Final Compilation

WHAT FACTORS AFFECT ENVIRONMENTAL SUSTAINABILITY IN THE
RESTAURANT INDUSTRY?
AN HONORS THESIS
SUBMITTED ON THE 16TH DAY OF APRIL, 2015
TO THE A.B. FREEMAN SCHOOL OF BUSINESS
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
OF THE HONORS PROGRAM
OF NEWCOMB TULANE COLLEGE
TULANE UNIVERSITY
FOR THE DEGREE OF
BACHELOR OF SCIENCE IN MANAGEMENT
WITH HONORS IN BUSINESS
BY
ELISE INGBER
APPROVED:
________________________
MICHAEL S. WILSON, PhD
Director of Thesis

ii
ABSTRACT
Elise Ingber What Factors Affect Environmental Sustainability in the
Restaurant Industry?
Dr. Michael S. Wilson
This thesis examines the scholarly debate surrounding corporate social
responsibility practices, with specific focus on the factors that affect environmentally
sustainable practices in restaurants. This business case contains three sections: a case
study, instructor’s manual, and a literature review. The case study follows the story of a
restaurant chain that has adopted environmentally sustainable practices as a primary
component of its business model. The case focuses on Chipotle Mexican Grill and
examines the efforts of its founder and Chief Executive Officer, Steve Ells, to supply
naturally produced and locally sourced ingredients in the restaurants’ offerings. The
instructor’s manual provides recommendations for instructors on how to use the case
study to help students analyze and understand relevant management and marketing
theories. The literature review is a compilation and analysis of scholarly literature about
corporate social responsibility in the context of the food industry; it specifically examines
factors that affect environmentally sustainable practices in restaurants.
My review of the scholarly literature on environmental sustainability within the
food industry led to three general conclusions. First, a majority of scholars agree that
restaurants and other business that adopt environmentally sustainable business practices
can use these practices as differentiation tools and help cultivate positive brand images.
However, scholars stipulate that for restaurants and other businesses to benefit from such
practices, they should employ marketing strategies to inform consumers of their actions.
Second, a majority of scholars also noted that businesses must align environmentally
“green” practices with their overall business strategies to be profitable. Third, a majority
of scholars found that in the context of the restaurant industry, consumers’ lack of
demand for and insufficient knowledge about environmentally sustainable practices have
discouraged the industry from proactively going “green.” In the case of Chipotle Mexican
Grill, at the close of the case study, the firm was in the ongoing process of transforming
its supply chain. However, the chain was still experiencing issues in terms its supply
scalability, and the potential effects of this issue remain unknown.

iii
ACKNOWLEDGEMENTS
I would like to thank Professor Michael Wilson for his guidance, insights, and unceasing
reassurance over the course of this process. I would also like to express my gratitude to
Cynthia Fransen, for working diligently with me to prepare my thesis for submission.
Additionally, I’m very appreciative of Betsy Clementson and Katharine Macy for their
help during my research process. Thanks also go out to my friends, colleagues, and the
A.B. Freeman School of Business faculty and staff for helping to make my time at Tulane
University such a wonderful and rewarding experience. Finally, I would like to thank my
mother, father, and sister for their support and encouragement not only throughout my
career at Tulane University, but throughout my entire life.

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TABLE OF CONTENTS
Page
ABSTRACT............................................................................................................... ii
ACKNOWLEDGEMENTS....................................................................................... iii
TABLE OF CONTENTS........................................................................................... iv
LIST OF EXHIBITS.................................................................................................. vi
INTRODUCTION ..................................................................................................... 1
CASE STUDY........................................................................................................... 5
Introduction.................................................................................................... 5
Chipotle Mexican Grill, Inc........................................................................... 7
The Start of Something Savory............................................................. 8
Expanding Through McDonald’s Stake................................................ 9
Forging the Path to Food With Integrity............................................... 10
Continuing Growth Post-McDonald’s.................................................. 10
Limited-Service Industry Background.................................................. 12
Steve Ells ....................................................................................................... 13
From Chef to CEO................................................................................ 14
Ells’ Initiative........................................................................................ 14
Food With Integrity........................................................................................ 16
The Struggle to Find Sustainable Suppliers.......................................... 16
Collaboration and Compromise............................................................ 17
The Conflict of Integrity....................................................................... 19
Works Cited ................................................................................................... 22
Additional Information .................................................................................. 26
INSTRUCTOR’S MANUAL .................................................................................... 37
Introduction.................................................................................................... 38
Case Synopsis ................................................................................................ 40
Research Methodology .................................................................................. 38
Applicable Courses........................................................................................ 41
Learning Objectives....................................................................................... 42
Theoretical Linkages...................................................................................... 43
Proposed Solution.......................................................................................... 43
Case Analysis Suggestions ............................................................................ 45
Exhibits .......................................................................................................... 49
Teaching Schedule and Suggested Discussion Flow..................................... 51
Epilogue......................................................................................................... 53

v
References...................................................................................................... 54
LITERATURE REVIEW .......................................................................................... 55
Introduction.................................................................................................... 55
Historical Overview of Corporate Social Responsibility............................... 56
Analysis Exploring Relationship Between Environmentally Conscious Business
Practices and Profitability.............................................................................. 59
Review of Conceptual Frameworks of What Drivers and Barriers to “Green”
Food Practices Exist ...................................................................................... 63
Exploration of Studies Concerning Organizational and Consumer-Based Drivers
and Barriers to Sustainable Business Practices in the Restaurant Industry ... 66
Summary and Analysis .................................................................................. 69
Recommendations for Further Research........................................................ 72
Conclusion ..................................................................................................... 73
Works Cited ................................................................................................... 75
Figures............................................................................................................ 79
CONCLUSION.......................................................................................................... 87

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LIST OF EXHIBITS
Page
Exhibit A Food With Integrity Signage in Chipotle Location................................... 29
Exhibit B Chipotle “Green” Marketing Efforts......................................................... 29
Exhibit C Chipotle Physical Appearance................................................................... 30
Exhibit D Chipotle Properties (2013) ........................................................................ 31
Exhibit E Revenues and 5-Year Cumulative Total Return (2013) ............................ 32
Exhibit F Annual Restaurant Count........................................................................... 33
Exhibit G Print Advertisement................................................................................... 33
Exhibit H Chipotle Food, Beverage, and Packaging Costs ....................................... 34
Exhibit I Chipotle Operating Costs 2008-2013 ......................................................... 34
Exhibit J Food With Integrity .................................................................................... 35
Exhibit K ‘Welcome to Porktopia”............................................................................ 36

1
INTRODUCTION
This thesis explores and analyzes the scholarly debate surrounding corporate
social responsibility practices, specifically focusing on environmental sustainability
within the restaurant industry. This work consists of a case study that examines the
Chipotle Mexican Grill restaurant chain’s efforts to supply naturally produced and locally
sourced ingredients to its locations. Along with this case study, this thesis includes an
instructor’s manual detailing specific learning objectives that link the case to relevant
management and marketing theories. Additionally, the thesis includes a review of the
scholarly literature that pertains to corporate social responsibility in the context of the
food industry, and specifically, examines the factors that affect environmentally
sustainable practices in restaurants.
Currently, the food industries of developed nations like the United States are
notorious for prioritizing profits over animal welfare and environmental responsibility.
Advances in farming technologies, including factory farming practices, have led to an
increase in large-scale production. However, such advances have diminished the quality
of the farming environment and have physically modified the farm animals we eat to the
point that the animals are unhealthy. These factory farming practices have led to an
abundance of cheap food, however; cheap is not synonymous with good for the
environment or healthy for the consumers.
Environmental degradation and health issues associated with processed foods are
both issues that have grown exponentially over the course of the 20th
and 21st
centuries,
and will continue to be issues if society takes no action to prevent such developments.
Restaurants, as large-scale buyers of meat, produce, and dairy products, are one of the
leading drivers of the food industry in general, and thus, are in unique positions to
support the trend toward a sustainable food future. This thesis will address the question
scholars, environmental activists, restaurant owners, and consumers, ask:
What factors affect environmental sustainability in the restaurant industry?

