Chipotle's mission is to provide "Food With Integrity" using high quality, natural ingredients while maintaining affordable prices. Its business strategy focuses on increasing awareness of naturally-raised food, European expansion, supplier relationships, and minimal marketing expenses. Chipotle differentiates itself by making fresh, customizable burritos, tacos, and salads on site daily using natural ingredients. It has over 1,200 locations across North America and continues expanding globally. Financially, Chipotle has low debt, high inventory turnover, and strong returns on investment. However, rising costs may impact profits if not offset. Chipotle faces competition from other fast casual restaurants but maintains competitive advantages through its emphasis on food quality and ethical sourcing.

1. The Ballin’ Burritos
Kyl e Gra nt , Th e od o re K a t s ou l i s , L a u ra R i ke r, Emi ly S l o a n , Mi ke S my t h
CHIPOTLE BALANCED SCORECARD CASE PROJECT
December 13, 2012

2. Mission Statement
“Food With Integrity”
“Food With Integrity” is Chipotle’s commitment to finding our very best ingredients raised with respect
for the animals, the environment, and the farmers. Chipotle’s goal is to be a socially responsible company,
and to provide high quality food for its consumers. It makes every possible effort to use natural
ingredients to emphasize its commitment to maintaining its status as a “fast-casual” restaurant that
makes healthy food at an affordable price.
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3. Business Model
Strategy Description
Chipotle’s business strategy is comprised of four components:
1) To increase consumer awareness with regards to the importance and benefits consuming of
naturally-raised produce.
2) To vigorously seek out expansion into the European markets.
3) To continue to grow and foster new relationships with food suppliers.
4) To continue incurring only minimal amounts of expenses relating to marketing and other
advertising expenses.
Each of these elements helps Chipotle maintain its focus to run a business that creates a memorable and
healthy experience for each and every customer. The “fast-casual” style of Chipotle entices people to come
in and enjoy their meal at the restaurant or take it to go and have at home.
Differentiation of Products & services
Chipotle’s product line consists of:burritos, fajita burritos, burrito bowls, tacos, quesadillas, and salads.
Each item can come with chicken, pork, carnitas, barbacoa, steak, or simply vegetables. Extra sides
Chipotle offers include chips and guacamole. Additional toppings consist of: rice, beans, fourdifferent
types of salsa, sour cream, cheese, and lettuce.Quesadillas are made on request.Soft drinks and fruit
drinks are typically served at all restaurants, and some locations serve beer and margaritas.
In May 2010, Chipotleintroduced a children’s menu that proved popular and was soon put into effect at
most locations. The majority of the food is made on site in the individual restaurants. There are no
freezers, microwave ovens, or can openers at any of the locations.
Chipotle’s service is providing “Food with Integrity”combined with excellent customer service. It makes
conscious efforts to make food that is fresh and environmentally safe. Chipotle’s main product line is the
five menu items it offers internationally. Of course, some locations serve variations of the same drink and
meat options, but they all follow a consistent product focus.
Operations
All of the Chipotle restaurants are company-owned, not franchised. There are 1262 restaurants
throughout the United States and Canada, spread out over 43 states, Ontario, and Washington D.C. The
restaurant has even expanded into Europe, namely England in May 2010 and France in May 2012. In
2011, Chipotle opened an Asian-style “fast-casual” restaurant in Washington, D.C. to sell food inspired by
Thai, Malaysian, and Vietnamese cuisine. This new restaurant is in its testing period to determine
whether or not Chipotle will eventually want to expand this food style into more locations.
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4. Financial Analysis
“Food with Integrity” lies at the heart of Chipotle’s philosophy, and not surprisingly, it has increased
various costs in Chipotle’s financial statements. The important thing to focus on is whether or not these
costs are offset by the revenue and customer satisfaction. Some key aspects of the financial statements to
concentrate on are the financial leverage, efficiency, profitability, and return on investment. Chipotle is an
industry leader in its intangibles, like goodwill, in addition to being a pioneer in the new “fast casual”
industry.
