The Chipotle Case Analysis: An Overview - Essay Example

The Chipotle Case Analysis: An Overview

Chipotle Company was initially known as World Foods. It merged with a Delaware based company, hence the emergence of the new name. Some interesting facts are surrounding the company, such as McDonald's was its parent organization from 1998 up until 2006 before it sold its stake.

Chipotles conquered the market with a relatable idea about the preparation and serving of healthy food. Their idea was that they could sell fast food to willing buyers without their establishment being categorized as a fast-food eatery. Chipotles vision, however, evolved, and today its main aim is to influence consumers' views about fast food consumption positively. It has the characteristics of a fast-food eatery and a typical traditional eatery. The major goals of the Chipotle group of restaurants are to provide a serene environment, and quickly prepare delicious meals using organic and relatable ingredients. Chipotles offer an array of food options such as burritos and healthy salads.

Chipotles restaurants are widely spread in the US; they are slightly over 1600. Its restaurants are also widespread in some parts of Europe and Canada. Chipotles vision has let them compete with both traditional and fast-food restaurants. Chipotles offer food very fast, typical of a fast-food restaurant, but provides a relaxing atmosphere just like a traditional restaurant.

Fast food restaurant chains usually have restaurants in many parts of the world. Some of Chipotles competitors were already in operation long before the formation of Chipotle. Chipotles major competitors are Wendy's, Burger King, Qdoba, and Panera Bread. The two latter competitors have almost similar values as those of Chipotles.

Situation Analysis

The Chipotle Case Analysis: An Overview will explain the various forces that have led to the success of the restaurant, its strengths, and weakness. It will also look at possible strategies for revenue maximization.

Demographic Analysis

• Notable differences in income- Chipotles restaurants are international and distributed around the globe. The income of the customers will not be the same across countries because of the economy of the country or city it operates.
• Rising Opulence-Chipotle restaurants are located in areas where there are many competitors. In these areas, customers might opt to use the competitors' services. In affluent areas, customers may decide to dine at flashier restaurants because they can afford them.
• Diverse Operations-The organization has restaurants in various locations. The way each restaurant is run depends on its location and the leadership style of the specific manager.

Sociocultural Factors

• Need for fast service when food is ordered - Americans are always busy and ever on the run. This mirrors the Chipotles culture of always providing food quickly as soon as a customer places an order.
• Health Conscious Customer -Customers are increasingly becoming aware of the need to eat clean and are looking for healthier options. Chipotle does not have a completely healthy menu. This might prevent customers from visiting the international chain.
• Class structure in countries - Chipotle is an international chain serving various countries. These countries might have different structures from those in the US.

Political and Legal Factors

• Taxation requirements at both the federal and state levels
• Political instability especially in international operations
• Mandatory employee benefits
• Countries, where the company operates, might have different working days from those of the US

Technological Factors

• Chipotle can use social media to sell its plan and for expansion
• Technology has automation to be viable
• Adoption of wireless communication

Economic Factors

• Prices of fresh ingredients - Chipotle uses organic and fresh ingredients for its food preparation. Getting them can be a challenge due to the increase in costs or a decline in suppliers
• High national and international rates of unemployment may result in a decrease in consumption by customers
• Variations in the value of the stock market
• Slower than the projected rate of growth for economies

Global Factors

• Fluctuating exchange rates
• The European culture - The founder of Chipotle has stated that European food culture is similar to Chipotles vision
• Untapped markets

Financial Ratios and Porters Five Forces

The success of Chipotle can be attributed to its service, products, sound leadership, and vision. Below are some of their success reasons and the reasons why the company is successful.

Dedication and Simplicity

Chipotle is dedicated to its vision by ensuring that it always sources for high quality, simple and fresh ingredients when preparing meals. Regardless of the location of a restaurant, this dedication still holds. The customer can relate to this simplicity, and it is what makes them come back for the services.

Centrally Managed Company

Chipotle has many international operations, but all the processes are managed centrally. It has not sold franchises because of the belief that central management shall identify possible bottlenecks and identify quality issues. This makes it easier to address the customers' needs in all locations and to control the quality of food.

Clear Vision and Mission

Chipotle believes in having integrity while preparing good food. Customers across the globe are moving towards healthy eating habits and can relate to the belief. This has helped the company achieve its expansion goal. The business believes that the overseas market, specifically the English market, can relate to its mission, and this market will most likely welcome them to their territory.

Simple Options

The chipotle menu contains simple Mexican cuisine, which makes it easier for consumers to choose because they are not overwhelmed by numerous food varieties. The choices are relatable, and an average consumer knows what to expect.

Corporate Social Responsibilities (CSR)

Chipotle takes its CSR commitments very seriously. They buy organic vegetables, naturally raised meats, and always recycle. The organization also buys produce from small, family-owned enterprises. This is commendable, and the public can easily relate to these sustainable acts of kindness.