2
Scope of Work
This thesis includes a case study, corresponding instructor’s manual, and a
literature review. The case study discusses Chipotle Mexican Grill and specifically
examines how this fast-casual restaurant has worked to source environmentally
sustainable ingredients. At the time of this writing, 2015, the chain serves 100 percent
naturally raised chicken, beef, and pork. The instructor’s manual serves as a guideline for
instructors to present this case in a classroom setting. The manual provides
recommendations for instructors on how to use the case study to help students analyze
and understand relevant management and marketing theories. The literature review
presents a compilation and detailed analysis of the variety of books and peer-reviewed
scholarly journal articles that examine the topics of corporate social responsibility and
environmental sustainability within the food and restaurant industries.
Value of Research
Profits drive business; however, businesses should never prioritize profits over the
health of the environment and the consumer. To protect the future of our planet, the next
generation of business leaders must comprehend the ways in which to balance ambition
with accountability. This thesis is important because it will provide students with the
knowledge they will need to develop a superior understanding of the relationship between
environmental sustainability and effective business strategy. Additionally, its specific
focus on the food and restaurant industry provides a detailed analysis upon which future
scholars can build.
Case Study
The case study uses the example of Chipotle Mexican Grill, which has
differentiated itself from many other “fast-casual” chain restaurants by emphasizing high-
quality raw ingredients (“Chipotle Mexican Grill: About Us”). The case will explore how

3
Chipotle founder and CEO, Steve Ells, developed and achieved his goal of Food With
Integrity, “a commitment to finding the very best ingredients raised with respect for the
animals, the environment, and the farmers (“Chipotle Mexican Grill: What Is Food With
Integrity”).”
The case consists of several parts, with the first section describing Chipotle’s
history and providing a brief background of the limited-service food industry. The case
then discusses founder and CEO, Steve Ells, traces his professional history, and examines
his motivations in developing the Chipotle business model. After this point, the case
focuses on Ells’ Food with Integrity initiative, beginning in 2000 when the Chipotle chain
started to serve naturally raised pork (“Chipotle Mexican Grill: We’ve Got History”). The
problem Ells faced was how to source such large amounts of naturally raised meat
without adversely affecting the restaurant’s profit margins. Although Chipotle was able to
fully source all of its meats by 2013, and continuously worked to expand its sourcing of
natural produce, the company was unable to implement this strategy consistently to all
Chipotle outlets at all times. The final section of the case study examines this paradox,
evaluating Chipotle’s possible next steps in this process.
After completing the case, students should be able to analyze this issue through
their previous management strategy and marketing courses to answer the following
questions:
Can sustainable supply be successful and scalable?
How should Chipotle maintain the integrity behind “Food with Integrity?”
These questions will likely lead students to explore related issues to develop their
opinions about the merits of corporate social responsibility as a component of business
strategy.
Instructor’s Manual
The instructor’s manual is a guiding tool for instructors to link the concepts
within the case to help students to analyze and understand relevant management and
marketing theories. Students can understand quality leadership differentiation through the
case’s focus on corporate social responsibility in relation to the company’s strategic

4
direction. This instructor’s manual includes a case summary and update on the firm’s
actions since the case’s conclusion. It also contains recommendations on the ways
through which instructors can use the case study in a classroom setting, including
learning objectives, possible analysis questions, and a class discussion schedule. The
learning objectives connect the events in the case study to relevant management and
marketing theories that appear in the literature review. This comprehensive collection of
materials will help instructors to stimulate student analysis of the role that corporate
social responsibility can play in helping to differentiate a business from its competitors.
Literature Review
This literature review explores the existing body of scholarly literature on
environmental sustainability in the food industry to address my research question: What
factors affect environmental sustainability in the restaurant industry? The literature
review’s purpose is to give an overview of the existing scholarly literature that pertains to
corporate social responsibility, environmental sustainability, and their roles in the food
and restaurant industries. The literature review organizes the scholarly literature
thematically. The themes include the following:
• Scholarly considerations about the relationship between corporate social
responsibility and business success
• Drivers and barriers to environmentally sustainable practices within the
food industry
• Drivers and barriers to “green” practices specific to the restaurant industry
These themes interrelate to illustrate the various factors that affect environmental
sustainability in the restaurant industry. To maintain the integrity of the debate, my
research has been limited to peer-reviewed journal articles and the writings of relevant
experts in the field in order to reach the final conclusions for my thesis topic.

5
A.B. FREEMAN SCHOOL OF BUSINESS
CASE STUDY
TC-615-002
April 16, 2015
Elise Ingber
What factors affect environmental sustainability in the
restaurant industry?
Chipotle Mexican Grill: A Chain’s Sustainable Growth
“There’s not one discussion, not one process that I’m ashamed of, that I wouldn’t want
our customers to know about. In fact, if they knew more about it, they’d come more
often.”
– Steve Ells
Introduction
In merely two decades, Steve Ells, founder and CEO of Chipotle Mexican Grill,
Inc., had watched his business blossom from one tiny Denver restaurant into a burrito-
based empire, with over 1,500 domestic and international locations. With a remarkably
devoted consumer base composed primarily of millennial customers, Chipotle had grown
to be an enigma in the swiftly growing fast-casual segment of the restaurant industry: A
chain with a cause. When Ells first developed the Chipotle restaurant concept, he had
focused on serving fresh ingredients because, “the taste has so much more depth and
character (Thorn, 2003).” However, with the restaurant’s rapid growth and Ells’
expanding knowledge of the American food industry, the CEO added a second focus: the
conditions under which his suppliers produced the ingredients for Chipotle menu items.
Through his Food With Integrity initiative that aimed to serve naturally raised
meats, local and organic produce, and hormone-free dairy products, Ells had achieved a

6
unique market position for the Chipotle chain. The menu’s streamlined offerings were at
a higher price-point than other speedy Tex-Mex fare, and both the website and in-
restaurant menus emphasized the ingredient’s sources (see Exhibit A). Lengthy lines
were common, full of customers clamoring for meals that were quick, flavorful, and as
wholesome as anyone could hope for in the limited-service restaurant industry. Because
of the higher quality ingredients, flavor, and massive portion sizes, patrons were more
than willing to wait a little longer and spend a few extra dollars at Chipotle restaurants
than they would at other fast-food options.
In the media, Chipotle was expanding its traditional word-of-mouth and
print/billboard marketing campaigns to target Millennials, who as a whole are
increasingly supportive of sustainable businesses, “green” products, and services.
Seeking to produce advertising content that was both promotional and “educational,” the
company began to release animated shorts, interactive mobile games, and, in 2013, a live-
action Hulu based web series, Farmed and Dangerous, that explored “the outrageously
twisted and utterly unsustainable world of industrial agriculture (Czaplewski, Olson, &
McNulty, 2014).” Such vehicles promoted and publicized both Chipotle restaurants and
the company’s position as a sustainable alternative to fast-food fare (See Exhibit B).
As of 2015, the restaurant’s website claimed that whenever possible, it would
source 100 percent of responsibly raised pork, chicken, and beef (“Chipotle Mexican
Grill: We’ve Got History”). In addition, the chain used non-rBGH dairy products1
and a
portion of organically grown and local produce, when available (“Chipotle Mexican
Grill: We’ve Got History”). In order to achieve this goal, Ells had worked for over a
decade to discover, examine, and contract farms that fit Chipotle’s sustainable supply
standards. However, the chain’s “whenever possible” policy tempered this
accomplishment: because of supply constraints, Chipotle restaurants had no choice but to
occasionally serve the conventionally raised meats and other ingredients that Ells’ was so
adamantly opposed to.
Although the reasons for the contradiction in the Chipotle business model
appeared simple, the problem itself was complex. Ells’ vision for Chipotle was one of
1

rBGH (recombinant bovine growth harmone) is used by many commercial dairy farms to increase cow’s
milk production

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Food with Integrity: Chipotle strove to buy from sustainable suppliers who raised their
livestock and produce with respect for the environment. However, these farmers
produced supply levels much lower and at higher costs than their factory-farm
counterparts. The Chipotle chain was undergoing continued rapid growth, and with each
subsequent restaurant, its ingredient demands grew. At the same time, the chain had to
keep its relatively low price points that its customers had grown to expect. In light of
these challenges, Ells faced a dilemma: his commitment to maintaining his Food With
Integrity initiative, and the simultaneous responsibility of continuing the chain’s
successful expansions.
CHIPOTLE MEXICAN GRILL, INC.
Chipotle Mexican Grill, Inc. is one of the leaders in the growing field of fast-
casual dining. The restaurant chain arose out of a simple philosophy: food served fast
without the “fast-food” experience (“Chipotle Mexican Grill, Inc.,” 2012). To accomplish
this goal, Chipotle restaurants offer Tex-Mex style dishes like burritos, tacos, burrito
bowls, and salads (introduced to the menu in 2004 and 2005, respectively) (“Chipotle
Mexican Grill, Inc.,” 2012). The restaurants use high-quality raw ingredients, and follow
classic cooking methods (“Chipotle Mexican Grill, Inc.,” 2012). Chipotle serves these
items in restaurants that mimic fine-dining establishments, with open kitchen floor plans
and other distinctive interior design features (“Chipotle Mexican Grill: About Us”). A
notable element of the Chipotle business model is its Food With Integrity initiative: the
chain’s “commitment to finding the very best ingredients raised with respect for the
animals, the environment, and the farmers (“Chipotle Mexican Grill: What is Food with
Integrity”).” As of 2013, Chipotle operated a total of 1,595 restaurants located
throughout the United States, as well as abroad in Canada, France, Germany, and the
United Kingdom (See Exhibit D) (Chipotle Mexican Grill, 2013). In its 2013 Annual
Report and Proxy Statement, the company reported opening 185 new locations,
delivering revenue of $3.21 billion, and operating at margins of 26.6 percent (delivering
diluted earnings per share of $10.47) (See Exhibit E).

