”) The above elaborates the growth rate (in profit and revenue) experienced by some organic and non organic restaurant chain owning companies in the market. Among all, Chipotle Mexican Grill and Buffalo Wild Wings are claimed to experience highest growth (above 8%) in profit from trade (Duff & Phelps “Restaurent industry insights”). Figure 2: Competition in Restaurant Industry (Source: Duff & Phelps “Restaurent industry insights”) According to the above estimates, the revenue earned by the company is highest among the other Fast Casual restaurant chains in the U.S. The above table shows that the restaurant industry is highly competitive in nature. Each service provider within the industry offers qualitatively differentiated food menus in the market (Yahoo Finance “Competitors”). Mc Donald’s Corp, Yum! Brands, Inc., Darden Restaurants, Inc., Starbucks Corporation, KFC Corporation, Wendys International, Inc., Autogrill S.p.A., Brinker International, Inc., Whitbread PLC and OSI Restaurant Partners, LLC are some popular market rivals of Chipotle Mexican Grill (Yahoo Finance “Competitors”). Among all these firms, Mc Donald’s owns the biggest scale of business within the industry. The market capitalization worth of the organization was approximately 93.28 billion in 24th of September 2014 (Duff & Phelps “Restaurent industry insights”). In order to lead within the market competition, Chipotle Mexican Grill utilizes the strategy of differentiation, to gain more core competencies in business. The food menus offered by the company are mixtures of nutritious food and conventional fast food products. The premium burritos, burgers and pizzas offered by the company are made of Neapolitan-style bread crusts and organic food products (Nassauer “Pizzerias Try to Apply the Chipotle Formula”). Furthermore, the organization prepares its edible products from special wood-fired oven. The productive factor services such as labor, land, capital and entrepreneurship used by the company are rare and non imitable in nature. Thus, as a typical monopolistic firm Chipotle Mexican Grill Inc. tries to lead within the market competition, through its differentiated business level strategy. Strategic Rationale Need for Business Internationalization After the emergence of globalization and trade liberalization in 1990, most major economies of the world have adopted open economic principles. The modern corporate firms are exposed to the threats of domestic and foreign competition (Zacks Equity Research “Restaurant Stock Outlook - Jan 2014”). For experiencing greater revenue and profit, these companies conduct commercial activities on the basis of transaction cost economies resource grounded views. Under this regime, these concerns exploit their productive resources in the foreign markets after saturation of their domestic market demand. Without the essence of international business expansion, the companies will not be able to expand their productive resource base in business. Several multinational companies based from western developed nations, such as the U.S. outsources their labor and productive raw materials from the foreign developing economies experiencing lower exchange rates and currency values. By expanding business across several foreign markets, a company can experience higher demand for its products and services (Zacks Equity Research “Restaurant Stock Outlook - Jan 2014”). Rise in demand often facilitates in lowering the cost of production experienced by a company. Such lower costs are generated with the benefits of internal economies of scale in manufacturing process (Zacks Equity Research “Restaurant Stock Outlook - Jan 2014”). Furthermore, business internationalization process augments the brand value of an organization in the global forum. Thus, in order to experience economic surplus in the long run, Chipotle Mexican Grill Inc. needs to expand the scale of its business internationalization process in prospective foreign marketplaces. Global Growth Outlook of Restaurant Industry and Chipotle Mexican Grill The restaurant industry has achieved adequate amount of global growth due to the changes in the current consumer consumption patterns. Research report states that macroeconomic factors significantly influence the buying behavior of the consumers within the restaurant industry. After the emergence of globalism, social trends of each market have become globally generalized in nature. For instance, consumers of China prefer to buy many western culture based products and services from the market. Such outcomes have instigated the restaurant companies to expand their foreign business through slight differentiation. For instance, KFC Corporation offers tree fungus salad and rice congee in the local markets of China (Zacks Equity Research “Restaurant Stock Outlook - Jan 2014”). The organization provides special vegetarian dishes in some of its stores located in India. Thus, restaurant companies expand their business globally through moderate differentiation, in the current epoch. The local market of Chipotle Mexican Grill Inc. is the U.S. and its major foreign markets are Canada, U.K., Germany and France. At present the organization offers