2. Individual Case Analysisfor:Chipotle MexicanGrill Curt Cordray 2
I. Part One – Executive Summary
A. Introduction
I was appointedbyChipotle’sseniormanagementtoprovide acurrentassessmentof the Mexican
segmentof the fast-casual diningindustryand,inparticular,Chipotle’scompetitive positionwithinthat
industry. Chipotleisakeyplayerinthe Mexicansegmentof the fast-casual diningindustry. A brief
reviewof mymethodologytothe analysisof the “Mexicansegmentof the fast-casual”Industry,
conclusionsdevelopedbasedonthatanalysis,identificationof the significantissuesfacingthe
company’scurrentstrategicapproach,and,the recommendationsthathadbeendevelopedaround
these conclusionswhichare focusedonthese strategicissuescanbe foundinthe followingExecutive
Summary.The toolsand actual outcomesof the analysiscan be foundinthe appendicesatthe endof
the report."
B. Conclusions
1. The fast-casual Mexicansegmentisdominatedbythree players:Chipotle,Qdoba,andMoe’s. It’salso
importantto include TacoBell,whichcurrentlyhas49% of the marketshare of the Mexicansegmentof
fastfood. Withoutevenincludinglocal Mexicanrestaurants,andsmallerchainssuchas BajaFreshand
CaliforniaTortilla,thissegmentiscompletelydominatedwithstrongplayers,whohave amuchstronger
capital,brandawareness,andmarketing power. The costof buildingandmaintainingafast-casual
restaurantinthe Mexicansegmentisalsoincrediblyhigh. A new entrantwouldalsohave tohave strong
supplychainmanagementskillsif theywerewantingtouse healthyfoodoptions,due tothe costof
organicfoodbeingsohigh. Withthe competitive rivalryandsaturationof fastcasual Mexican
restaurants,supplychainmanagementskillsneeded,andcostof maintainingarestaurant,thisisnotan
attractive industrytogetinvolvedwith. The dominantplayerswill easilybudgeyouout.
3. Individual Case Analysisfor:Chipotle MexicanGrill Curt Cordray 3
2. The differentiationinthe Mexicansegmentof fast-casual diningisveryweak. Almostall competitors
provide similarproductsina similarfashionof “throughput”service line.
3. The threat of the supplierissignificantlystrongdue tothat factthat organic vegetablesandhigh
qualitymeatare so expensive. Organicvegetablesandethicallyraisedmeatsalsodon’talwaysproduce
the same amountof yieldthata geneticallychangedcropyields.
4. The ease entryintothe fast-casual industryisverydifficult. Thisisdue to the fact that the cost of
openingupandmaintaina restaurantare veryhigh. Chipotle averagesdevelopmentandconstruction
cost to be around $800,000. The fierce competitivenessof the restaurantindustryshouldalsohinder
the entryof newcompetitors.
5. Shouldregulatoryinfluencesandgovernmentpolicychange toastrict law of GMO free,organic,and
ethicallyraisedcrops,thiswouldputMexicanfast-casual restaurantslike Chipotle andMoe’saheadof
the curve since theyare alreadyadoptingsuchpractices. Thiswouldalsoreduce the costof raw
materialssignificantly,due tothe newdemandforthese kindsof cropsandanimals.
6. Moe’sSouthwestGrill likelycompetitive movesislikelytokeeptryingtosaturate the marketthrough
franchising,inattempttoovertake fast-casual diningspotslike Chipotle andQdoba.
7. Taco Bell playsa seriousrole inthe Mexicanfast-foodindustry,byowning49% of the marketshare.
8. Qdoba’sisthe secondleadingMexicanfast-casual diningrestaurant. Theyare likelytobeing
advertisingnationally,andexpandingtheiroutreachacrossthe country. Chipotle alsoservesbreakfast
as a competitive strategy.
9. Taco Bell isthe low-costleadinthe Mexicansegmentof diningandTacoBell isthe overall leaderin
the market. Chipotle issecond,whichmediumprices,thenQdobaandMoe’s. Taco Bell alsoserves
breakfastasa competitivestrategy.