Timely Response to Clients

The company responds swiftly to customers' inquiries and concerns. Customers have various avenues that they can use to contact Chipotle. A dedicated team timely addresses these concerns, inquiries, and needs. Consumers, therefore, feel that their needs and concerns are addressed in a timely and appropriate manner.

Chipotle entered the international and national markets by creating exciting new products. The company has a wide variety of simple options that appeal to consumers. Their marketing strategies are incomparable to any other in the market. They make use of simple resources such as writing information on drink cups and the t-shirts of employees when advertising their business. These simple yet efficient methods are relatable and keep the consumers coming.

With the modern customer moving towards adopting a sustainable healthy lifestyle, the brand is highly relatable because it is all about creating healthy, tasty food using natural and simple ingredients at affordable prices. Chipotle has recorded massive success in its service delivery, but this has not stopped other companies from trying to enter the market. Some of Chipotles main competitors include Qdoba and Panda Inn. They, therefore, need to come up with strategies to remain relevant even as the competitors seek to disrupt their operations.

Porters Five Forces Analysis

Let us analyze Chipotle using Porters five forces analysis.

High-Threat of New Entrants

• Very few prominent competitors make it easy for new businesses to enter the market with new ideas.
• The business idea is not complicated. Competitors and other new entrants can easily replicate it.
• Lower operational costs and lower risks.
• The initial cost of capital is usually lower.

Competitive Rivalry-Medium

• There is a wide variety of food options
• Competition is price based
• Quality of food
• Presentation/style

Power of Supplier-High

• Chipotle focuses on using organic and superior ingredients; therefore, they heavily depend on suppliers for these.
• If a supplier increases the prices of ingredients, there may be an increase in the costs of the products.

Buying Power-Low

• The influx of immigrants has seen a rise in consumers who consume Chipotles products.
• Chipotle has simple and relatable menu items, which has led to a willingness by customers to spend a particular amount.
• The menu options of the company are unique, and customers get value for their money when purchasing the products. The cost of sourcing for similar products is high.

Substitution Threat-Medium

• Inflation or pandemics may cause harsh economic times resulting in customers opting to cook at home to reduce the eating out costs.
• The emergence of restaurants that offer other options such as Chinese or Japanese cuisine

Strengths of the Company

• Chipotle only uses organic and fresh ingredients, making them produce healthier menu options.
• Chipotle is a market leader in the fast-casual industry. This means they offer a classier option compared to fast-food restaurants but do not offer drive-through or table services.
• Quality and healthier options-Chipotle uses organic ingredients resulting in healthier options with a defined taste. It is, therefore, difficult for competitors to replicate the taste of the menu options.
• Chipotle does not sell franchises. It manages and operates all its restaurants, making it easy for management to decide the direction of the company and have visible input in operations.

Weaknesses

• The need for organic items has meant that the company needs to develop strong relationships with its suppliers. It takes longer to build and maintain these relationships.
• Organic ingredients are costly, and this cost is often transferred to customers making the menu options quite pricey.
• Chipotle has a fixed reporting hierarchy that all employees should follow. If an employee has a pressing matter, it becomes challenging to relay it quickly to the top management.
• Even though the company uses all-natural products when creating its menu options, the resultant product may not be very healthy. For example, a standard burrito has around nine hundred to one thousand calories.

Opportunities

• There are many opportunities for expansion in the international market. The founder of the company has stated that European food culture mirrors their vision.
• Emergence and adoption of smartphones mean that offers can be communicated easily through text messages.
• Chipotle has fully adopted the use of social media, and this makes its expansion dreams easier because of the many potential customers reached. Chipotle is available on the leading social media sites.
• Chipotle has adopted some exciting marketing and publicity strategies. The one that stands out is offering scholarships worth $20,000 each to ten fortunate winners. The scholarship provides an opportunity for both the company and the students.

Threats

• There is a significant expansion of the fast-casual dining industry. Chipotle has seen an increase in competitors, with the main competitor being Panera Bread.
• Chipotle has limited experience with the international market making it easier for competitors to thrive in those markets.
• The business model is straightforward, and this makes it easy for competitors to replicate it.
• Chipotle must stick to its vision entirely to avoid widespread public criticism. For example, if they vow to use organic ingredients fully, they must stick to the promise because failure to do so may result in public outcry. They have also promised to treat animals well, and they must adhere to that.

TOWS Strengths and Weaknesses

Let us discuss below the strengths and weaknesses using TOWS analysis.