its service in more than 1600 locations in its domestic and foreign markets (Nasdaq “Stock Report Details”). All the restaurants located in different places are personally owned business units of the company. In the U.S., most of the restaurants of the company are located in Ontario, District of Columbia and British Columbia. The company’s U.K. business had commenced from 10th May 2010. Recently, in 2012, Chipotle Mexican Grill has opened up a new restaurant in Paris. The company tries to expand the scale and scope of its internationalization process in the developed western countries of the world. However, it would be rational for the company to extend its foreign business branch in the emerging market of China. After the materialization of the global recession in 2008, the economic growth rate of some developing countries has overtaken the development propensities of the western urbanized economies. Global Growth Outlook of the Host Country Chipotle Mexican Grill Inc. can expand its business in the emerging market of China. Until 1978, the Chinese economy was closed and socialistic in nature. From the beginning of 1980’s, the country started to adopt market oriented principles within its economy. Under this regime, the political authorities of the country started to adopt open principles of trading. Over time, the level of foreign institutional and portfolio investments in the nation have increased. The government authorities of China encourage foreign direct investments within its economy, for increasing its domestic employability and productivity capabilities. Foreign investments help to improve the aggregate consumption expenditure and per capita discretionary spending power of the Chinese households (Lian and Haiying “Overview of Outward FDI Flows of China”). The foreign companies extend their business branches in China, for experiencing the cost benefits of its low exchange rate and currency value. The country is the most populated nation in the world and hence, experiences large strength of domestic demand. The productive factor services such as labor and raw materials are less expensive in China. Due to all such aspects, the foreign business entry rate is high in China. Figure 3: Increasing FDI Inflow in China (Source: Lian and Haiying “Overview of Outward FDI Flows of China”) The above figure shows that from 1978 to 2008, the aggregate amount of foreign direct investment (FDI) inflow in China is increasing at a steady rate. Figure 4: Increasing FDI Outflow from China (Source: Lian and Haiying “Overview of Outward FDI Flows of China”) The above schedule proves that the level of FDI outflow from China is gradually increasing overtime. Increased privatization and globalization have helped to augment the level of business industrialization in China (Lian and Haiying “Overview of Outward FDI Flows of China”). The global growth outlook of China encourages increased inward and outward foreign direct investment and hence, Chipotle Mexican Grill Inc. can feasibly expand its business in the country. Country Characteristics The following table elaborates some specific characteristics of Chinese economy and the ways through which each feature will affect the business of Chipotle Mexican Grill Inc. Characteristic Feature Type Characteristic Feature in China Religion According to the reports of CIA, 18.2% individuals of China are Buddhist, 1.8% are Muslims, 21.9% follow folk religion and less than .1% Jewish and Hindu. However 52.2% individuals are unaffiliated religious followers (CIA “The World Fact Book”). Major Languages The official language of Guangxi Zhuang is Zhuang and the same in Guangdong is Yue. Furthermore Mongolian, Uighur, Kyrgyz, Tibetan are the other official languages followed in Nei Mongol, Xinjiang Uygur, Xinjiang Uyghur and Tibet, respectively (CIA “The World Fact Book”). Population 1,355,692,576 (as estimated in July 2014) (CIA “The World Fact Book”) Forecasted Growth The forecasted growth rate of China for the year 2015 is 7.5% (CIA “The World Fact Book”) Literacy Rate The male-female aggregate literacy rate of China is 95.1% (CIA “The World Fact Book”) Gross Domestic Product (GDP) As estimated in 2013, the GDP value of China (measured in terms of purchasing power parity) was $13.39 trillion (CIA “The World Fact Book”) GDP Per Capita In 2013, the per capital level of GDP in the country was 9240.27 CNY HML (CIA “The World Fact Book”) Gross National Product (GNP) In 2013, the GNP value of China was 566130.20 CNY HML (CIA “The World Fact Book”) Imports In 2013, the aggregate value of imports in China was 1655.91 USD hundred million (CIA “The World Fact Book”) Exports In 2013, the gross exports of the country measured in terms of USD hundred million were worth 2128.91 (CIA “The World Fact Book”) Corruption and Transparency Index Almost in all the major sectors, the corruption rating of China is 3 (out of 5) (Transparency International “Corruption by Country”). Maximum amount of corruption exists in the private and business sector and minimal sleaze exists in the militant sector of China. Political and Legal Rules China has a Communist State type government structure. The civil law structure of the country