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The Start of Something Savory
CEO and founder Steve Ells was inspired to create Chipotle Mexican Grill while
living in San Francisco, working at Stars restaurant, and regularly dining in the city’s
mission-district, famous for its taquerias (“Chipotle Mexican Grill, Inc.,” 2012). In July
1993, Ells opened the first Chipotle Mexican Grill restaurant in his Denver, Colorado
hometown after securing an $85,000 investment from his father, Bob Ells, ex-president of
the pharmaceutical firm, Syntex Corporation (Thorn, 2003). This money helped Ells to
renovate the 800 square foot site, creating the first Chipotle Mexican Grill from what had
previously been a Dolly Madison ice cream shop (“Chipotle Mexican Grill, Inc.,” 2012;
Thorn, 2003). After initial setbacks with the restaurant’s configuration, Ells developed an
open-kitchen design with food-prep in the front of the restaurant (“Chipotle Mexican
Grill, Inc.,” 2012). This design gave customers the power to interact directly with the
kitchen staff and increased meal preparation transparency. All Chipotle locations utilize
this layout. Ells’ first restaurant served reasonably priced fare, ranging from $3.95 to
$4.95, and drink offerings such as beer and margaritas (“Chipotle Mexican Grill, Inc.,”
2012).
Chipotle Mexican Grill soon became a huge success, and with an additional $1.5
million investment by private stock offering and another $1.5 million investment from his
father (who made his initial $80,000 investment back within the first month of the
business’ operations), Ells was able to open two more locations in the Greater Denver
Metropolitan area in 1995, and six more during 1996 (“Chipotle Mexican Grill, Inc.,”
2012). Ells focused on expanding the business first to Denver’s urban and trendy
neighborhoods before moving into the suburbs (“Chipotle Mexican Grill, Inc.,” 2012).
Subsequent Chipotle Mexican Grill locations were much larger than the first restaurant,
covering 1,600 to 2,800 square feet and employing about 17 workers, each (“Chipotle
Mexican Grill, Inc.,” 2012). Ells and his staff paid special attention to both the menu
items and the restaurant’s atmosphere. Brand Gould, then-director of design and
development, explained in Ron Ruggle’s 1999 article, Steve Ells, “We’ve tried
consciously not to make the restaurant look Mexican or Southwestern in look. They are
aggressively contemporary spaces, very bright and well-lit.” Each location followed a

9
similar industrial design style with arched metal ceilings, concrete floors, halogen
lighting, and wooden benches and seats to accompany metal tabletops (“Chipotle
Mexican Grill, Inc.,” 2012). Chipotle restaurants continued to use these original features,
creating a unique interior design aesthetic.
Expanding through McDonald’s Stake
By 1997, Chipotle restaurant locations in the Denver area totaled 14 (“Chipotle
Mexican Grill, Inc.,” 2012). In an effort to seek funds to help accelerate the chain’s
growth, a member of the Chipotle board of directors sent an unsolicited business plan to
McDonald’s Corporation (“Chipotle Mexican Grill, Inc.,” 2012). In February 1998,
McDonald’s took a minority stake in Chipotle, which was the first time the chain
invested in an independent outside company for a restaurant concept (Edwards, 1998). In
partnering with Chipotle, McDonalds allowed the Chipotle management team to continue
to run the business, and helped provide the chain with the resources to expand outside of
Colorado. According to Ells, "McDonald's has allowed us to tap into resources to help us
grow into new markets… There are a lot of resources that McDonald's has provided for
us, such as real estate, purchasing and transportation, that have helped us. As for the
concept itself, McDonald's has had no influence. They bought into the concept of
Chipotle Mexican Grill, not with the idea of changing it, but with the idea of helping the
original idea to grow to more markets (Ruggless, 1999).”
By 1999, McDonald’s had increased its stake in the company to 90 percent and
the restaurant chain has expanded to 37 different restaurants (Lepore, 2011). These
included locations in Kansas City (in both Kansas and Missouri), Chicago, Cleveland,
Columbus, Dayton, Minneapolis, Phoenix, Dallas, and Washington, D.C (“Chipotle
Mexican Grill, Inc.,” 2012). Through this relationship Chipotle was able to benefit from
McDonald’s powerful distribution system (Thorn, 2003). In fact, revenues had nearly
tripled between 1997 and 1999, increasing from $13 million to $31 million, about a 230
percent increase from when McDonald’s first invested (“Chipotle Mexican Grill, Inc.,”
2012).

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Forging the Path to Food With Integrity
The Chipotle Mexican Grill chain continued its rapid expansion into the new
millennium, with the store count reaching 100 by the end of the year 2000, and 175 by
the end of 2001 (“Chipotle Mexican Grill, Inc.,” 2012). Around this time, Ells began to
change the menu, most significantly, switching to offering free-range pork that the
company sourced from Niman Ranch in Oakland, California (“Chipotle Mexican Grill,
Inc.,” 2012) (See Exhibit J). This move was only the beginning of Ells’ initiative that he
would later call Food with Integrity. Ells claimed that this change delivered a better-
tasting product to customers (Thorn, 2003). Although this change increased the price of
carnitas by $1 (from $4.50 to $5.50), sales continued to rise (Thorn, 2003). By the end of
2001, revenues had increased to $131.6 million (“Chipotle Mexican Grill, Inc.,” 2012).
Finding ingredients from natural sources proved to be a challenging endeavor for
Ells, who continued to upgrade the ingredients in Chipotle’s food. Besides focus on fresh
ingredients, the Food With Integrity initiative was concerned with the methods through
which farmers grew their crops and raised their animals (“Chipotle Mexican Grill: What
Is Food With Integrity”). However, a shortage of natural suppliers meant that the
restaurant chain simply could not provide 100 percent natural ingredients to all locations.
Although the switch from conventional yellow corn to organic white corn was successful,
with beans, Ells was able to find only 10 percent of the restaurant’s supply from natural
sources (“Chipotle Mexican Grill, Inc.,” 2012). In 2004, 50 Chipotle restaurants were
offering naturally raised chicken, and eight restaurants were serving naturally raised beef
(“Chipotle Mexican Grill, Inc.,” 2012).
Continuing Growth Post-McDonald’s
By 2004, Chipotle’s restaurant growth rate was around 100 units per year in 2004,
bringing the chain to almost 500 locations by the end of 2005 (“Chipotle Mexican Grill,
Inc.,” 2012) (See Exhibit F). Word-of-mouth methods such as “Free Burrito Day,” which
attracted as many as 2,700 customers to a single Chipotle location over a Christmas
holiday, were the core marketing strategy for the chain’s first seven years of business

11
(MacArthur, 2000). During this period, Chipotle had an overall budget of about $1.5 to
$2 million in terms of media expenditures (McArthur, 2000). However, when the chain
expanded to the Pacific Northwest and Florida, the company needed to broaden its
marketing approach. To accomplish this goal, Chipotle hired the New York office of
British ad agency Mother to create radio, print, and billboard ads that focused around a
foil-wrapped burrito (“Chipotle Mexican Grill, Inc.,” 2012) (See Exhibit G).
In January 2006, Chipotle went public on the New York Stock Exchange, and by
October 2006, McDonald’s had sold its five million shares, fully divesting from the
company (“McDonald’s Corp: Split,” 2006). Post-McDonald’s, Chipotle continued its
rapid growth, bringing its chain total past 700 restaurants in 2007 (“Chipotle Mexican
Grill, Inc.,” 2012). Ells’ Food With Integrity initiative remained active, with the company
making the full transition to hormone-free dairy products (“Chipotle Mexican Grill:
We’ve Got History”). By spring 2008, Chipotle restaurants were serving naturally raised
chicken in all restaurants, though only 55 percent were able to offer naturally raised beef;
25 percent of black and pinto beans came from organic farms (“Chipotle Mexican Grill,
Inc.,” 2012).
Chipotle went international in 2008, opening its first restaurant outside U.S.
borders in Toronto, Canada (“Chipotle Mexican Grill, Inc.,” 2012). During the fourth
quarter of that year, the company increased menu prices to accommodate the high costs
of the chain’s raw ingredients (“Chipotle Mexican Grill, Inc.,” 2012). Chipotle has
continued to institute price increases on a regional basis as food costs rose. The initial
price hike, unfortunately, coincided with economic downturn in the United States.
Nevertheless, Chipotle was still able to report its highest profit margin to date in 2009,
partially through its efforts to increase efficiency (“Chipotle Mexican Grill, Inc.,” 2012).
It boasted sales of $1.52 billion and a total net income of $126.8 million that year
(“Chipotle Mexican Grill, Inc.,” 2012).
In 2009, the company promoted Monty Moran, president and chief operating
officer of the company since March 2005, to co-CEO alongside Ells (Chipotle Mexican
Grill, Inc., 2012). This change allowed Ells to increase his focus on menu, restaurant
design, marketing, consumer outreach, and to find sources for his Food With Integrity
initiative (“Chipotle Mexican Grill, Inc.,” 2012). An embarrassment occurred for the