One of the many great aspects of Chipotle is that it can easily cover any debt it incurs, which when
combined with its available cash and short-term investments (which amount to $456.2 million), make it a
very flexible company going forward. According to its 10K, Chipotle operated 1,230 restaurants as of
December 31, 2011 and planned on opening around 160 new establishments over the course of 2012. For
comparison, the company successfully opened 150 new restaurants in 2011 while only closing 4 in the
entire country. This is good because it shows the consistency and reliability of Chipotle’s management. In
general, any company that wants to be successful should try and keep their financial leverage as low and
manageable as possible. Chipotle is no exception as its 0.26 debt to equity ratio (TTM) puts it in the top
five percentile in its industry. In addition, Chipotle’s current ratio is an astounding 4.12! Restaurants can
easily go out of business for various reasons, so not having large amounts of debt is great because they
can remain flexible. These two statistics show that Chipotle is committed to being able to absorb any
unforeseen problems and to working to expand its locations across the globe.
Risks are an integral part of any company’s market analysis, and Chipotle does a great job of minimizing
its risks. With a beta of about 0.5, this company really understands how to plan and react when obstacles
arise in the world of business. Opening so many new restaurants, while losing so few, is a testament to
Chipotle’s ability to overcome the many risks that plague the restaurant business. In its 10K, Chipotle lists
some main risk factors as “delay or cancellation of new site development by developers and landlords,
which may become increasingly common during periods of economic uncertainty or tight credit; our
potential inability to locate and secure new restaurant sites in locations that we believe to be attractive;
and a lack of availability of, or inability to obtain, adequate supplies of ingredients that meet our quality
standards.” Again, Chipotle’s flexibility gives it a stellar reputation amongst landlords because they know
that if they lease out a space, they are going to get paid. Chipotle is a great company to work with because
of their pursuit of ethical integrity and their large bank account. Because they are not saddled by debt,
Chipotle can overcome the many risks of opening new restaurants. The one risk which they have no
control over is the cost and availability of their product. Their “Food with Integrity” initiative forces them
rely upon organic foods that are growing more expensive by the month.
Due to the fact that Chipotle provides its food fresh, the company does not have to deal with much
inventory. That being said, its inventory turnover stands at around 204.23 times per year. Both its stock
price and inventory turnover are to testament to how well Steve Ellis runs his company. If that was not
enough, Chipotle’s return on investment is in the top ten percentile of its industry at 21.70% (TTM). A lot
of this is due to the fact that Chipotle is very flexible and able to fund its own expansion. “While
operations continue to provide cash, our primary use of cash is in new restaurant development.” As was
said before, Chipotle sets the example in how to properly run a business in the “fast casual” industry.
Unfortunately, the ever-increasing cost of high-quality food and supplies may be detrimental to their
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5. business. Chipotle’s profit margin currently stands at about 10.5%, which is below the industry average of
13.3%. If Chipotle can find a solution to offset the increasing costs, then they will be able to keep
succeeding. Overall, what is evident is that Chipotle always wants to be prepared, and they understand
the importance of constantly taking action to ensure continued success.
Chipotle has been, and will continue to be, a very strong firm in financial markets. With a stock price of
over $267 (as of 11/29/12), this company provides a great model for others to follow in managing assets
and growing its business. Its 2011 EPS of $6.76 per share is great in comparison to its industry, which
averaged only $3.67 earnings per share. In addition, its EPS growth from the past quarter vs. the same
quarter from a year ago is a 19.47% increase, with projected EPS growth over the next year to be a
17.10% increase. This is not as good as it has been in the past for Chipotle, but it is still nonetheless a
strong statistic to keep an eye on. One piece of information that is a bit concerning is Chipotle’s price to
earnings ratio (P/E) of 31.47. This could be an indicator that Chipotle’s enormous growth over the past
few years might be slowing down a bit. Other competitors, such as Domino’s and Jack in the Box, which
owns rival Qdoba, have P/E’s of 23.3 and 19.1, respectively. Again, the P/E ratio is not in any way
indicative of how well a company is doing, but rather it is saying that the market likely views the stock as
being over-valued.