is influenced by the European and Soviet legal norms. The Chinese Communist Party and eight other independent political parties form the electoral structure of the nation. Chinese government is liberal towards foreign companies but banking, energy, telecommunication and manufacturing sectors of the nation are still dominated by state owned enterprises. Cultural Norms Cultural norms in China can be evaluated in terms of Hofstede’s six cultural dimensions. The power distance indicator of China is 80. The rating for its individualism is 20. Furthermore, 66, 30, 87 and 24 are the respective scaling for the nation’s masculinity, uncertainty avoidance, pragmatism and indulgence (Hofstede Model “What about China”). Current Trading Bloc China has joined hands with the Association of South East Asian Nations (ASEAN) in 2010 (Roberts “China and ASEAN create free trade bloc”). It is also a member country of the Trans-Pacific Partnership deal. Current Account Status In 2013, the gross current account balance of China was $182.8 billion. Inward and Outward FDI The volume of inward FDI in China in 2013 was $1.344 trillion and its value of its outward FDI in the same year was $541 billion (CIA “The World Fact Book”). Link with United Nations (UN), U.S. Agency of International Development (USAIDF), International Monetary Fund (IMF) and World Bank China is a permanent member country of United Nation’s Security Council. The country has entered into several prospective business deals with UN, IMF, World Bank and USAIDF. Current and Exchange Rate In 2013, the exchange rate of China was 6.2 (estimated between Renminbi yuan and U.S. Dollar). From 2008 to 2013, the currency value and exchange rate of the country has lied from 6.1 to 6.9 (CIA “The World Fact Book”). Energy Security In 2013, the aggregate amount of electricity production in China was 5.398 trillion kWh. The country imports 5.664 million bbl/day crude oil, within its economy (CIA “The World Fact Book”). 53 billion cu m was the total worth of the country’s natural gas imports. Infrastructure, Transport and Communication Approximately, 278.86 million main telephonic lines are used in China and its mobile cellular network 1.1 billion. The number of internet users in the country is 389 million (CIA “The World Fact Book”). The quality of transportation and combination systems of the country is improving over time. Currency Controls and Profit Repatriation The country charges special taxes on the divided or profits foreign companies. These rates vary from 0% to 20% (Briefing “Repatriating Profits and Dividends from China”). Profit repatriation process takes place annually, after completion of the annual auditing process of a company. The foreign exchange transaction of the country is tackled under the guidance of State Administration of Foreign Exchange (SAFE) (Briefing “Repatriating Profits and Dividends from China”). Impact on the Chipotle Mexican Grill Inc Political The political authorities of China encourage portfolio and instructional investments of foreign companies. However, the company needs to pay certain specific taxes on its aggregate business surplus or dividend return. It needs to abide the norms of SAFE for undertaking foreign exchange transactions. In China, the company needs to follow the political rules of leading political party Communist Party of China (Briefing “Repatriating Profits and Dividends from China”). However, the private and business sector corruption in the nation is high. Thus, the domestic and foreign business rivals of the company can bribe the government authorities, to modify their business policies in favor of them and against Chipotle Mexican Grill Inc. Economical From 1978 onwards, China has opened up its economy for international trade. The country is member of several large trading blocs (Porter 103). These blocs facilitate inward FDI within its economy. Furthermore, these organizations help to promote the market efficiency, competition and economies of scale in the country (Porter 130). All such factors will facilitate Chipotle Mexican Grill Inc. business expansion in China. Compared to U.S. Dollar, the China shares a lower currency and exchange rate. Thus, the operational cost of Chipotle Mexican Grill in China will be lower than U.S. For lower exchange rate, China experiences surplus in trade balance and the volume of its imports is less than that of its exports. Moreover, the level of inward FDI in the country is more than the extent of its outward FDI. The actual and forecasted domestic productivity, national income level and per capita income values shows that China is an emerging economy in nature. The disposable income level and aggregate domestic income of the country is increasing over time (Porter 55). Thus, Chipotle Mexican Grill can experience high demand for its products from the booming Chinese market. Social China is the most populated country in the world but a considerable proportion of individuals in the country are non followers of any particular religion. Different locations of China consider different types of official languages. Thus, Chinese culture is cosmopolitan in nature. Thus, the U.S. based food and beverages