4. Individual Case Analysisfor:Chipotle MexicanGrill Curt Cordray 4
10. The keysuccessfactorsfor beingsuccessful inthe Mexicansegmentof fast-casual diningindustry
are: efficiency,havingasimple menu,havinganaestheticallypleasinginteriorinthe restaurant,strong
employeestaffing,strategicexpansion,andstrongsupplychainmanagement.
11. Chipotle’scurrentbusinessstrategyisbuiltaround:Servingafocusedmenuof burritos,tacos,
burritobowls(aburritowithoutthe tortilla),andsalads,usinghighquality,freshingredientsandclassic
cookingmethodstocreate great-tasting,reasonably-priceddishespreparedtoorderandreadyto be
servedone totwo minutesaftertheywere ordered,enablingcustomerstoselectthe ingredientsthey
wantedineachdishby speakingdirectlytothe employeesassemblingthe dishonthe servingline,
creatingan operationallyefficientrestaurantwithanaestheticallypleasinginterior,buildingaspecial
people culture thatconsistedof friendly,high-performingpeople motivatedtotake goodcare of each
customerand empoweredtoachieve highstandards,doingall of thiswithincreasingawarenessand
respectforthe environmentandwiththe use of organicallygrownfreshproduce andmeatsfrom
animalsraisedina humane mannerwithouthormonesandantibiotics.
12. Chipotle hasa winningstrategyinplace thatgivesthemasustainable competitiveadvantage over
the competition.
13. A SWOT analysisrevealsthatChipotle’sbiggeststrengthistheiruse of organicvegetablesand
ethicallyraisedandhighqualitymeats. Chipotle’sbiggestweaknessisitslackof supplychain
managementwhenitconcernsthe scarcityof organic foodsmakingthe costof foodmuchhigher.
14. The SWOT analysisrevealsthatChipotle hasopportunitiesinfranchising,breakfast,andtheir
cateringprogram.
15. Chipotle’score competenciesare:highqualitymeatsandvegetablesserved,simplemenuitems,
and itsefficiencywithservingcustomersquickly.
5. Individual Case Analysisfor:Chipotle MexicanGrill Curt Cordray 5
16. Chipotle preferstomarketthroughword-of-mouthpublicityfromcustomerstellingtheir
experiencestootherpeople. Chipotle typicallydoesmarketingfortheirrestaurantswhentheirentering
a newcommunity. Chipotle’sadvertisingandmarketingcostswere $44.4 millionin2013. They’re
biggestcompetitorinadvertisingandmarketingisTacoBell,whorunsa lotof national televisionads
and promotions.
17. The competitivestrengthanalysisshowsusthatChipotle andthe otherMexicanfast-casual
restaurantsall operate verysimilarly. TacoBell hassignificantleadoverthembyhavingstrong
advertisementpower,and undercuttingthe price of the fast-casual Mexicandiningspots.
18. The financial analysisrevealsthatsince 2009, food,beverage,andpackagingcosthave gone up
almost3%. Thisis mostlydue tothe cost of organicvegetablesandhighqualitymeatsbeingsohigh,
due to scarcity andthe lackof yieldthattheyproduce. Chipotlemustfindawayto reduce these cost,so
that theycan continue toshowa profitinyearsto come.
19. Chipotle hasa greatopportunitytospursalesand marketingthroughthe cateringprogramthat
theyrecentlylaunchedin2013. CateringallowsforChipotle toenterintonew customer’slife,without
thementeringintothe restaurant. Cateringiscurrentlyaround1% of average salesinrestaurants. With
bettermarketingandawareness,Ithinkthiscanprovide aboostin salesforChipotle andcreate more
brand awareness.