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6. Competitive and Business Factors
Industry, Trends, and Major Competitors
Chipotle prides itself on being a restaurant different from the typical “fast food” joints such as McDonalds
and Wendys. It is being categorized into a fast growing industry known as “fast casual.” It is currently the
fastest growing food industry, and it shows no signs of stopping. It was jumpstarted after the health food
craze began and more people looked to healthier alternatives to fast food. For most people, the “fast
casual” restaurants provided this. The industry has many different varieties of restaurants, including
Mexican food, Italian food, sandwich shops, and bakeries. With the growing amount of “fast casual”
restaurants being created, the industry shows no signs of slowing down. The major trends within the
industry include healthy food choices, menu diversity, using locally grown produce, and converting
known restaurants into the “fast casual” business model. Since the “fast casual” food industry is relatively
up and coming, Chipotle finds itself competing against two different sets of food franchises. Its direct
competition includes restaurants with the same types of food, such as Taco Bell Corporation, Moe’s
Southwest Grill, and other up and coming restaurants who look to sell Mexican food. Chipotle is also in
competition with other restaurant who sell food other than Mexican food. These include Domino’s, Jack
in the Box, and Sonic. Because of the ever growing competition from so many different franchises in the
food industry, Chipotle must continue with its current business strategy but devote enough time and
money into research and development into the changing trends of the industry.
Critical Success Factors (CSF)
In order to increase market share and be successful, Chipotle must be certain to continue pursuing the
current strategies that have worked for them. In addition to their initiative to serve healthier food
options, they are expanding their “Food With Integrity” campaign. This has fared well with customers,
who believe in sustainable food and supporting local farmers. By continuing with this campaign and
initiating others like it in the future, the Chipotle market share can be increased.
Strengths and Weaknesses
Strengths:
1. Current Market Standing
The firm’s biggest strength is its current market standing. It has a good following within the “fast casual”
industry, based on its successful campaigns to bring healthier food and support local farms with
sustainable farming techniques. This allows the restaurants to be competitive with other franchises
within the industry.
2. Innovative Menu
The food served Chipotle, although simple, allows for enough variety to satisfy many customers. The style
is set up like a Subway restaurant where the customer goes down a buffet style line and is able to
customize any food order with the main entrée, toppings, and sides they desire. By creating this kind of
environment to serve Mexican food, Chipotle was able to create a market niche for itself. The menu
continues to be updated with current market and social trends. For example, gluten free items have
recently been added to many locations across the country.
3. “Food With Integrity” Campaign – Social & Ethical Awareness
Consumers have embraced the Chipotle ideals and support the decisions that go along with the “Food
With Integrity” campaign. It highlights the company’s commitment to providing the healthiest food to its
customers, while also supporting the businesses of the local farmers. This combination has been a rapid
success for Chipotle, and the company will only continue building off of this reputation to show the high
standards of the company.
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7. 4. Quality of food
Chipotle prides itself on serving the healthiest, high quality food in the “fast casual” industry.
In 2000, they began serving only naturally raised pork which was followed in 2002 to their commitment
to serve only naturally raised chickens. Chipotle made headlines when they were the first restaurant to
start using zero trans fat oil to cook their food in. If the restaurants continue using high quality
ingredients and hiring members for their research and development team who are able to predict these
big trends before competitors, Chipotle will stay on top of the market.
Weaknesses:
1. Risk of Opening New Restaurants
Chipotle’s biggest weakness is the risks associated with a restaurant chain like theirs. Expanding
Chipotles and increasing sales and profits depends mainly on the ability to open new and profitable
restaurants. Because of the volatility of the economy and the rise of many other franchises similar to
Chipotle, this could lead to many unpredictable factors that hinder growth. Chipotle plans to open
between 155 and 165 new restaurants in 2012, but many factors that have prevented the opening of new
restaurants in the past may occur again; some factors include inability to find new sites, shortage of
construction workers and materials, and trouble with leasing. Conversely, if these new restaurants are
opened but fail to bring in revenue, it could negatively impact the existing restaurants. This is a major
weakness of Chipotle.
2. Volatility of Supply Costs
Since the health food market is ever growing and changing, it is hard to predict what the cost of food and
supplies will be. The menu at Chipotle relies on having the freshest and healthiest ingredients, so it will
have to be aware of the changing supply costs.