12
company in 2010, when the U.S. Department of Homeland Security discovered that the
chain had employed upwards of 500 undocumented workers (Jordan, 2011). In response,
Moran took part in lobbying Congress members to overhaul immigration laws, because
documented immigrant workers (with starting salaries that far exceeded minimum wage)
made up a large portion of Chipotle restaurant employees (“Chipotle Mexican Grill,
Inc.,” 2012).
As of 2014, the chain has continued to achieve innovative and commercial
success. Its website reports that Chipotle restaurants currently serve 100 percent naturally
raised pork, beef, and chicken in all locations, and furthermore, 40 percent of the
company’s bean supplies are organic (“Chipotle Mexican Grill: We’ve Got History”). As
of this writing, Chipotle has over 1,350 locations in the United States, alone (Jargon,
2013). In 2014 the chain reported 9.3 percent same-store sales growth in the fourth
quarter, and is planning to add anywhere from 180 to 195 new restaurants over the course
of 2014 (Gottfried, 2014; Wong, 2014).
Limited-Service Industry Background
From its inception, Chipotle Mexican Grill, Inc. operated within the limited-
service restaurant industry, specifically, the growing field of “fast-casual” dining. The
fast-casual dining segment refers to “convenient food with a focus on fresh, healthful
ingredients and customizable, made-to-order dishes” (“Company Profile,” 2015). Most
Chipotle restaurants are located in or in close proximity to shopping centers, or in
freestanding locations and locations in enclosed malls (“Company Profile,” 2015). As of
2015, the chain employed about 53,090 employees (“Company Profile,” 2015).
Within the United States in 2014, the restaurant industry market was
approximately $225 billion (“Company Profile,” 2015). Competitors include large
restaurant companies such as McDonald’s, Burger King, and Wendy’s (“Company
Profile,” 2015). In 2012, Chipotle ranked second of the top Mexican restaurants in the
United States (Lazich, 2014). The company ranked among the top fast-food companies in
2013, ranking fourteenth with 3.17 billion in revenue according to Market Share
Reporter. According to Standard and Poor, Chipotle Mexican Grill ranked fourth in the

13
industry, with a market value of about $21 billion in 2013. Unlike other restaurants in the
limited-service segment, Chipotle does not rely on franchising (Chipotle Mexican Grill,
2014).
As the Chipotle Mexican Grill chain had grown, founder and CEO Steve Ells has
been in the forefront of the restaurant’s development. As completely company owned and
run, the Chipotle restaurant chain relies greatly on its board of executives for its decision-
making (Chipotle Mexican Grill, 2013). Ells’ place in 2014 is in the kitchen and on the
farm; the CEO is primarily focused on testing new recipes for Chipotle (such as sofritas,
Chipotle’s new vegan protein option that uses braised organic tofu), and partnering with
farmers to continue to find sources of “Responsibly Raised” meats and sustainably grown
produce.
STEVE ELLS
Steve Ells, founder, chairman, and CEO of Chipotle Mexican Grill, Inc., was born
on September 12, 1965 in Indianapolis, IN (Brennan, 2010). The son of Syntex
Pharmaceutical Corporation executive Bob Ells, he spent his childhood in Boulder,
Colorado (“Chipotle Mexican Grill, Inc.,” 2012). Ells had a life-long interest in culinary
arts, and in many periodicals he describes spending his childhood in the kitchen with his
mother and grandmother, watching Julia Child on television instead of cartoons (“Steve
Ells,” 2010). After earning a degree in art history at the University of Colorado at
Boulder in 1988 he went on to study at the Culinary Institute of America (CIA) in Hyde
Park, New York (Brennan, 2010). With the kitchen training he received at the CIA, Ells
was able to find employment as a line cook at Stars restaurant, Jeremiah Tower’s fine
dining establishment in San Francisco (Thorn, 2003). While working at Stars, Ells often
ate at Mission District taquerias, and was inspired by their quick-service Mexican fare
(“Chipotle Mexican Grill, Inc.,” 2012). These experiences, along with real kitchen
experience under Chefs Tower and Mark Franz, motivated Ells to “sex up the burrito”
and open a small take-out business of his own (Thorn, 2003).

14
From Chef to CEO
Ells returned to Colorado to pursue this dream, and was able to open the first
Chipotle Mexican Grill in July 1993 (Brennan, 2010). The small space was in close
proximity to the University of Denver, and quickly became a hit with college students
and the surrounding community (“Chipotle Mexican Grill, Inc.,” 2012). In establishing
his first restaurant, Ells aimed to generate more refined fare than a Taco Bell or other
Mexican eateries, doing so by using fresh, raw ingredients as opposed to processed,
portioned, and previously frozen products (Brennan, 2010). Soon, the single restaurant
became a rapidly expanding chain that received critical financial help when McDonald’s
backed it for eight years (“Chipotle Mexican Grill, Inc.,” 2012). During this period, Ells
remained Chipotle’s CEO, and employed McDonald’s distribution system and business
data as a means to grow the company even more (Ruggless, 1999)
Over Chipotle’s 21 years of operations, Ells has added only two new items to the
menu, keeping the concept consistent with Chipotle’s initial offerings (“Chipotle
Mexican Grill,” 2013). With his culinary experience, Ells created all the chain’s recipes
and acts as the final judge of whether any menu alterations or additions go to market
(Taylor, 2007). Ells’ number one priority in Chipotle’s business is the food the chain
offers, in terms of the actual fare as well as the raw ingredients the company uses.
Ells’ Initiative
Through Chipotle’s growth, Ells began to learn details about the grim reality of
the food industry in the United States, namely, animal maltreatment, and environmentally
damaging factory-farming practices (“Chipotle Mexican Grill: Letter From Steve”). In
1999, Ells created the initiative that became known as Food With Integrity after visiting a
commercial pig farm and realizing the extent to which factory farm practices were
abusive towards animals (Czaplewski et al., 2014). Ells realized that he wanted Chipotle
to serve meals that were not only used fresh ingredients, but came from humanely treated
and naturally raised animals. Ells’ Food With Integrity initiative included commitments
to serve naturally raised meat; local, organic produce; and hormone-free dairy products

15
(Coomes, 2014). The company uses the term “naturally raised” to refer to free-range
animals on vegetarian diets without growth hormone or antibiotic additives (Czaplewski
et al., 2014). A 2007 Colorado Biz article quoted Ells: “When I see animals mistreated in
factory farms, I cry… The more transparent we are, the better the emotional bond with
our customers. There’s not one discussion, not one process that I’m ashamed of, that I
wouldn’t want our customers to know about. In fact, if they knew more about it, they’d
come more often. (Taylor, 2007)” In developing and growing the Chipotle chain, Ells
sought to work with sustainable family farmers, who produced hormone and antibiotic-
free meats and supplied organic and locally-grown produce (“Chipotle Mexican Grill:
What Is Food With Integrity”). To accomplish this initiative, Ells faced the challenge to
find farms that met Food With Integrity standards and were producing enough to even
partially supply a restaurant chain with over 1,000 locations.
In 2013, Chipotle reported, that, whenever possible, it used 100 percent naturally
raised pork, beef, and chicken; hormone-free dairy products; and sustainably-grown local
and organic produce (Chipotle Mexican Grill, 2013). With his continued emphasis on
natural sourcing, Ells had led the chain to have one of the highest food costs in the fast-
food industry: about 30 percent of operations (Phillips, 2011) (See Exhibit H). To offset
these costs, Chipotle has continually increased its menu prices, most recently at about 6.5
percent, on average (Jargon & Bekerman, 2014). The 2014 Chipotle meal price is double
(and can even be triple) the restaurant’s 1993 price point of four to five dollars. Even
with these price increases, customers continue to return. In 2014, Chipotle boasted a
same-store sales increase of 17.3 percent (Jargon & Bekerman, 2014).
The overwhelming customer support has motivated Ells to continue with natural
sourcing through the Food With Integrity initiative. Although Chipotle is able to naturally
source all of its meat, and is working diligently to secure organic and locally grown
produce, the process has proven to be been long and difficult. Even over a decade after
the chain launched Food with Integrity, Chipotle faces challenges with serving menu
items that meet its standards.