20. Chipotle mustcontinue tobuildcustomerawarenessof the prosand consof ingredientsgrownwith
geneticallymodifiedseeds,the prosandconsof organicallygrownfruitsandvegetables,the reasons
people oughttoconsidereatingmeatsthatcome fromanimalsraisedhumanelyandwithoutthe use of
antibiotics,the benefitsof eatingnutritiousfoods,andthe reasonsChipotleissodeeplycommittedto
itsFood withIntegritymission. Usinghighqualityvegetables,ingredients,andmeatsisone of the
6. Individual Case Analysisfor:Chipotle MexicanGrill Curt Cordray 6
sustainable competitiveadvantagesthatChipotle has. Chipotle mustcontinuetobuildawarenessof
whythese thingsare important,totry to attract new customers,as well asretainingold.
21. The cost of developingandconstructingnew restaurantsisunsustainable forChipotle. Competitors
will be able toquicklyoversaturate Chipotle throughfranchising. The comparable –restaurantsales
increase hascontinuedtodecrease fromyeartoyear.
C. Strategic Issues
1. The cost of food,beverages,andpackinghasrisenfrom30.7 percentin2009, to 33.4 percentin
2013. Thisis due to the risingmarketpricesfororganicallygrowningredientsandnatural meats.Inthe
longrun, thisposesaveryseriousthreatforChipotle if changesaren’tmade swiftly. Chipotle willbegin
to see theirrevenue decline if thisisn’taddressedappropriatelywithinthe supplychainmanagement.
2. Chipotle doesverylittlenational marketingandadvertising. Chipotle mostlyusesword-of-mouth
publicityfromcustomerstoshare theirmessage,butare missingalarge marketshare fromconsumers
whohave neverheardof Chipotle,ormaybe have hearda badexperience,ratherthan a goodone. Taco
Bell isdominatingthe national advertisingof the Mexicansegment,whichstealscustomersstraight
fromChipotle.
3. Chipotle isn’tbuildingupenoughbrandawarenessof itskeycompetitive strategy: highquality
meatsand vegetables. Customerswhoare unfamiliarwithChipotle have noideajustthe kindof quality
meatsand vegetablesChipotle trulyuses. Consumersalsodon’thave agoodunderstandingof why
these highqualitymeatsandvegetablesare important. Chipotleneedstodoa betterjobat informing
the consumeraboutthe pros and cons of the foodstheyconsume. Chipotle paysWAYtoomuchmoney
for these meatsandvegetablestonothave theircustomersunderstandthe importance.
7. Individual Case Analysisfor:Chipotle MexicanGrill Curt Cordray 7
4. The cost of developingandconstructinganew restaurantwill eventuallybecomeunstainable,and
cause Chipotle profitstotake abig hit. Chipotle willeventuallybe behindthe packinthe amountof
fast-casual Mexicanrestaurants,due tothe competitorsofferingfranchisingoptions. This takesamajor
financial loadoff the competitors,andisan opportunitythatChipotleisnotoffering.
5. Chipotle iscurrentlymissingoutonthe marketshare forbreakfast. Chipotle hasthe potentialto
marketto newcustomerswhoare lookingfora quickand healthybreakfast,whichcouldbringina
substantial amountof profitforChipotle. Currentlythe onlyfast-casual Mexicandiningareasserving
breakfastare Qdobaand Taco Bell.
D. Recommendations
1. My firstrecommendationistobuildbetter relationshipsandcontractswithorganicfarmersand to
buyout local farmersand themsolelyprovide youringredientsandmeats. Thiswill helpcutthe cost of
food,beverage,andpackage dramatically. The competitive edgethe Chipotle hasoveritscompetitionis
the highqualityof meatsand vegetablesituses. Chipotle cannolongerrisktolose revenue due tothe
everfluctuatingcostof these rawmaterials. Creatingcontractswithafixedcostwill keepthe pricesof
these meatsandvegetablesata fair costfor boththe farmerand Chipotle. Buyingupsurroundinglocal
farmsthat will provide the propermeatsandvegetablescutsthe middlemanoutof the equation,and
givesChipotle theirownfarmsthattheycan take care of,cuttingcost in the long-term. Thiscouldalso
helpwithqualityassurance andfoodsafety,havinginspectingtheirowncropsandmeatsregularly.