sold by the company will be well accepted by the Chinese. According to the Hofstede’s cultural dimensions, Chinese individuals perceive that inequalities are bound to exist in large private corporations (Hofstede Model “What about China”). Thus, Chipotle Mexican Grill should maintain adequate workplace diversity and equality in China. The Chinese professionals are individualistic in nature and hence, the organization can bestow large responsibilities over each worker in China. However, the Chinese workers of the company will be hard working, because, the masculinity index in the nation is high (Hofstede Model “What about China”). Most of the Chinese individuals are risk lovers and hence, several profit oriented risky business initiatives can be undertaken by Chipotle Mexican Grill in China. Chinese society is pragmatic in nature and hence, traditional values and culture are always encourages in the country (Hofstede Model “What about China”). The indulgence level in the nation is low and hence the individuals will always be highly sensitive towards new product offerings of the company. Technological China is a technologically advanced nation. The infrastructure, transport and communication facilities in the country are rapidly improving over time (Nicholson and Snyder 198). Such aspects will facilitate Chipotle Mexican Grill Inc.’s business expansion in the country. The country ranks 29 according to the Global Innovation Index value. The innovation rate in the nation is 46.6% (Global Innovation Index “Country Ranking”). All such aspects will facilitate Chipotle Mexican Grill Inc.’s business in China, in terms of cost cutting and surplus generation. Country SWOT Strengths China is a labor surplus nation and have low wage cost The country is rich in terms of natural resources High domestic consumption expenditure Experiencing growth in domestic productivity and employability Low exchange rate Open door policies encouraged in the nation High level of innovation Adequate literacy rate Improving infrastructure and communication facilities Weaknesses Corruption and poor transparency in the private corporate sector Growing pollution Inadequate power supply Poor energy security, imports large volume of energy resources Higher demand relative to supply, causing price inflation High income inequality Weak health status Opportunities The country has increased the usage of renewable sources of energy New technological inventions of the country can be used by private business concerns Consumption boom since 1990 Increasing internet penetration rate Growth in industrialization Threats Minimum wage laws of government increasing wage costs Sudden economic recession and fall in domestic demand High corruption, changing policies against the favor of Chipotle Mexican Grill Inc. High domestic demand and price inflation can lower the real purchasing power of the consumers in China The strength oriented features of China will facilitate Chipotle Mexican Grill Inc.’s trade expansion in the country. However, there are certain weaknesses of the country that will generate problems for the company. Even so, there are certain external market uncertainties that can considerably enhance the level of problems faced by the organization. Chipotle Mexican Grill Inc. can become successful in the Chinese market by effectively utilizing the strategic business opportunities of the country (Nicholson and Snyder 222). Thus foreign business expansion of the company in China is a feasible internationalization strategy. Work Cited Briefing, China. “Repatriating Profits and Dividends from China.” China Briefing. China Briefing, 2013. Web. 26 September 2014. Chipotle. “Are you Experienced?” Chipotle. Chipotle, 2014. Web. 26 September 2014. CIA. “The World Fact Book.” CIA. CIA, 2014. Web. 26 September 2014. Duff & Phelps. “Restaurent industry insights.” Duffandphelps. Duffandphelps, 2012. Web. 26 September 2014. Global Innovation Index. “Country Ranking.” GII. GII, 2014. Web. 26 September 2014. Hofstede Model. “What about China.” The Hofstede’s Centre. The Hofstede’s Centre, 2014. Web. 26 September 2014. Lian, Lina and Ma, Haiying. “Overview of Outward FDI Flows of China.” International Business Research. International Business Research, 2011. pp. 103-107. PDF file. Web. 26 September 2014. (3) (4) Nasdaq. “Stock Report Details.” Nasdaq. Nasdaq, 2014. Web. 26 September 2014. Nassauer, Sarah. “Pizzerias Try to Apply the Chipotle Formula.” The Wall Street Journal. The Wall Street Journal, 2013. Web. 26 September 2014. Nicholson, Walter and Christopher Snyder. Intermediate Microeconomics and Its Application. Connecticut: Cengage Learning, 2009. Print. Porter, Michael. The National Competitive Advantage of Nations. London: The Macmillan press LTD, 2002. Print. Roberts, John. “China and ASEAN create free trade bloc.” WSW. WSW, 2010. Web. 26 September 2014. Transparency International. “Corruption by Country.” Transparency. Transparency, 2014. Web. 26 September 2014. Yahoo Finance. “Competitors.” Yahoo Finance. Yahoo Finance, 2014. Web. 26 September 2014. Zacks Equity Research. “Restaurant Stock Outlook - Jan 2014.” Zacks. Zacks, 2014. Web. 26 September 2014. Read More