Chipotle Incorporation - Research Paper Example

? Chipotle Incorporation Executive Summary Chipotle is a U.S. based international chain of restaurants with head quarter located in Denver, Colorado. Chipotle Incorporation opened its first restaurant in 1993 and currently the company is operating over thousand restaurant chains across the country. It has established its chain of restaurants across U.S UK, Canada and France. The company has expanded its business significantly with the support of its unique experience. Since the launch of the first restaurant, the company became popular and successful. Followed by its successful start, the company went for incorporation in 2006. The company has evolved as a unique brand because it offers naturally extracted ingredients presented with innovative and technology based ideas. This sensible combination of nature and technology has widely been regarded as a strong point of the company that has provided him stability and competitiveness in the market place. The company operates in the restaurant industry and it has been facing tough competition from some establish names of the market. It has expanded the business by getting in to a deal with McDonalds that proved useful for both. The company got the recognition while McDonald’s contributed towards lucrative result. The company has shown good progress with cash flows that is the major sources of the expansions in the company. It has very low leverage ratio that reduces the risk and increases the share price, hence giving the company good business recognition. The company has a balanced corporate structure and the company chooses the officers for the higher designation from the existing employees and the Board of Director and the Corporate Committees ensures the well balanced institutionalization. Factors including for outside the company are the competitors and the five forces tells about the overall feasible environment for the company. The paper basically aims at presenting a detailed and thorough analysis of Chipotle Inc. In this regard, the paper presents a brief overview of the firm followed by analysis of external and internal environment. The marketing and organizational strategies and structure of the company have been discussed whereas the major strategies issues faced by the company are highlighted and some recommendations are also presented in the paper to assist firm in achieving stability by combating the challenging issues being faced. 2. Introduction The Chipotle Incorporation mainstream strategy and the mission statement are to provide food with integrity and for this they have been using natural resources in their products. The company has gained strong reputation and competitive advantage over other companies due to use of natural and organic fresh ingredients. The company has made the market of its own products as it obtains the resources from the families owned farms. Chipotle Incorporation does not advertise too much and the mere advertising is not its core marketing strategy like the other competitors like McDonald’s etc. The company is more connected to the consumers at the ground level and arranges several events for the potential consumers. The company believes that brands are not built by the promotions only but by their experience with the brand matters most (Chipotle, 2012). This is the source of company’s sales, sustainability and growth over the years. The company had a growth rate of 25.76 % in March 2012 (Ycharts, 2013) and the present growth rate is 13.45 % whereas the McDonalds have present growth rate of 0.90%. Financially, the company is performing very well. The return on assets is 17.66 and the return on equity is 23.27 with gross profit ratio 26.34 % and the net profit ratio of 10.54 (Ycharts, 2013). The liquidity of the company is 3.16 times that means it has sufficient resources for the growth of the business and the mediocre gross and net profit margins. The company is a single operation company and does not have diversified its portfolio for the traditional market risk adjustments 3. Analysis of external environment The Chipotle Incorporation operates in the restaurant and bar industry that could be specifically termed as the casual fast-food industry (Anderson et al, 9). The five force analysis presents issues related with threat of rivalry, barriers to entry, supplier power, threats of substitutes, and the role of complements. The company has rivals like McDonalds and Yums that are operating in the same industry. In the context of barrier to entry, it is not difficult to enter in a fast-food industry because a low capital is required to enter and people may like anything which is suitable for them and can make a company successful. As the costs are increasing due to the inflation, it has become difficult to sustain the position in the market. The new competitors can enter into the market but due to the high costs, the profits will be less and it would be difficult to maintain the working of the company. The role of compliments is also important and the company can make its own fast food product or can adopt to provide complete food experience. Buyers have their disposable incomes which can be spent on the purchase of the products of the given company but this disposable income may not be sufficient to purchase and in this case the buyers may decide to go for other companies with less prices or can go for substitutes like eating at home or the alternative products. So the choice depends on the economical status of the buyer which may affect the growth of revenues. 