16
Food With Integrity
"We're on this journey to find the very best raw ingredients possible, a program
we call 'Food with Integrity', Ells said in a 2004 article in Restaurant Hospitality, "When
I started Chipotle, it was all about fresh, but we found that fresh isn't enough anymore.
You really have to understand how animals are raised and how produce is grown and the
impact not only on how items taste but also on the environment (Hochwarth, 2004).”
Chipotle has demonstrated that a fast-food chain can be environmentally friendly and
successful. Chipotle’s menu has remained consistent over the company’s 21 years of
operations; however, the restaurant’s supporting food chain has changed dramatically,
paving the way for other like-minded chains to pursue sustainable sourcing, as well
(Czaplewski et al., 2014). Ells’ decision to pursue natural sourcing for his restaurant
chain was not a difficult one as the CEO learned about how the United States food
industry treated animals. The larger issue that Ells, Chipotle, and all responsibly sourcing
restaurants must face in the 21st
century, is how to supply enough of this food to feed
their ever-expanding customer bases.
The Struggle to find Sustainable Suppliers
Logically, the first step Ells had to take when he conceived his Food With
Integrity initiative in 1999 was to find and contract farms that raised animals naturally.
These farms followed a different protocol than organic farms. According to Chipotle,
“naturally raised” are animals who eat an antibiotic-free vegetarian diet, and have access
to open pasture or deeply bedded pens (Kuchment, 2008) (See Exhibit I). These
requirements excluded any farms that raised animals in crowded indoor conditions, a
standard practice American farmers used to maximize their production levels and profits.
In 2000, after he read Ed Behr’s The Art of Eating Quarterly, Ells discovered
Niman Ranch, which was, at the time, a cooperative of about 75 small family farms
(Hochwarth, 2004; Taylor, 2007). He visited one of the network members, Paul Owens,
to observe Owens’ hog farm in person, and soon after, began buying natural pork from
Owens and other farmers within the network (Taylor, 2007). This partnership helped

17
Chipotle to become the first national restaurant to serve free-range pork, and helped
Niman Ranch to grow, as well (Hochwarth, 2004). With a contract from Chipotle, the
cooperative has grown in 2014 to a network of over 700 independent farms and ranches
built around humane and sustainable farming methods (“Niman Ranch: About Niman
Ranch”). According to Bill Niman, “Every time Chipotle added a restaurant, we could
add a new farm” (Black, 2008). After undergoing an “extensive process of tasting and
combining the right cuts of animal,” Ells chose to utilize leg and shoulder cuts for his
recipes (Hochwarth, 2004). This move benefitted Niman Ranch, as well, by providing a
strong market for pork products that were typically hard-to-sell cuts (Krummert, 2001).
The contract with Niman Ranch was just the beginning of Chipotle’s partnerships
with farming cooperatives, in 2005, Ells reached his goal of all natural pork sourcing
through his close work with chosen farms (Chipotle, 2005). As the chain continued to
grow and Chipotle’s demands for pork increased, Ells was on the move to source
naturally raised pork from all over the country. In 2006 he was able to contract for 5,000
pounds of pork per week with Heritage Acres after visiting Russ Kremer’s farm in
Frankenstein, Montana (Kuchment, 2008). In 2008, this contract had increased to 10,000
pounds, seven percent of Chipotle’s total pork supply (Kuchment, 2008). Chipotle also
agreed to work with Polyface Farm to source pork in 2007, after Ells and Monty Moran
(at the time President CFO of the company) travelled to Charlottesville, Virginia to
inspect the farm and make sure it met Chipotle’s standards (Black, 2008). Ells had
initially hoped to source chicken from the farm, but the quantity Chipotle restaurants
demanded was too high for Polyface farm to supply.
Collaboration and Compromise
Despite its challenges, natural sourcing was not always the trickiest part of the
Food With Integrity initiative. For example, Chipotle executives had to engage in 17
months of negotiations before Polyface could become a viable source for pork; owner Joe
Salatin needed to increase his supply and develop custom cuts of meat for the chain
(Black, 2008). Once Chipotle secured a source, Ells’ protocols on food preparation and
his high commitment to meet customer expectations required Chipotle restaurants to have

18
ovens and other specialized cooking equipment to accommodate pork braising to ensure
product consistency across Chipotle outlets (Black, 2008). Even transportation could be
an issue. While Salatin transported meats in ice-packed coolers, Chipotle had a strict
policy to use refrigerated trucking (Kuchment, 2008). The chain and the farm were
eventually able to compromise by using temperature strips Chipotle supplied to ensure
that Salatin’s ice packed coolers were keeping the product at an acceptable temperature
(Kuchment, 2008).
Though Ells’ initiative proved successful fairly quickly in terms of pork sourcing
(supplying naturally raised pork took about five years total), sourcing for naturally raised
chicken and beef would prove to be longer running endeavors, about 11 and 14 years,
respectively (Czaplewski et al., 2014). Ells used the same approach to source chicken and
beef, he networked and searched for natural farms. Big name chicken producers such as
Tyson and Bell & Evans (the largest natural chicken supplier in the United States)
assisted Ells in his crusade (Kuchment, 2008). Tyson created a naturally raised chicken
operation just for Chipotle’s restaurants, with 100 growers in southwest Arkansas raising
the birds (Kuchment, 2008). Even Panera Bread, the Chipotle chain’s strongest fast-
casual competitor, became involved. When Chipotle first approached Bell & Evans, the
company rejected the deal because of the chain’s preference for thigh meat, reasoning
that it would never be able to source enough chickens because of the lack of “carcass
utilization” (Czaplewski et al., 2014). Undeterred, Chipotle approached Panera Bread,
which only utilized breast meat in its recipes, to work together in terms of sourcing, thus
effectively sharing the product and allowing both chains an affordable and sustainable
sourcing option (Czaplewski et al., 2014).
In terms of naturally raised beef, Ells looked into sourcing as early as 1999,
seeking, as with Chipotle’s other meats, to partner with farmers who employed free-range
pasture methods and refused to use antibiotics and growth hormones (McWilliams,
2013). However, Ells found that fully sourcing naturally raised beef was more difficult
than chicken or pork, partly because of its demand level. Sources for Chipotle’s beef
supply through the years have included Niman, Country Natural, and Meyer
(McWilliams, 2013), and these suppliers have helped to solidify Chipotle’s reputation as
“the largest restaurant seller of naturally raised meat (Chipotle Mexican Grill, 2010a).”

19
Ells was able to use such sources for Chipotle’s dairy supply, as well, switching in 2006
to serving sour cream and cheese from hormone and antibiotic free pasture-raised cows
(“Chipotle to buy,” 2007).
Ells’ Food With Integrity does not simply apply to the animals, but to produce as
well. In 2008 the chain announced its plans to buy at least a quarter of its produce from
local and mid-sized farms when seasonably available (Ruggless, 2008). The company
enacted this change in all Chipotle restaurants, with produce sourcing generally coming
from within 250 miles of Chipotle’s regional distribution centers (Chipotle Mexican
Grill, 2010b). Similarly to meat sourcing, Ells sought out farmers who shared Chipotle’s
mission, visited their farms to ensure that they qualified, and worked to establish a
network of local farmers who could provide produce in their corresponding regions
(Ruggless, 2008). According to the chain’s website as of 2014, Chipotle served a variety
of produce that was either organic or locally and sustainably produced (“Chipotle
Mexican Grill: It’s all fun and games until someone wrecks a planet”)
The Conflict of Integrity
Although Chipotle was able to fully source all of its meats by 2013, and
continuously worked to expand its sourcing of natural produce, this strategy does not
apply to all Chipotle restaurant outlets at all times; the company is unable to implement
the strategy consistently. Because Ells and his company value transparency with
Chipotle’s customers regarding product sourcing, the chain is clear that the 100 percent
natural sourcing at Chipotle restaurants is not absolute, but rather, “whenever possible
(“Chipotle Mexican Grill: What Is Food With Integrity”).” In fact, in 2013, the chain had
to replace some of its supply of all-natural beef with “commodity” or factory-farmed
meat (Van Landingham, 2013). Chipotle restaurants that this replacement affected posted
signs informing customers that some of the meat served was conventionally raised (Van
Landingham, 2013). Ells has had to turn to a few different solutions to handle this issue,
for example, testing different cuts of beef to get more steaks from the ranchers’ supplies
(Van Landingham, 2013). Ells is also considering changing the chain’s “never-ever”
policy in terms of treating animals with antibiotics (Chipotle Mexican Grill, 2013). The

20
chain’s high quality produce has also required the chain to enact price increases
regionally as well as nationally. In growing his business, Ells has always understood that
the quality of the chain’s food must balance properly with the prices consumers are
willing to pay. He hopes that with increased restaurant growth will come increased
company flexibility in terms of sourcing, though the expectation remains that these
naturally raised and locally produced ingredients will always be more expensive than
their conventionally raised counterparts (Chipotle Mexican Grill, 2013).
As a leader for responsibility in the fast-food industry, Chipotle has truly made
great strides in terms of its sourcing, increasing its energy efficiency, and maintaining
strong customer relations. In March 2013, the chain became the first national restaurant
company to voluntarily disclose genetically modified organisms (GMOs) in the food it
serves (Chipotle Mexican Grill, 2013). However, consumers will not ignore the reality
that despite the chain’s pride in being environmental responsible, prices are still
increasing for ingredients that sometimes fall short of the restaurant’s own high
standards.
To develop the Chipotle chain, Ells must work to prioritize the different facets of
his business. Obviously, one Mexican fast-casual chain cannot change the whole face of
the American food industry. Restaurants can only do so much in terms of finding and
using environmentally responsible suppliers. Unfortunately, many farmers care much
more about the profits they can make through high production levels than the adverse
effects factory farming practices have on the animals, the environment, and even the
consumers. As of this writing, Food With Integrity has been a long battle in which the
Chipotle restaurant chain has done surprisingly well; however, with Chipotle locations
increasing on a national and global scale, Ells must decide what facets of the business are
most important. At this critical juncture in Chipotle’s long-term growth, Ells faces many
questions: Should the chain continue to provide for its large customer base by paring
down Food with Integrity; serving commodity products; and possibly utilizing meats that
contain antibiotics? At what point will consumers perceive a level of hypocrisy in this
sustainability strategy, considering the chain’s media lambasting of factory farming
practices? With Chipotle’s adamant stance on sustainability, should the chain, instead,
work to be an ideal in the industry, and simply refuse to serve ingredients that fall short

21
of its standards? Would consumers embrace this dedication to the environment as a
contribution to the greater good, or would they resent the inconvenience it may impose?
Ells’ initial goal was to open one restaurant; instead, he conceived and created a highly
successful and international chain, and, through Food with Integrity, the CEO made an
innovative call to action. The question remained; however, how would Chipotle answer
the call?