3. Higher Prices
The current customer base of Chipotle is willing to pay the slightly higher prices for the food served at the
restaurants. They understand the mission of Chipotle, and are willing to support it. However, persuading
new customers to the industry that paying slightly higher prices is worth it for higher quality food may
prove to be difficult.
4. Supplier Relationships
The criteria set forth by the “Food With Integrity” campaign limits the suppliers that Chipotle can utilize.
The suppliers must match the standards of high-quality, healthy, and naturally grown food. Since these
suppliers are vital to the company, it must be sure to form strong relationships that can last the duration
of Chipotle’s existence.
Competitive Threats
Chipotle faces many competitive threats from being a member in the rapidly growing “fast casual
industry”. Some of the threats include competition from new and existing restaurants in the industry who
want to succeed in the health food market, price wars with these competitors, substitutes or new ideas for
“fast casual” restaurants, and continued economic slowdown which would affect the number of
consumers willing to pay higher prices for fast food.
Opportunities for Competitive Advantage
Some opportunities that Chipotle has for competitive advantage is the continued branding and market
differentiation with their “Food With Integrity” campaign and the continuation of growth in their
industry. Both of these opportunities could mean increased sales and revenue for Chipotle in the future.
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8. Major Ethical and Social Responsibility Issues
The biggest ethical and social responsibility issues faced by Chipotle revolve around their “Food With
Integrity” campaign. Since Chipotle uses this as their central marketing campaign and pillar of the
restaurant, they must be sure to find food suppliers who match up to these standards. To be sure that
their restaurants are using the best available ingredients, Chipotle executives spend time with the farmers
in the fields where the crops are grown and where the animals are raised in order to guarantee it is being
done in an ethical and sustainable way. In addition, as of December 2011 all Chipotle restaurants were
serving only naturally raised meats. This is a big responsibility for the restaurant to maintain this
promise to its consumers so that it is viewed as ethical and socially responsible. Chipotle has done well
with their ethical and social responsibility in the past, and has been said to be one of the best companies
to work for. They are not only responsible with their consumers but they also treat their employees well,
which is a recipe for success.
Major Business Risks
The major business risks are aligned with the “weaknesses” of the restaurant, as discussed above. Their
risks center around the fact that continued success is solely based on opening new restaurants that are
profitable and thrive against all of the other competitors. There are many factors in the business cycle
that could hinder this growth and prosperity, all of which would be regarded as business risks for
Chipotle. Chipotle also runs the risk of failed partnerships with their suppliers. If anything were to
happen to hinder the relationships that Chipotle has with the farmers who supply their naturally grown
food, the restaurant’s operations would be at risk.
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9. Customer Analysis
The customer value proposition is to serve food fast, while using high-quality ingredients, in a friendly
environment.
Target Market
The target market is 18-34 year olds with at least a Bachelor’s degree. They belong to the upper middle
class because they need to have a high enough income where they can afford a $7 burrito. If they did not
have as much money to spend on food, they would more likely eat at Taco Bell or McDonalds, where they
can get more value. Also, it is important that they appeal to the working class because it is a popular lunch
spot. When workers have an hour lunch break, a meal at Chipotle perfectly fills that time slot by not being
too fast or too slow.
Strategies and Market Segments
Chipotle positions itself in the market with their slogan “Food With Integrity”. This means that they
appeal to the health conscious crowd, which is hard to do in today’s market. However, they are able to
appeal to the crowd that may not be as health conscious with their old marketing campaign of large
burritos for a reasonable price. This is a good value for the consumer, and something that is definitely
important for teenagers and young adults.
Market Share
Unfortunately, the restaurant industry does not accurately determine what share of the market Chipotle
has. All restaurants are grouped together in the restaurant industry, while Chipotle’s market is more
defined as “fast casual”. The market cap is a better indicator to determine how large of a competitor
Chipotle is and how they compare to other companies in their relative market. Chipotle has a market cap
of $8.31 billion, while McDonalds has one of $87.39 billion, Jack in the Box’s, owner of Qdoba, is $1.18
billion, and Yum!’s, owner of Pizza Hut, KFC, and Taco Bell, is $30.31 billion. This shows that Chipotle has
a relatively firm position in today’s market of “fast casual” restaurants, and its improvements and
marketing strategies likely will cause an increase in their share.