Opportunities

• Chipotle can introduce organic food options to the international market through expansion to those markets.
• Chipotle has already established itself as a fast-casual market leader. To cement this position, it can make use of smartphone offers to promote its expansion plan.
• Aggressive international expansion will mean that Chipotle might have to use new suppliers. The company can use the opportunity to reduce its dependence on well-established suppliers.
• The company uses a simple reporting hierarchy. The expansion to international markets may force Chipotle to consider revising the management structure.

Threats

• The use of organic ingredients will reduce the threat of market entry by competitors.
• Chipotle manages and controls all its restaurants worldwide. It does not sell franchises; thus, the management is very involved in all operations and ensures quality products and services. Competitors can replicate the business model of Chipotle but will not offer high-quality services as provided by Chipotle.
• The high costs for getting organic ingredients are transferred to customers. This is, however, not a big problem because consumers are willing to pay for quality and healthy products.
• The company must continue using the best natural available inputs that are available to reduce market criticism that might crop up if they use sub-standard products.

Formulating Strategies and Alternatives

The company needs new strategies and alternatives to ensure that it survives and continues to be relevant in the market.

Strategy 1: Expansion to International Markets

Chipotle has not tapped the international market well. It only has three restaurants outside the United States. The main challenge of moving into the global market might be unfamiliar with the market trends. However, Chipotle has already cemented its positions and operations in the US market, and it may be time to think of other markets.

International expansion requires a lot of consultation and procedures before it is effective. The company can start by adopting shrewd, trustable local businesspeople for each foreign location. Business people know the market better and will know the strategies that can be employed to ensure success. Hiring a native is particularly important because they understand the culture of the people and will offer insightful guidance to management.

To ensure foreign success, Chipotle needs to facilitate several pieces of training for its managers that relate to understanding the global market. Essential marketing and publicity may not work when dealing with new target customers. Chipotle needs to inform the customer about their beliefs and the organic menu. Seeing that the current consumer is conscious about what they eat, they will be pleased with the integrity of the business, and this may lead to its success.

One of the disadvantages of operating in an unknown market is failing to understand the culture and norms of the consumers. This may slow down business because of producing irrelevant options to the market.

Strategy 2&3: Chipotle Produces Its Ingredients

The company can improve efficiency and reduce supplier dependency by producing its ingredients. Chipotle currently collaborates with family-owned farms when sourcing for organic materials. If they start producing their materials, they will be able to control the standards of their inputs. Chipotles dependence on its suppliers makes them vulnerable and at the mercy of these suppliers. Starting an organization that focuses on farming will eradicate this dependence and significantly reduce costs. This will mean that customers can access better services at lower prices. Depending on suppliers has made Chipotle fail to meet its target of only including organically bred meat, chicken, and organic beans to its menu. Regardless of a well-established relationship with suppliers, the organization still does not have enough materials to maximize its goals.

The organization has, in the past, received criticism from animal rights groups for not contracting suppliers who believe in the atmospheric killing of animals. Owing their farms will mean that the company has an opportunity of controlling how the animals are treated, including their treatment during death. This will reduce the disapprovals tabled by the activists. Further, the organization claims that their ingredients are grown in organic soil and that they only use free-roaming pigs when making meals. However, this claim cannot be substantiated. They will only be able to be confident of this if they engage in farming and have an opportunity of monitoring their animals and vegetables grown in their farms.

By incorporating farming into their operations, Chipotle will provide its consumers with an opportunity to experience true organic farm produce. This would result in better publicity strategies aimed at ensuring sustainable growth for the company. One of the organization's threats is that its business model is easily replicable. Investing in farming will make the model a bit complicated, and competitors will not be willing to go the extra mile. They will not invest in their farms because of the added operation costs involved. This will cement the Chipotles position as the market leader in the industry.

Recommendation and Plan of Action

Considering international expansion is the most feasible plan from the proposed alternatives. The consumer at the foreign market is one that is looking for a change, and the organization's brand can be a perfect fit for this market. To begin with, Chipotle sources its ingredients from many territories. If this fact is marketed well, a consumer may be able to relate to the products. The company can also use the manufacturers in the countries that it shall expand to making logistics simpler. Chipotle has maintained an annual revenue growth of around $300 million from 2005. The numbers are impressive, but they might not be sustainable after a while. If competitors enter the market, consumers will have an array of options to choose from, and this might mean that the business shall have to share its market share with competitors. Expansion in global territories might lead to improved revenue for Chipotle. Very few companies around the globe have a great mastery of the fast-casual industry as the organization does. This will mean that few competitors will be willing to join the market, translating to reduced competition and an increase in revenue.

Before dwelling on the pros and cons of foreign expansion, it is best to explore why the farming option might not be viable. It is worth noting that the current marketing strategies that the company has adopted center on promoting small businesses that focus on producing organic ingredients. If the company decides to explore farming, the probability of the consumers reacting negatively is high. They are most likely to view the business as being heartless and more focused on increasing their revenue-generating streams. Being concerned about the quality of its inputs is an admirable goal; however, if it gets involved in farming, it is more likely to lose revenue due to a decrease in the number of customers.