Theycouldthendatabase these cropsand animals,makingsure theyknow where eachcropcomes
from. This cuts downonhavingsicknessessuchasE.coli and salmonella. Thisrecommendationisbased
off of conclusion#18 and strategicissue #1.
8. Individual Case Analysisfor:Chipotle MexicanGrill Curt Cordray 8
2. My secondrecommendationisthatChipotlebegintomarketnationally. ThisopensChipotle upto
newcustomerswhomaynot evenknow whatChipotle is,orwhohave neverhadanyinterestingoingin
to a Chipotle. Thiscouldalsohelpbringinnew customerswhomayhave heardsomethingbadabout
Chipotle fromword-of-mouthpublicity. Currently,TacoBell dominatesthe Mexicansegmentof dining,
and national advertisingcouldhelpChipotle take customersawayfromTaco Bell. Thisrecommendation
isbasedof conclusion#16 and strategicissue #3.
3. My thirdrecommendationistoplace a largeremphasisoncatering. Chipotleonlyaverages about1%
of cateringsalesperyearlysales. Cateringisafantasticwayto market,while makingmoney. Catering
allowsforChipotle toenterthe livesof consumerswhowouldn’tnormallygointoa Chipotle restaurant.
Cateringbuildsbrandawarenessandintrigueintoanew consumer’s life. If the consumerisimpressed
withjustthe cateringservice,howmuchmore impressedwill theybe whentheyactuallyentera
Chipotle restaurantandexperience the friendlinessandhospitalityof the Chipotle staff. This
recommendationisaresponse toconclusion#19and strategicissue #2.
4. My fourthrecommendationtoChipotle isthattheyneedtomake consumersmore aware of the pros
and consof highqualitymeatsandvegetables. Whenconsumersdon’tunderstand whyit’simportant,
theydon’tunderstandyourbrandand whytheyshouldkeepchoosingyouoveryourcompetitors.
Chipotle needstolaunchmarketingcampaignsthatallow the consumertobe informed,andwantto
come back to Chipotle fortheirownhealth. Alongwiththisconcept,theyneedtoalarmcustomersthat
theydon’tcurrentlyhave thattheydo have these highqualitymeatsandvegetables. Chipotle mustdo
a betterjobbrandingtheirawarenessof healthandwellnessforeveryhumanbeing,aswell ashumane
animal rights. Thisrecommendationisaresponse toconclusion#20 and strategicissue #3.
5. My fifthrecommendationtoChipotleistofranchise. Franchisingwill dramaticallycutthe cost of
developingandconstructingnewrestaurantsforChipotle. Itwill alsoallow Chipotletokeepupwiththe
9. Individual Case Analysisfor:Chipotle MexicanGrill Curt Cordray 9
oversaturationof the fast-casual Mexicanrestaurants. Ipropose thatChipotle have strictguidelinesof
howthese storesare ran by management,andwhere these restaurantsare strategicallypositioned.
Chipotle likesthe control andsaythat theyhave overtheirrestaurants,whichcontributesalotto their
success,andallowingeachcustomertohave the same experience ateveryChipotle worldwide. With
strict guidelinesandfollow up,Chipotlecanstill be successfulatbeinginunisonwitheveryrestaurant,
and keepingeveryChipotle consistent. Thisrecommendationisaresponse toconclusion#21 and
strategicissue #4.
5. My fifthrecommendationistobeginservingbreakfastatChipotle. Currently,the breakfast
marketinginthe Mexicansegmentof fastfoodisheldbyQdobaand Taco Bell. Chipotle hasanamazing
opportunitytobranditself asa healthyandfastbreakfastoptionoveritscompetitors. Thiswill allowfor
more revenue tocome, while coststill remainrelativelylow,due tothe similarmenuoptionsandthe
simplicityof the breakfastmenu. Thiswill alsoattractnew customerswhoare lookingfora healthyand
quickbreakfastaswell. Thisrecommendationisaresponse toconclusion#8and #9, as well asstrategic
issue #5.