4. Analysis of internal environment Companies like McDonalds are growing significantly through overseas expansion that is also the major contributor of their revenues. Yum and Domino are also expanding internationally with 12 international restaurants and are planning to build more (Wong, 2013). On the other hand, Chipotle has not expanded across border. Moreover, it has overly simplified menu that could be seen as its weakness. Technology has affected much business and the present era is the information technology era, so the company can provide the real-time online orders placing facility as well as booking facility but the company is not paying attention towards it. The other companies are working according to the changing marketing requirements. The marketing concept has been well summarized in the traditional four Ps which are Product, price, promotion and place. Chipotle’s products are simple and include original ingredients from the limited suppliers. The company marketing expense on each sale is 1.75% whereas the average for the others at a whole is 3 – 5 % (Graham, 2012). It implies that they need to focus more towards their marketing strategy by increasing their marketing budget. The net profit margin is around 10 % that is mediocre within the restaurant and bar industry but it is relatively low. This margin cannot be increased due to the market competition as the customers will go for the competitive prices and the substitutes. The total revenue increases to $ 2.2 billion, and the revenues for the existing stores increased by 11.2%, it’s like grow, invest, grow, invest like a Warren Buffet lunch (Sacks, 2012). 5. Major Strategic Issues: Specific dedicated suppliers The company has the most critical issue of the specific suppliers. The company is relying on the farms, with huge market capitalization of $ 2.2 billion which could be regarded as its critical weakness. The reason why the profits margins are less is the increased cost of the products, which eventually increases the costs of sales consequently. The other issues have secondary nature, but the specific suppliers are the most critical weakness that the company should consider in its SWOT analysis. The expansion can satisfy the local growth of the company with the available suppliers but to increase the revenues, the company needs to consider the two factors: the purchasing ability of the consumer and the potential consumers in specific region. The potential customer in specific region are fixed but it can increase the volume of its business by opening the new branches and hence getting new suppliers on the companies platform in the geographic regions like Asia, and the countries like china where there is more population and these countries could be potential market for this company. The company is a leader on food quality issues as it integrates the marketing plan with the philosophy of cultivating a better world (Baylis, 2012). The main strategic issue for the company is the limited dedicated supplier’s and lack of overseas expansions. Overseas expansion is important because through this, the company can explore the big markets in the geographic regions like china and can maintain its profit amount, though with low percentages. 6. Available alternative strategies: Overseas Expansion and making suppliers partners Chipotle Inc. has been facing the most critical issue of limited supplier and this issue can be resolved by making the supplier partners and the company may diversify its portfolio which would be the byproduct. The company is relying on the selected farmers to ensure the quality ingredients of the company that is also its strength (Levy, 2012) whereas it is also the weakness of the company that a company cannot purchase directly from the open market. The company may build or acquire its own farmhouses to turn this weakness into strength. It might be a costly options but it will reduce the bargaining power of the present suppliers and will free the company from reliance on the specific suppliers and can diversify the portfolio for the market risk adjustment. The company can enter into the new markets by overseas expansion and by introducing their strategic aim of providing the food with integrity. They can also shift their reputation across the borders to the densely populated regions like China and South Asian countries The company will have to broaden its scope for the employees and in the long run. The company can hire the existing employees and transfer them higher responsibilities, this can provide a strong base for the overseas expansion and the experienced employees can be transferred to the newly opened branches. The company’s corporate structure is capable of this expansion as the company has sound corporate governance structure which ensures the long term institutionalization of the company 7. Recommendations From the above mentioned critical discussion, it has been recommended that company should go for cross border expansion o and making the suppliers partners. These movies can obtain good financial results for the company. These strategies will also reduce the role of middleman, reduce the costs consequently, and the higher profit margins will be available to the company. For the overseas expansion, the company and its Board of Directors can include their experience by visiting these geographic locations and by analyzing the secondary data available for these locations and integrating it into their corporate governance framework. It is not necessary that expansion always bring favorable results to the firms and Chipotle has to make strategic plans for this process to assure that they will generate desired results from expansion. Complementary to the given resolution, the company can go for innovative corporate structure. The role of technology for the company should be considered and rethought. The company can target the right thing at the right place by introducing the modern internet technology that the company is already using, but the use of advanced algorithms can make it more effective and the statistical implementation of internet marketing can provide the company good boost again. For the sustainable growth, however the company should consider the above mentioned issues and by ensuring the mission statement and through some innovative technologies based measures, the company can grow significantly. It is imperative that Chipotle must bring change into its current marketing strategies by including latest technologies and should make some plans for cross border expansion to maximize profit and stabilize its market position. 8. Work Cited Anderson et al. Analysis of Strategic move by Chipotle. GRIN Verlag. 2012. Print. Baylis, Bettina. How Chipotle’s ‘Food with Integrity’ strategy can really succeed. 2012. Web. 6 May 2013 Chipotle, 2012. Annual report 2012. Web. 5 may 2013 Graham, Jefferson. Chipotle resist tech automation at restaurants, 2012. Web. 5th May, 2013. Levy, Adam. Chipotle: A (Kind of) SWOT Analysis, 2012. Web. 5 May 2013 Read More