22
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29
Exhibit A:
Food With
Integrity
Signage in
Chipotle
Location
Source: https://gravitybitesdotcom1.files.wordpress.com/2013/02/chipotle-integrity-
menu.png
Exhibit B: Chipotle “Green” Marketing Efforts
Source: http://farmedanddangerous.com/

30
Exhibit C: Chipotle Physical Appearance
Source:
http://www.coloradanmagazine.org/wpcontent/uploads/2011/08/chipotle_chelsea_front.jp
g
Source: https://farm5.staticflickr.com/4074/4890532595_d839a0ac4c_o.jpg

31
Exhibit D: Chipotle Properties (2013)
Source: Chipotle 2013 Annual Report and Proxy Statement

32
Exhibit E: Revenues and 5-Year Cumulative Total Return (2013

33
Exhibit F: Annual Restaurant Count
Source: http://finance.yahoo.com/blogs/the-exchange/chipotle-stock-north-400-analyst-
164226909.html
Exhibit G: Print Advertisement
Source: http://social-brain.com/2009/10/17/burritos-and-your-brain-a-neuromarketing-
evaluation-of-chipotle%E2%80%99s-new-marketing-campaign/

34
Exhibit H: Chipotle Food, Beverage, and Packaging Costs
Exhibit I: Chipotle Operating Costs 2008-2013
Source: http://www.statista.com/statistics/221467/chipotle-restaurant-operating-costs/

35
Exhibit J: Food With Integrity
Source: http://www.chipotle.com/en-US/fwi/fwi.aspx

36
Exhibit K: “Welcome to Porktopia”
Source: http://www.awionline.org/pubs/Quarterly/sp03/0603p17.htm

37
A.B. FREEMAN SCHOOL OF BUSINESS
INSTRUCTOR’S MANUAL
TM-615-002
April 16, 2015
Elise Ingber
What factors affect environmental sustainability in the
restaurant industry?
This case study and corresponding literature review focus on environmentally
sustainable practices and their various impacts on businesses. In developing this case, I
chose to focus specifically on the food industry, particularly on the restaurant sector. The
food industry’s main profit drivers (yield maximization and cost reduction) have resulted
in significant adverse environmental impact. Although consumers have the freedom to
purchase some sustainably sourced food items, retailers and restaurants largely control
these food options.
My case study focuses on the Chipotle Mexican Grill chain of restaurants. As a
means to create an environmentally sustainable and morally sound business, CEO Steve
Ells switched to using naturally produced meats and produce in the chain’s offerings. My
literature review examines corporate social responsibility (CSR), explores its history in
business, and surveys scholars’ research on the specific impact of these practices on
businesses’ profitability. Then, it delineates the drivers and barriers to environmentally
“green” practices that are present both in the context of the food industry as a whole, and
in the restaurant industry specifically. As environmental degradation continues to grow as
a worldwide issue, business students should understand that the choices companies make
may have far-reaching and unintended consequences. The future of our natural
environment depends, in part, on how firms interpret their responsibilities to consider the
planet itself as an important stakeholder. This case study and literature review create a
forum for students to review and apply undergraduate-level business concepts such as

38
The Stakeholder Theory, Porter’s Generic Strategies, Porter’s Five Forces Analysis, and
the 7Ps model of services marketing.
Case Synopsis
Between the period of 1993 and 2014, Chipotle Mexican Grill grew from a stand-
alone Denver eatery to an international restaurant chain with over 1,500 locations.
According to founder and CEO Steve Ells, Chipotle Mexican Grill arose out of a simple
philosophy: food served fast without the “fast-food” experience (“Chipotle Mexican
Grill, Inc.,” 2012). Operating in the growing fast-casual segment of the restaurant
industry, the chain had a reputation for offering fresh, quick, and moderately-priced Tex-
Mex fare. Chipotle served these offerings in restaurants that mimicked fine-dining
establishments with open kitchen floor plans and other distinctive interior design features
(“Chipotle Mexican Grill: About Us”). One of the ways the Chipotle chain differentiated
itself from its fast-casual competitors was by emphasizing the menu’s ingredient sources.
Food With Integrity was a concept conceived by founder and CEO Steve Ells, who
insisted that the Chipotle chain use naturally raised meats, local and organic produce, and
hormone-free dairy products in its offerings.
In July 1993, Ells opened the first Chipotle Mexican Grill restaurant in his
Denver, Colorado hometown after securing an $85,000 investment (Thorn, 2003). This
money helped Ells to renovate the 800 square foot site, creating the first Chipotle
Mexican Grill from what had previously been a Dolly Madison ice cream shop
(“Chipotle Mexican Grill, Inc.,” 2012; Thorn, 2003). After initial setbacks with the
restaurant’s configuration, Ells developed an open-kitchen design with food-preparation
in the front of the restaurant (Chipotle Mexican Grill, Inc., 2012). This design gave
customers the power to interact directly with the kitchen staff and increased meal
preparation transparency. Chipotle Mexican Grill soon became a huge success, and by
1997 Chipotle restaurant locations in the Denver area totaled 14 (“Chipotle Mexican
Grill, Inc.,” 2012).
Chipotle was able to continue its growth through partnering with an unlikely ally
in 1998: McDonald’s Corporation (Edwards, 1998). The burger chain took a minority

39
stake in Chipotle, which was the first time McDonald’s had invested in an independent
outside company for a restaurant concept (Edwards, 1998). By 1999, McDonald’s had
increased its stake in the company to 90 percent and the Chipotle restaurant chain has
expanded to 37 different restaurants (Lepore, 2011). Though McDonald’s would go on to
fully divest in 2006, the corporation allowed the Chipotle management team to continue
to run the business and benefit from McDonald’s powerful distribution system (Thorn,
2003), which was invaluable in helping Chipotle Mexican Grill to expand outside of
Colorado.
The Chipotle Mexican Grill chain continued its rapid expansion into the new
millennium, with the store count reaching 100 by the end of the year 2000 (“Chipotle
Mexican Grill, Inc.,” 2012). Around this time, Steve Ells started to make changes to both
the Chipotle menu and the restaurant’s development direction. The partnership with
McDonald’s allowed Ells to conceive Food With Integrity and begin its development; the
chain used McDonald’s transportation resources to source free-range pork from Niman
Ranch in Oakland, California (“Chipotle Mexican Grill, Inc.,” 2012). Though this switch
resulted in a $1 price increase in the popular carnitas item, both Ells and the Chipotle
customer base believed that this natural sourcing tasted better (Thorn, 2003). An added
benefit was that compared to conventionally-sourced pork, the free-range pork had
decreased environmental impact.
Finding ingredients from natural sources proved to be a challenging endeavor for
Ells, who continued to upgrade the ingredients in Chipotle’s food even with the chain’s
rapid growth. The chain went public in January 2006, and opened its first international
location in Toronto in 2008 (“Chipotle Mexican Grill, Inc.,” 2012). Meanwhile, Chipotle
was able to make the switch to hormone-free dairy products in 2007, and in spring 2008,
Chipotle restaurants were serving naturally raised chicken in all restaurants (“Chipotle
Mexican Grill, Inc.,” 2012). With every accomplishment, however, still more work
remained.
In addition to its focus on fresh ingredients, the Food With Integrity initiative was
concerned with the methods farmers used to grow their crops and raise their animals.
However, a shortage of natural suppliers meant that the restaurant chain simply could not
provide 100 percent natural ingredients to all locations. These high-quality raw