10. Individual Case Analysisfor:Chipotle MexicanGrill Curt Cordray
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II. Part Two – Analysis
A. An analysis ofthe industry in whichChipotle operates:
Industry
Thisanalysiswill investigate how ChipotleMexicanGrill competesinthe fast-casualdining
segmentthatincludesMexicanfood. ThisincludesrestaurantssuchasMoe’sSouthwestGrill,Qdoba
MexicanGrill,andTaco Bell viathe Mexicanfoodsector.
Economic Dominant Factors
Market Size: Restaurantindustrysaleswere forecasttobe a record-high$683 billionin2014 at 990,000
foodestablishmentsinthe UnitedStates. The compoundaverage growthrate isforecastat 3.9 percent
since 2010. The fast-casual segmentrepresentedlessthan2% of foodestablishmentsinthe United
Statesand accountedforabout 5% of total industry. Fast-casual restaurantswerethe fastestgrowing
restaurantcategory,havingboostedtheirshare of all quick-service restaurantsalesfrom5to 15 percent
overthe past 10 years. Traffic at fast-casual restaurantswasup6% in 2010, 6% in 2011, 8% in2012, and
9% in 2013, while quickservice restaurantsrate remainedflat. 85 percentof consumerssurveyedsaid
theyate at fast-casual restaurantsatleastonce permonth.
Degree of Product Differentiation: The productdifferentiationisn’tnecessarilyinthe foodforthe fast-
casual diningindustry,butratherthe waythat it ispresented. Consumersare presentedwithhigh
qualityfoodthatisservedquickly,andisinexpensive. Consumersare alsopresentedwithapleasant
and invitingdiningroom,thatallowsthe consumerhave anenjoyable experience,differentfromthat of
a quick-servicerestaurant. Consumersare alsopresentedwithhealthier,organicoptionsfrom
restaurantslike Chipotle andMoe’sSouthwestGrill. Chipotle offersGMO-freemeatandall organic
11. Individual Case Analysisfor:Chipotle MexicanGrill Curt Cordray
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vegetablesandfruits. Chipotlegoesthroughaseriesof regulationstomake sure thateach animal that
istreatedwithethical care. Moe’sSouthwestGrill alsousesall natural,andcafé free chicken,steroid-
free andgrain-fedpulledpork,100% grass-fedsirloinsteak,andorganictofu. These restaurantshave
differentiatedthemselvesbyprovidinghighquality,andethicallytreatedmeatsandvegetables,atalow
cost for the consumer.
Buyers: The amountof buyersinthisindustryisenormous,due tothe fact that everyone hastoeat.
The forecastfor salesinthe restaurantindustryisat record-highwith$683 billionprojectedin2014.
64% of consumerssaidtheywere more likelytovisitarestaurantthat offeredlocallyproduceditems;
72% saidtheywere more likelytovisitarestaurantthat offeredhealthierfoodoptions;and54% said
theywere more likelytovisitrestaurantspursuingenvironmental sustainabilityinitiatives.
Scope ofCompetitive Rivalry: Chipotle competeswithnational andregional fast-casual,quick-service,
and casual-diningrestaurantchains,aswell aslocallyownedrestaurantsandfoodservice
establishments. The number,size,andstrengthof the competitorsvariedbyregion,local marketarea,
and a particularrestaurantslocationwithinagivencommunity. There are a multitude of dining
establishmentsthatspecialize inMexicanfood. The leadingfastfoodchaininthe Mexican-style food
categoryis Taco Bell. Chipotle’stwo biggestcompetitorsinthe fast-casual segmentwere Moe’s
SouthwestGrill andQdobaMexicanGrill. Twosmallerchains,BajaFreshandCaliforniaTortilla,were
alsocompetitorsina small numberof geographiclocations.