New Product Introductions and Product Plans
Although Chipotle is not introducing any new products to their current menu at Chipotle restaurants, they
have begun to break out into new markets. First, they have begun to expand globally. At first, Chipotle
restaurants were only in the United States.That being said, they have placed two in Canada and two in
London in recent years. Second, they have recently attempted to break into the Asian food market with a
new type of store called shop house stores. If they are able to create as good of a product in the Asian food
market as they did in the Mexican food market, they will become wildly successful. Both of these new
ideas are areas they look to expand on in years to come.
In terms of changes they are making to the Chipotle we know today, they are looking to open between
155 and 165 restaurants in the United States in 2012, in an attempt to make Chipotle available to more
people. They are also changing their slogan to “Food with Integrity” instead of the large burrito pictures
they have promoted in the past. This means they are making the switch from promoting the good value of
their food to the quality and naturalness of their food.
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10. Value Drivers
Brand Equity
Chipotle has one of the strongest brands in its industry because of the steps that management hastaken
since their founding. Through these efforts they have managed to create a strong, yet consistent brand.
However Chipotle did not achieve this through aggressive advertising as most other companies in their
industry, but rather through a few simple traditional advertisements which tell its simple story and
organic aspirations. Its strongest tools in this strategy areits efficient and complete use of its website
along with its in-store packaging and atmosphere.
This practice has led to Chipotle to generate a remarkable amount of word-of-mouth buzz;in which
Chipotle’s cuisine essentially sells itself. This result stems directly from founder Steve Ells’ belief that
“advertising is not believable”, and relies on tools such as word-of-mouth as well as free product
giveaways instead of traditional advertising. This, coupled with the small amount of advertising that
highlights the quality of Chipotle’s ingredients, Chipotle has been able to establish a very strong and loyal
customer base.
Quality
Chipotle recognizes that one of the things that separate it from its competitors is its ability to offer food
that is in league with a healthier lifestyle and to provide a fast-food option that differs from the norm,
thusit treats the quality of the ingredients as one of its most important value drivers. This a very stable
and well established company mission that goes on to influence every single Chipotle restaurant to use
naturally raised meats and fresh, local organic produce whenever possible. In 2011 it nearly doubled their
use of organic produce such as lettuce, peppers, and tomatoes, to nearly 10 million pounds. None of
Chipotle’s cheese uses any dyes or artificial flavors and is grated daily. In addition to keeping ingredients
fresh and limit waste in the stores, Chipotle makes fresh batches of rice every hour and the dressing is
made twice a day.
When it comes to meat, pork in particular, Chipotle not only meets USDA standards, but actually
surpasses them by implementing some of its own additions. Things like never feeding pigs antibiotics and
letting them sleep in padded pen are just two of many. It has boasted being able to serve 100% naturally
raised pork, chicken, and beef since 2011.
Chipotle’s emphasis on quality does not end with its supplies, but extends to its food preparation and
packaging as well. The bowls and napkins it uses are made from 99% recycled materials, while its basket
liners are merely unbleached slips of paper. When preparing guacamole,employees mash avocadoes by
hand as opposed to using a food processor, as well as marinating their naturally raised pork carnitas
overnight.
The combinations of all these various steps to maintain and improve quality has led to an
environmentally-friendly packaged, classically prepared, and great tasting product that offer customers a
better option to traditional fast food; it has led to “Food with Integrity.”
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11. Menu
People love to have the option to make things with their own personal preference of style and flavor. For
this reason, Chipotle has created an important value driver in their simple, easy to use, and customizable
menu options. In fact, they boast an incredible 65,000 potential combinations that can be chosen from as
they interactively make the dish of their choosing. Of course not every customer is in the mood for
creating their entire meal from scratch, so traditional restaurant style options are also available.
Culture
An important facet to any company is the facilitation and development of its employees and their
improvement as well as advancement. With this idea put into practice, Chipotle has added another value
driver in the form of its culture. “Identifying and empowering top performing employees” is an important
priority, says founder Steve Ells in order to develop future leaders from within. Under this system, the
best store managers, who often start on the service line making near minimum wage, may work their way
up to be coming “restaurateurs” who are commonly compensated six figures annually.