Further, engaging in farming may lead consumers to seek substitutes from competitors leading to a drop in the market share. Chipotle has high ethnic values, and this is what has cemented its position in the market. Going against the values will be a time bomb waiting to explode. While foreign expansion may seem risky, it is the alternative promises a lucrative revenue flow.

Let us now explore the financial implications of expanding to new territories. Chipotle has previously put up new restaurants at an annual average rate of 126. This translates to an average of $0.80 million per store and a 61.8% return on investment. However, its previous expansion into the Canadian and English markets has resulted in an insignificant rise in revenue. It is essential to note that the insignificance might be because of the use of a smaller sample. To maintain a reasonable return on investment, Chipotle should consider expanding gradually by opening at least ten new eateries over one year, to allow the locals to get accustomed to its menu items. This will allow Chipotle to maintain its annual revenue growth and serve as a marketing strategy in the new market. One year is enough time to evaluate its success in new territories. As soon as the company becomes a force to reckon with in the regions, it should then begin another foreign expansion phase.

Before implementing the strategies discussed above, it is vital to explore the risk of going international. The significant risk is increased marketing costs. Chipotle is most likely to experience an increase in its operations costs resulting from an increase in marketing and publicity expenses. However, if done well, these costs could eventually decrease due to economies of scale. Another noteworthy risk is that the company does not sell franchises but chooses to manage its entire operations. While this is admirable, it may cause potential problems with the host countries if it does not consider locals when hiring. The final problem may be getting new and trustworthy suppliers overseas. It may have a problem getting organic ingredients from available suppliers due to its strict rule of only using family-owned businesses as the major suppliers. This could eventually lead to an increase in the natural products and the price burden transferred directly to consumers. The company will need to source for reliable suppliers to ensure smooth growth overseas. To sum it up, Chipotle will need to expand to countries that will make it possible to reduce its marketing costs.

The best growth strategy for the business might be to focus on globalized countries, especially towns or cities that have an influx of Americans and are fast-paced. Some of these cities include Sydney, Tokyo, and Paris. These cities have a noteworthy link with the US, advanced technology, and a youthful population. These characteristics will allow the business to grow within a short period. Further, Chipotle will significantly cut down on advertisement costs because of making use of social media and word of mouth advertisement methods. Additionally, because these cities are modern, the organization can source for organic raw materials at reduced costs, hence ensuring that it operates without an increased financial burden.

Chipotle might also need to revise its values and mission and take into consideration the unique and diverse cultures of the new countries it will operate in. If Chipotle wants to continue using suppliers who operate family businesses, it might need to do broad research to understand the dynamic supply chain of these countries. It should also tailor-make the food options to include the different tastes and varieties that the market would expect. It is worth noting that different markets around the globe have different tastes, and sticking to the same menu might put them out of business. This has already been experimented and done in London, where the eatery offers custom-made wheat tortillas and has reduced portions compared to those in the US. Chipotle should also work towards obtaining economies of scale by maximizing the countries' diverse economic conditions. For instance, a city like Tokyo has an abundance of rice, and Chipotle can include this in the food options to minimize costs. Finally, the business should take into consideration the demographic composition of every country when making decisions. The decisions can range from supplier sourcing, food options, pricing, and employment of full time and casual laborers. It will also be flexible in its growth objective and should not stick to a particular single method in its operations and governance. A relevant example of this concept is the growth of McDonald's in foreign territories. McDonald's was flexible when expanding to new countries. It was keen to learn the new consumers and continuously adjusted its strategies to meet the demand of the new consumers. McDonald's did not force its food options to consumers but first came up with tailor-made options, which were relatable to the overseas consumers. It also worked on its stores, and the consumers in the foreign territories were pleased by its operation and management style.

To sum it up, expanding to an international territory is never an easy task. It is a difficult matter that requires superb organizational and planning skills before proceeding. It also needs sound market research, and a good team comprising of both local and foreign employees. Even though the option is the riskiest, it is also the one with the most potential of allowing Chipotle to maintain or exceed its current rate of growth. To be prosperous, the business will need to adopt a highly conscious approach as it enters the new markets. It needs to put in place measures that address various customers' tastes, preferences, and needs. It also needs to make use of the prevailing economic conditions of the countries to get economies of scale and minimize its operating costs in those countries. Finally, Chipotle might need to adopt low-cost advertising strategies, such as the use of social media. This method is cost-efficient, and at the same time, it might reach out to a larger consumer base. If the organization follows the recommendations and steps above, it is most likely to increase its revenue. Shareholders will see it grow from a national market leader into an overseas market leader in the next two decades.