Ease of Entry/Exit: The ease entry intothe fast-casual industryisverydifficult. Thisisdue tothe fact
that the cost of openingupandmaintainarestaurantare veryhigh. Chipotle averagesdevelopment
and constructioncostto be around $800,000. The fierce competitivenessof the restaurantindustry
shouldalsohinderthe entryof newcompetitors. Evenremovingthe fast-casualsegment,youstillhave
12. Individual Case Analysisfor:Chipotle MexicanGrill Curt Cordray
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competitorsinthe quickservice industry,gourmet-dining,etc.youstill have alotof restaurantstryingto
getyour attention.
Porters Five-Force Analysis
Threat of New Entry: The threatof newentrantsislow. Despite the restaurantindustrybeing$683
billiondollarindustry,the capital thatistakesto developandmaintainisveryhigh. The fierce
competitivenessinthe industryisalsoveryhigh. Youmusthave a lotof capital or a strong differentiator
helpyoube profitable inthe industry
Threat of Buyer Power: The buyerpowerinthe fast-casual industryismedium.The buyersdon’tobtain
the powerto drive the pricesof the meal down,due tothe fact that all humanbeingshasto eat. The
pricesof the fast-casual mealsaverage to$7.40. 85% of consumerssurveyedsaidtheyate ata fast-
casual restaurantat leastonce a month. The factor that makesthe force of buyingpowermediumis
howmany foodoptionsthe buyerhas. The buyercouldveryeasilyswitchfromyourrestaurant,toa
differentrestaurantoption. The buyeralsohasthe abilitytomake theirownfood,andtotallyskipout
on goingto anyrestaurantoption.
Threat of Competitive Rivalry:Competitiverivalryisastrongforce in the fast-casual industry. The fast-
casual industryissaturatedwitha numberof capable competitors,especiallyinthe Mexicanfood
segmentthatChipotle isin. CompetitorslikeQdobaandMoe’sSouthwestGrill offerverysimilarmenu
options,andeveninclude perksthatChipotle doesn’tinclude,suchasMoe’sofferingfree chipsand
salsawitheverymeal forfree. The Mexicanfood,fast-casual industrymustpositionitself inthe heads
of the consumersthatit ismore superior tothe otherrestaurants. Taco Bell alsoplaysanimportantrole
incompetitive rivalrybyofferingsimilarproductsata much cheaperprice. There are also local Mexican
restaurantsthat offerasimilarormore extensive menuthanChipotle.
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Threat of Substitution: The threatof substitutionisveryhighinMexicanfood,fast-casual industry.
Withsuch highsaturationinthe foodindustry,restaurantsandfoodchainsare constantlytryingto steal
youaway fromthe othersegmentsandrestaurants. Consumersaren’talwayscravingMexicanfood,
eliminatingChipotleoranyof the otherMexican,fast-casual diningspots,fromtheirdecisionprocess.
These Mexican,fast-casual diningspots,canbe easilysubstitutedforaMcDonalds,Wendy’s,orany of
the othersimilarMexicandiningspots.
Threat of SupplierPower: The threat of supplierpowerisverystrongconcerningthe Mexican,fast-
casual dining,especiallywhenitconcernsorganic,GMO-free meats,andlocallygrown,whichChipotle
and Moe’sbothuse. There are ongoingchallengesconcerningsuppliesof organicproducts,locally
grownproduce,and natural meatsbeingconstrainedbecauseconsumersare purchasinggrowing
volumesof these itemsattheirlocal farmers’marketsandsupermarketsandbecause the chefsatmany
fine-diningestablishmentsare makingconcertedeffortstoincorporate organic,locallygrownproduce
and natural meatsto theirdishes. The costincurredbyorganic farmersandby those raininganimals
naturallyare typicallyhigher. Organiccropsalsotake longertogrow,and have a loweryield than
nonorganic. Consequently,supplydemandwill periodicallybe imbalancedandproduce market
conditionsunderwhichcertainorganicproductsandnatural meatsare sometimeseitherunavailable or
prohibitivelyhigh-priced.