By rewarding its employees’ successes,Chipotle has not only paved a road for individuals to become
future executives, but has also added value to the employees through the opportunities it provides.
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12. Balanced Scorecard
Balance Scorecard Measurement Profile #1
Strategy Level
Measurement Name: Percentage Customer Retention
BSC perspective that measurement is included in: Internal Perspective
Measurement that is relevant to the firm’s strategy to: Menu Leadership – continued devotion to
making quality food, first to market new health trends.
Is this viewed as a leading (driver) or lagging (outcome) measure? Lagging.
Explain the logic underlying the measure. The goal for the “Food With Integrity” program is to attract a
loyal customer base and maintain its relationship with suppliers. This requires an understanding of
customers’ wants and needs in the “fast-casual” food industry. If Chipotle is successful in targeting
consistent customers, sales and brand allegiance will increase.
Data source – How would the firm collect this measurement information? Accounting information
system that will monitor customer activity and supplier history.
How often would the measurement be reported? Monthly.
Balanced Scorecard Measurement Profile #2
Strategy Level
Measurement Name: Revenue Growth
BSC perspective that measurement is included in: Financial Perspective
Measurement that is relevant to the firm’s strategy to: Expanding location base.
Is this viewed as a leading or lagging outcome? Lagging.
Explain this logic underlying the measure. The goal for expanding the location base is to spread
Chipotle’s message and increase its share in the market. This would lead to increased revenue growth.
Data source – How would the firm collect this measurement information? Accounting system that
will monitor revenue for individual locations.
How often would the measurement be reported? Monthly.
Balanced Scorecard Measurement Profile #3
Strategy Level
Measurement Name: Operations and Management Processes
BSC perspective that measurement is included in: Internal Perspective
Measurement that is relevant to the firm’s strategy to: Achieving operational efficiency.
Is this viewed as a leading or lagging outcome? Lagging.
Explain this logic underlying the measure. The goal for attaining operational efficiency is to allow
Chipotle to perform at its most effective level possible.
Data source – How would the firm collect this measurement information? Accounting system that
will monitor price and quantity variance in the supplies the company uses in production.
How often would the measurement be reported? Monthly.
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13. Balanced Scorecard Measurement Profile #4
Strategy Level
Measurement Name: Strategic Ingredients
BSC perspective that measurement is included in: Learning and Growth Perspective
Measurement that is relevant to the firm’s strategy to: Succeed in fostering a sustainable and
environmentally aware legacy.
Is this viewed as a leading or lagging outcome? Lagging.
Explain this logic underlying the measure. The goal for functioning as an environmentally aware and
sustainable company is to attract a consumer base that is likely to favor socially responsible companies
over alternative dining options. Using healthy and safe food will help Chipotle succeed its ultimate goal of
building a lasting brand.
Data source – How would the firm collect this measurement information? System that will monitor
how suppliers make their ingredients and how the food is then prepared to ensure that it meets Chipotle’s
high standards.
How often would the measurement be reported? Monthly.
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14. References
Chipotle 10-K Annual Report Filed on 02/10/2012
http://www.chipotle.com/en-US/fwi/fwi.aspx
http://www.chipotle.com/en-us/company/about_us.aspx
http://www.chipotle.com/en-US/chipotle_story/chipotle_story.aspx
http://www.chipotle.com/enUS/chipotle_story/where_did_we_come_from/where_did_we_come_from.aspx
http://chipotleburritobowl.blogspot.com/p/swot.html
http://finance.yahoo.com/q/co?s=cmg+Competitors
http://www.franchisehelp.com/industry-reports/fast-food-industry-report
http://www.franchisedirect.com/foodfranchises/fastcasualrestaurantfranchisestudy/14/260
http://www.ohiodominican.edu/uploadedFiles/Library/CoursePages/Courses/Bus/Bus498/SWOT%20
Matrix%20and%20Organizational%20Strategic%20Plan%20Paper.pdf
http://seekingalpha.com/article/901961-chipotle-gets-einhorned-why-david-einhorn-s-thesis-is-flawed
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