40
ingredients also meant continual regional price increases for the restaurant chain.
Through working closely with independent farming cooperatives and other sustainable
suppliers, and by collaborating with firms such as Panera Bread, by 2013, the Chipotle
chain was able to supply all of its restaurant locations with naturally-raised meat
(Czaplewski, Olson, & McNulty, 2014). The chain also continuously works to expand its
sourcing of natural produce; however, these offerings were not available at all Chipotle
restaurant outlets at all times. Because Ells and his company valued transparency with
Chipotle’s customers regarding product sourcing, the chain was clear that the 100 percent
natural sourcing at Chipotle restaurants was not absolute, but rather, “whenever possible
(“Chipotle Mexican Grill: What Is Food With Integrity”).” When supplies were not
available, the chain had to serve either conventionally raised ingredients, or not serve at
all. These situations illustrated that over a decade after the chain had launched Food with
Integrity, Chipotle faced challenges with delivering menu items that met its standards.
Research Methodology
I compiled all of the research for the Chipotle Mexican Grill case study and
corresponding literature review from published sources, either online or in print. In
researching Chipotle Mexican Grill, I was able to garner a lot of the necessary base
information through publicly accessible sources such as online periodical articles and the
company’s own website. Because Chipotle Mexican Grill Chain had been a publicly
traded company for a decade, I was able to easily access its annual reports beginning in
2005 through the investor relations section of the chain’s website. To find in-depth
information about the specifics of the Chipotle chain’s history, I used online databases
such as ABI/Inform and Factiva. I was able to use these databases to other earlier journal
and periodical articles about the company and its practices. For 2014 restaurant industry
information, I also used online databases, including Business Source Complete and
Standard and Poor’s Net Advantage.
To write my literature review, I exclusively used books and peer-reviewed,
scholarly articles. When initially conducting my research, I performed a broad search of
my topic on online databases such as ABI/Inform, EmeraldInsight, and Google Scholar.

41
Through these databases, I was able to amass a large number of articles relevant to my
topic. Once I found these articles, I was able to analyze them to determine which writings
were the most applicable, and what authors were the lead researchers in the field.
Applicable Courses
This case study and literature review will be most relevant and beneficial to
undergraduate business studies in the fields of management and marketing. The case
touches on the subject of corporate social responsibility in relation to the firm’s strategic
direction. The case also emphasizes the role of these socially responsible practices in the
context of the company’s overall marketing mix and given value proposition.
Strategic Management
This case will fit well within undergraduate strategic management courses.
Strategic management courses are part of the curriculum for upper level undergraduate
students who are pursuing Bachelor of Science degrees in Management. At the point
when students take this course, they have fulfilled all of the business school pre-requisites
and are, therefore, able to develop their thinking regarding the various ways companies
can sustain competitive advantages within the marketplace. Before reading the case,
students should have at least a basic understanding of Porter’s Generic Strategies and
differentiation as a competitive strategy. The Chipotle case will be a good fit for strategic
management courses because it would require students to analyze the different
components that helped to form Chipotle’s differentiation strategy. The Chipotle case
will also offer a unique forum for students to analyze the Five Forces Model of
Competition present within the fast-casual industry because Chipotle has been able to
establish such a collaborative relationship with its suppliers.
Service Marketing
This case will also be appropriate for an undergraduate, high level marketing
course, such as service marketing. The Chipotle case will be especially appropriate for a
service marketing course because the subject matter of the case and literature review

42
relates to the food industry. The overall objectives of a service marketing course are to
teach students to identify and evaluate the techniques that firms use to satisfy customers
through manipulation of both the tangible and intangible aspects of the business. The
Chipotle case will encourage students to thoroughly evaluate how the 7Ps work together
within the chain’s marketing mix. Because of the complexity of the case, the professor
will likely have to introduce it later on in the course, once students have concrete
knowledge of customer service relationships.
Learning Objectives
The main objective of this case is to help provide students with an understanding of
corporate social responsibility and its effects on the marketing mix. Instructors often
teach students in a general sense about differentiation strategies and their effects on a
company’s marketing mix. This case is unique because it will allow students to develop
their knowledge of differentiation in the context of “green” marketing within the food
service industry.
This case can be useful as a means for students to explore Michael Porter’s Generic
Strategies. After reading this case, students should be able evaluate Chipotle’s business
model and compare it the chain’s competitors in the fast-casual and fast food restaurant
segments. Students should be able to recognize that Chipotle Mexican Grill uses a
differentiation strategy, and identify what specific elements of the Chipotle business
model make Chipotle a quality leader.
The Chipotle case study will also provide students the tools to help them to analyze
the competitive factors present in the fast-casual and fast food restaurant industry. The
Chipotle case is especially unique in its focus on how the firm created and developed its
relationships with suppliers, so students should focus on the firm’s micro-environment
and examine its forces of vertical competition.
The Chipotle case study is also an opportunity for students to explore the various
ways firms can differentiate themselves within the marketplace. Students should be able
to assess Chipotle’s positioning within the fast-casual and fast food industry, and
determine the actions the company engaged in to attain this positioning.

43
The Chipotle case will also be a useful tool to help students to analyze and apply the
7Ps Model of Services Marketing framework to a current, real-world business setting.
Students should be able to determine the marketing mix Chipotle utilized by identifying
the 7Ps of the chain’s business strategy.
Theoretical Linkages
The main theoretical frameworks that apply to the Chipotle Mexican Grill case
and corresponding literature review are Michael Porter’s Generic Strategies, Michael
Porter’s Five Forces Analysis, and the 7Ps framework of services marketing. Students
can apply all of these theories to evaluate the Chipotle Mexican Grill chain’s business
strategy, and students should have a solid understanding of these concepts before reading
the case.
Proposed Solution
In exploring the Chipotle case, the discussion focus should not only involve how Chipotle
was able to develop as a chain, but how it will continue its development. Below is an
example of an excellent student analysis of where the Chipotle chain currently stands and
its future options.
The Chipotle chain and its founder and CEO, Steve Ells, have made great
accomplishments in developing Chipotle Mexican Grill and its corresponding brand. The
restaurant chain has grown exponentially since its establishment in the 1990s, and has
become increasingly popular with consumers, especially the up-and-coming millennial
generation. This popularity stems from a number of aspects of the Chipotle business
model, namely, serving fast and fresh menu offerings; maintaining an affordable price
point; and using high-quality, naturally produced ingredients. The last factor, referred to
as Food With Integrity by Ells and the Chipotle chain, has been the hardest element for
Chipotle to develop and maintain.

44
In moving forward, the Chipotle chain has two viable solutions to the issues
associated with Food with Integrity. The most obvious one would be that the chain could
abandon its high standards and choose to primarily use commodity products as a means
to reduce the firm’s expenditures (both in terms of money and effort). Research has
shown that customers are primarily cost-sensitive, and though they may care about
environmentally responsible practices, their attitudes are not the main drivers of their
purchase decisions. If the chain were to take this route, however, it would have to
completely alter its marketing strategy, effectively re-positioning the restaurant.
Chipotle was able to differentiate itself from other fast food and fast-casual
restaurants through emphasizing its fresh ingredients. The chain developed a huge portion
of the Chipotle brand image by stressing the importance of Food With Integrity from both
a quality and social responsibility standpoint. Its “green” marketing practices have
allowed the chain to capture the segment of environmentally minded consumers who are
willing to pay high prices for the quality associated with environmentally sustainable
farming practices. Considering that the chain’s most recent marketing efforts have
positioned the firm as taking an adamantly anti-conventional farming stance, if Chipotle
were to choose to abandon or weaken the standards of Food With Integrity, the decision
would adversely affect Chipotle’s reputation as a green leader in the restaurant industry
and its brand equity would suffer.
The other approach Chipotle could take, and what the chain has been attempting
to do thus far, is to continue to maintain the high standards of Food With Integrity,
regardless of product supply availability. This method has led to the chain to experience
supply shortages and suspend serving specific menu items in certain locations. Although
these practices allow the chain to maintain its image as an uncompromising “green”
leader in the industry, they also adversely affect the chain’s own service standards.
Above all else, customers expect fast food and fast-casual restaurants to deliver
convenience. By adhering to its principals and refusing to serve popular menu items
when naturally sourced ingredients are unavailable, Chipotle has been operating outside
of many customers’ zones of tolerance.
The most effective strategy for the Chipotle chain to take would be to continue its
“green” marketing practices and voluntarily maintain its high sourcing standards to