Drivers of Change
Regulatory InfluencesandGovernmentPolicyChanges: Shouldpoliciesbe changedconcerningorganic
vegetables,GMO-free vegetablesandmeats,cage free animals,etc.companieslikeChipotleandMoe’s
are alreadyaheadof the curve. This iswouldalsocultivate anew landscape of farmerswhohave touse
ethicallysoundmethodsandorganicfood,andsell torestaurantsandfoodchainsalike. Thiswould
14. Individual Case Analysisfor:Chipotle MexicanGrill Curt Cordray
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drive downthe pricesof organicfoodsand meatsforMexican,fast-casual diningrestaurantslike
Chipotle andMoe’s,reducingtheircost. In2013, 33.4 of Chipotlescostwasaccountedfororganically
growningredientsandnatural meats.
ChangingSocietal Concerns,Attitudes,and Lifestyles: If societymade astrongerefforttoeat ethically
and more organically,Chipotle couldseeanincrease insales,due to theircompanyalreadybeingonthe
forefrontof healthyandethical eatinghabits. If societybecame more aware of GMOs,steroids,caging
of animals,etc.saleswouldbe huge inthe marketsof Mexican, fast-casual dining.
Marketing Innovations:Buildingabrandin the foodindustryisveryimportant. All of the Mexican, fast-
casual restaurantshave all done an excellentjobatdoingthat. But, one of themmust become the clear
leader of the pack. Whether it’s by oversaturation, having the best product, being the most efficient,
etc. these restaurants must come up with a marketing campaign that truly exemplifies its true
superiorityoverthe othercompetitors. The marketingcampaign must be memorable, and relatable to
the consumer.
Strategic Moves of Rivals
Moe’sSouthwestGrill:
There are currently500 fast-casual Moe’sSouthwestGrill locationsin37 statesand the District
of Columbia. Mostof these Moe’slocationsare franchises.
Moe’scurrentlyisplannedtoopenup100 new restaurantsin2014.
Moe’suseshigh-qualityingredients,whichincludesall-natural,cage-free,white breastmeat
chicken;steroidfree andgrainfedpulledpork;100% grass-fedsirloinsteak,andorganictofu.
None of the dishesthatMoe’sservesinclude trans-fatorMSG.
Moe’sis likelytokeeptryingtosaturate the marketthroughfranchising,inattempttoovertake
fast-casual diningspotslikeChipotle andQdoba.
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Moe’shas the fundingtocontinue toexpandandadvertisingdue tothe ownershipof their
parentcompany,FocusBrands.
Qdoba MexicanGrill:
Qdobais the second-largestfast-casual Mexicanbrandinthe UnitedStatesas of early2014
As of 2013, there were 615 QdobaMexicanGrill restaurantsin46 states,the Districtof
Colombia,andCanada.
Qdobamanagement believesthattheyhave long-termgrowth,andcanopenas many as 2,000
locations.
Qdobais likelytofollowthe managementbelief of expansion,andtryto saturate the market
throughfranchising.
Qdobais yetdo undergoanysort of national advertisingor promotion. IexpectQdobatobegin
to advertise nationallytobuildbrandawarenessandgenerate customertraffic.
Taco Bell:
Taco Bell isthe leadingfast-foodchaininthe Mexican-style foodcategory.
Taco Bell currentlyholds49%of the marketshare in the U.S. Mexicanquick-service segment.
Yum! Brands,Taco Bell’sparentcompany,announcedin2013 thatthey will be openingup3,000
newlocationsworldwide.
Taco Bell islikelytokeepinnovatingnew andcreative menuoptionsthatappeal tothe target
market. These menuoptionswill continuetomaintainaviewpointof higherquality.
Taco Bell will continue toundercutthe price againstotherfast-casual Mexicanoptions.
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Strategic Group Map
Key Success Factors
Efficiency:One of the mainkeysof beingsuccessful inthe fast-casual Mexicanindustryisbeingable to
quicklyserve yourcustomers. The fast-casual diningexperience onlyworksif the customerisable toget
theirmeal as quicklyaspossible,butstill beingable toenjoyanice dining experience if desired. These
fast-casual Mexicandiningrestaurantsare constantlylookingforwaystoimprove theirspeedof getting
customersthroughthe service line.
