Chipotle Business Model in China - Essay Example

? Chipotle in China Emerging markets like China with more than one billion consumers give the western restaurant chains a great opportunity to expandtheir foot prints. In this paper, we are going to address the possible negotiation and ethical challenges that the food chain Chipotle is going to face as they start business in China. Chipotle Business Model Chipotle Mexican Grill, Inc. runs restaurants in the United States. The company also has international presence through restaurants in Toronto and London. Currently as of the end of 2011, the number of stores stands at 1,230. It also owns one ShopHouse Southeast Asian Kitchen. The company tries to find the best class of ingredients for making great tasting foods. Chipotle has shown very quick growth over the last half decades. The company plans to introduce around 155 to 165 new restaurants in 2012 (Annual Report 2011, 3). Chipotle restaurants’ list of options has only a few items like, ‘burritos, burrito bowls, tacos and salads’. But customers have the liberty to decide from ‘four different meats, two types of beans and a variety of extras such as salsas, guacamole, cheese and lettuce’. So, there are in fact adequate varieties. Chipotle restaurants draw a lot of consumers. So the outlets frequently have lines. But it has been capable to serve more than 300 buyers an hour at some places (Annual Report 2011, 3-4). Chipotle’s cooking techniques are traditional in nature. They marinate and grill meats, hand-cut produce and herbs, make fresh salsa and guacamole, and cook rice in small lots all over the day. The kitchen’s planning more closely is similar to the design of high-end restaurants. Every Chipotle restaurant has a “restaurant manager, an apprentice manager, one or two hourly service managers, one or two hourly kitchen managers and an average of 20 full and part-time crew members” (Annual Report 2011, 4-5). Certain key ingredients (‘beef, pork, chicken, beans, rice, sour cream, and tortillas’) are purchased from a small number of suppliers. Chipotle does not buy raw materials straight from cultivators or other suppliers. It has selected and endorsed all of the suppliers from whom ingredients are purchased. Chipotle owns and operates 22 regional distribution centers. The necessary commodities are sent to the restaurants from these distribution centers (Annual Report 2011, 6). Chipotle’s profitability varies from quarter to quarter due to seasonal factors. The average restaurant sales and profits touch the bottom in the first and fourth quarters. The biggest challenges for Chipotle are staffing new restaurants and finding sites for new restaurant (Annual Report 2011, 6-8). Recently the news has emerged that Chipotle may include some Asian cuisine into their menu. It intends to do so through ShopHouse Southeast Asian Kitchen. The cuisine will include not just Chinese or Japanese, but also Thai, Malaysian and Vietnamese (Steinmetz). Chain Restaurants Industry in China and Chipotle The Chinese consumer food services market has grown from US$133.6 billion in 2004 to US$ 294.4 billion in 2009. As a result the market has grown at a CAGR of 12.5% over the five year period. The market is expected to grow to $449.3 billion in 2014. The factors effecting this growth are strong economic growth of China with rapid urbanization and increasing disposable income that changed lifestyle and consumption patterns. There is a general tendency among the urban population that they tend to spend time at work and in social activities. So they save time by avoiding the meal preparation task (My Decker Capital, 3). The fast food market is a very important segment of the consumer food market. This segment has grown to a US$69.4 billion market in 2009 and is expected to grow to US$113.1 billion in 2014. The growth of the fast food industry is mainly driven by the increasing working population. The key characteristic of the fast food service restaurants are their low cost. This factor also serves as a key competitive advantage (My Decker Capital, 7). There are two interesting facts about the fast food industry dynamics. On the cuisine front, the Asian cuisine (Chinese cuisine, in strict sense) is preferred over the western cuisine. Though western restaurants like KFC and McDonald are popular, people do not take them as daily foods. Moreover the Chinese cuisine is much cheaper than KFC or McDonalds. The other important observation in respect of quick food restaurants is that the independent outlets are more dominant than the chain outlets. This is because the food habit varies widely across China (My Decker Capital, 7-9). The original Chinese food does not have deep fried items like those of Chipotle. The Chinese restaurants in the west prefer to keep deep fried items just to serve the taste of the western consumers (Lin). These two factors will be the main challenges for Chipotle. Other challenges are more trivial in nature. Finding new sites and proper manpower is a challenge. The major risk comes as the ability to open new outlets and run them profitably. Also there are some legal issues. One important legal issue in opening a restaurant in a developed city like Beijing is that, the approval of the local residents is a must if the restaurant is located within 50 meters of the residential area. At the same time, the owner needs special permission from the authority if he wants to sell alcohol. The outdoor smoke ventilation exhaust fixture should maintain at least 20 meter distance from the nearby residence. The government has also banned the foreign commercial enterprises to sell any tobacco related products (Lou). Conclusion Though the China provides a host of opportunity for expansion, Chipotle is likely to face problems in terms of pricing and positioning. Also, the acceptability of Chipotle’s menu is highly dubious. At the same time, the company will face a lot of norms like tobacco control and pollution control. At the primary phase, the company can expect to attract the westerners in the big cities of China and then target the new young Chinese consumers. The other way is to expand through ShopHouse Southeast Asian Kitchen. References Annual Report 2011, Chipotle Mexican Grill, Inc; February 3, 2012, Web, April 20, 2012: http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDYxNTQ4fENoaWxkSUQ9NDg5ODczfFR5cGU9MQ==&t=1 Lou, Stephen, Establishing a Foreign-Owned Restaurant Business in Beijing, Global Legal Resources, September 12, 2008, Web, April 20, 2012: http://www.hg.org/article.asp?id=5419 Lin, Kathy. Chinese Food Culture Profile, Ethnomed, Web, April 20, 2012: http://ethnomed.org/clinical/nutrition/chinese_food_cultural_profile My Decker Capital, Chain Restaurants Industry in China, December 2010, Web, April 20, 2012: http://www.mydeckercapital.com/Documents/20101201_MDC_Chain_Restaurants_Industry_in_China.pdf Steinmetz, Katy, Chipotle Going Asian: Smart Spinoff or Bad Business Move?, Time News Feed, April 14, 2011, web, April 20, 2012: http://newsfeed.time.com/2011/04/14/chipotle-going-asian-as-sustainable-as-their-ingredients/ Read More