45
position itself as a “green” leader in the industry. These efforts have helped the firm to
earn the high level of popularity it has grown to experience, and establish a
differentiation strategy that customers have supported. However, in researching the
specifics of Food With Integrity and its associated standards, I believe that the chain
could maintain this positioning even if it revised its rules slightly. Food With Integrity is
based on the ideals of both high quality and humane farming practices; however, even
organic farmers consider certain Food With Integrity limitations overtly strict. In the
future, Chipotle should focus on modifying its sourcing restrictions to increase the
scalability of its overall supply chain. Though Food With Integrity’s many standards are
certainly commendable, Chipotle should pick and choose which ones are truly the most
important in terms of ecologically sustainable and humanely produced ingredient
sourcing. As Food With Integrity stands now, its many rules may serve more to limit
possible suppliers than to increase product quality.
Case Analysis Suggestions
The following questions are suggestions for questions the professor can assign to
help guide the flow of classroom discussions. Each question has an accompanying
analysis.
1.) What source of competitive advantage did Ells rely upon when developing the
Chipotle business model?
a. What are some examples of the ways through which Chipotle was able to
differentiate itself within the fast-casual industry?
Michael Porter defines two basic ways through which a firm can sustain a
competitive advantage in its industry: cost leadership (supplying the lowest price) or
differentiation. In developing the Chipotle chain, Ells clearly focused on the
differentiation advantage, exhibiting quality leadership by offering fresh and sustainably
produced ingredients. In Chipotle’s value chain, the firm’s primary activity focus was its
operations. The Food With Integrity initiative made the supply chain more prominent

46
within Chipotle’s operations than it was in many other fast-casual and fast food
restaurants within the industry. This distinction helped the Chipotle chain to differentiate
itself through “green” marketing practices.
Outstanding Student Analysis
An outstanding student will not only note that Ells used differentiation as Chipotle’s
competitive strategy, but will also delineate the various means through which the chain
established itself as a quality leader. The student will identify specific “green” marketing
practices Chipotle employs. Additionally, the student may address how a change in its
product sourcing could affect Chipotle’s attained positioning.
2.) List examples of the “Five Forces” present in the fast-casual food industry and
evaluate how they affect the Chipotle chain.
The five forces of industry competition are threat of new entry, competitive rivalry,
threat of substitution, buyer power, and supplier power. In the context of Chipotle, threat
of new entry is low to moderate. Although thousands of new restaurants open every day,
over the course of two decades, Chipotle has been able to establish itself as a highly
successful international chain with a positive “green” brand image. Most emerging
competitors would find this positioning extremely difficult to replicate. Competitive
rivalry is extremely high in the fast food and fast-casual industries because cost-sensitive
consumers have such a wide variety of restaurants to choose from. This high threat of
substitution also arises our of other dining options for customers, like fine-dining
establishments and home-cooked meals. In general, the restaurant industry is highly
competitive given the low switching costs and fluctuating levels of customer loyalty
(students should note that although consumers may favor certain restaurants, they have a
tendency to seek variety and value convenience primarily).
For the Chipotle chain, buyer power and supplier power are both moderately high.
Chipotle may hold all the power in terms of its price setting, but its target customer
segment is cost-sensitive because the firm has positioned itself as being relatively low
cost. Its loyal customers could be prone to abandoning the chain if prices were to exceed

47
their expectation, especially if they perceive no correlation between the price increase
and food quality. Because much of Chipotle’s positioning in terms of brand image and
product is based on the quality of its ingredients, suppliers also hold a lot of power in the
relationship. When aiming to satisfy the standards of Food with Integrity, Chipotle is
much more dependent on maintaining quality relationships with its suppliers than other
fast food and fast-casual chains. As opposed to fast food chains that rely on commodity
sourcing, Chipotle is dependent on the limited availability and resources of
environmentally sustainable suppliers.
An outstanding student analysis should accurately evaluate and explain the
individual threat levels present in Chipotle’s segment of the food industry. Such analysis
should identify other fast-casual players as Chipotle’s main competitors. The outstanding
student should also identify how Chipotle’s commitment to Food With Integrity’s high
standards can affect its future relationships with suppliers. In addition, including outside
research on Chipotle’s actions in terms of the consequences of dropping its sub-par
suppliers, and chronicling suppliers’ opinions on such actions would be valuable for the
student to include.
3.) Analyze the chain’s positioning through a 7Ps service marketing mix perspective.
The 7 Ps of the service marketing mix involve the four fundamentals - product,
place, promotion, and price – whilst introducing three additional facets: people, process,
and physical evidence. In the context of Chipotle, the chain has established a product
with two main components: a fresh, relatively low-price meal, and quick and convenient
service. Chipotle has spread internationally, but its restaurants are often located in busy
urban and suburban areas where demand for quick, yet satisfying, meals is high. Chipotle
has relied on numerous types of promotions, moving from word-of-mouth, traditional
media, and experience-based marketing techniques to new wave technology that promote
its “green” marketing focus. The firm exhibits value-based pricing, although it may not
exhibit cost leadership, it does maintain quality leadership by supplying meals made from

48
fresh ingredients at relatively low prices. In terms of the physical evidence of Chipotle’s
marketing mix, the chain has established a unique product environment with its décor.
The menu offerings are distinct to the chain, from their physical appearance of their
packaging. The Chipotle chain has also exhibited a more process-oriented and people-
focused business model than other fast food and fast casual chains. For example, the open
kitchen style of the restaurants allows customers to interact directly with the employees
who are preparing their meals. This simple element allows Chipotle customers more
power over the meal preparation process than they have in most restaurants; additionally,
customers have more direct interaction with Chipotle employees than at other restaurants.
An outstanding student analysis will correctly identify and evaluate the 7Ps in the
context of Chipotle. The outstanding student could also assess how Chipotle’s marketing
mix experience has changed over the course of the chain’s development. An outstanding
student example would not overlook the fact that Chipotle did not begin to focus on
“green” marketing initiatives until several years into its established business. The
outstanding student could also explore the reasoning behind Chipotle’s decisions to
maintain consistency in some areas, such as décor and service-style, while changes
processes, for example, available menu items, in others.

49
Exhibits
The following two exhibits, Exhibit A: Porter’s Five Forces, and Exhibit B: 7Ps of
Service Marketing, serve to illustrated Michael’s Five Forces of Industry Competition
and the 7Ps model of service marketing.
Exhibit A: Porter’s Five Forces
Source: http://www.mindtools.com/media/Diagrams/porters-five-forces-2-new.jpg

50
Exhibit B: 7Ps of Service Marketing
Source: https://techtalkdotorg.files.wordpress.com/2013/02/7-ps-services-marketing.png

51
Teaching Schedule and Suggested Discussion Flow
The teaching schedule below will be applicable to strategic management courses.
Students will best learn from the case study and literature review when they read them
prior to class. Instructors should give students at minimum one week’s notice of the case
assignment and questions before the discussion takes place. The following teaching plan
covers one 75-minute class period, though teachers may alter the plan to suit the timing
and objectives of their specific classes.
1.) (00:00-00:10) The instructor should begin the discussion by asking students for a
generalized synopsis of what happened within the case. The instructor should
attempt to encourage participation by using open-ended questions such as those
below:
a. What are your initial thoughts about the case?
b. What are some questions that you would ask Chipotle’s founder and CEO
about the Food with Integrity initiative?
c. Do you take environmental sustainability into account when making
purchases? Why or why not?
The instructor may choose to introduce additional questions tailored to the course.
2.) (00:10-00:25) The instructor should then turn the conversation to the forces of
competition present within the food industry. Students can work together to
brainstorm about various players that represent the forces that affect Chipotle. The
instructor should ask students to perform the following analyses:
a. Identify the five forces and list examples within Chipotle’s industry.
b. Categorize what level of power these forces exhibit over Chipotle.
Students should be able to readily identify the five forces present: threat of new
entry, threat of competitive rivals, buyer power, supplier power, and threat of
substitution. The teacher may choose to have student groups present each
category to the class.
3.) (00:25-00:35) Once the students have completed this task, discussion should
focus on the specifics of students’ answers and the instructor should ask them to

52
analyze how the five forces affect a business’ strategy in general. The instructor
should consider asking the following questions:
a. What is the logic behind your ratings of the competitive forces?
b. How did these five forces affect Chipotle’s decision-making process?
The instructor may wish to augment these questions with their own.
4.) (00:35-00:45) Following this discussion, the instructor should ask questions that
will help facilitate student understanding of cost-leadership strategy versus
differentiation strategy. The instructor can use the following questions:
a. What are the benefits of a differentiation strategy versus a cost-leadership
strategy?
b. Why might a restaurant specifically choose to pursue a differentiation
strategy?
The instructor may also choose introduce additional or alternate discussion topics.
5.) (00:45-01:00) This instructor may use opportunity to encourage students to log
into the Chipotle website and explore the Food With Integrity section as well as
the “Restaurants” section. The website is one of Chipotle’s main “green”
marketing tools, and presents a lot of useful information about the restaurant’s
operations. The instructor may stimulate discussion with the following questions:
a. What did Ells specifically do to help establish Chipotle as a quality leader?
b. Through what ways does the Chipotle website exhibit examples of quality
leadership?
c. What are some advantages of “green” marketing?”
The instructor may also facilitate discussion of fast food and fast-casual
restaurants’ strategies in comparison to Chipotle through encouraging students to
explore other restaurants’ websites as well.
6.) (01:00-01:15) The instructor should end the class period with and open
discussion of students’ perceptions regarding Ells’ decisions in developing
Chipotle.
a. Is sustainable sourcing a long-term business strategy?
b. What are the chain’s possible next steps?

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