Simple Menu:Havinga simple menuata fast-casual restaurantmakesitmucheasierto do create those
fewitemsexceptionallywell. The simplemenualsohelpsspeedupthe service line,helpingwiththe
desiredefficiencythatisessential tothe fast-casual industry. The highqualityof meatsandvegetables
alsohelpsdrive the salesof the simple menu.
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AestheticallyPleasingInteriorofRestaurant: It’simportantnotonlygive the customergreattasting
food,butalsoallowthemto have an experience. Customerswanttofeel like theycansitdownand
have nice meal inthe fast-casual industryif desired. Customerswantafast-casual experience tofeel
differentfromafast foodexperience.
Strong Employee Staffing:It isimportantfor everycompanytohave employeeswhobuyintothe
culture of the company,so that the customercan have the bestpossible experience. The fast-casual
Mexicansegmentbelievesthatstrongcustomerservice goesalongwayinthe industry,andhelpsbring
customersbackto theirstore. This isdrivenbyhavingstrongtop-executivemanagerswhobuyintothe
culture,andpass itdownto theiremployees.
Strategic Expansion: Expandinginthisindustryisessential. All of these companiesare attemptingto
oversaturate the marketplace,totry to getaheadof the competitors. Yet,while expanding,it’s
importantto strategicallypositionthe restaurantinalocationthatwill bringinsales,andcatersto the
rightdemographicof customers. The cost of building,oreveninvestinginfreestandinglocationsisvery
expensive,andcompaniesmustperformthe effectiveamountof marketresearch.
Strong Supply ChainManagement Practices: The fast-casual industrymustbe able tocut cost, to
maintainthe similar,lowerlevel prices. Customersare willingtopayfor the fast-casual experience,only
if the price doesn’texceedacertainprice point. The fast-casual Mexicanindustrymusthave strong
relationshipswiththe suppliersthathelpkeepthe costdown.
Attractiveness of Industry and Personal Assessment
The fast-casual Mexicansegmentisdominatedbythree players:Chipotle,Qdoba,andMoe’s. It’salso
importantto include TacoBell,whichcurrentlyhas49% of the marketshare of the Mexicansegmentof
fastfood. Withoutevenincludinglocal Mexicanrestaurants,andsmallerchainssuchas BajaFreshand
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CaliforniaTortilla,thissegmentiscompletelydominatedwithstrongplayers,whohave amuchstronger
capital,brandawareness,andmarketingpower. The costof buildingandmaintainingafast-casual
restaurantinthe Mexicansegmentisalsoincrediblyhigh. A new entrantwouldalsohave tohave strong
supplychainmanagementskillsif theywerewantingtouse healthyfoodoptions,due tothe costof
organicfoodbeingsohigh. Withthe competitive rivalryandsaturationof fastcasual Mexican
restaurants,supplychainmanagementskillsneeded,andcostof maintainingarestaurant,thisisnotan
attractive industrytogetinvolvedwith. The dominantplayerswill easilybudgeyouout.
B. Competitive Analysis(analysisofthis company and its major competitors):
Chipotle’s Current Competitive Strategy
Chipotle’scompetitivestrategyisbuiltuponsix elements. The six elementsare asfollows:
Servingafocusedmenuof burritos,tacos,burritobowls(a burritowithoutthe tortilla),and
salads.
Usinghighquality,freshingredientsandclassiccookingmethodstocreate great-tasting,
reasonably-priceddishespreparedtoorderandreadyto be servedone totwo minutesafter
theywere ordered.
Enablingcustomerstoselectthe ingredientstheywantedineachdishbyspeakingdirectlyto
the employeesassemblingthe dishonthe servingline.
Creatingan operationallyefficientrestaurantwithanaestheticallypleasinginterior.
Buildingaspecial peopleculture thatconsistedof friendly,high-performingpeople motivatedto
take good care of each customerandempoweredtoachieve highstandards.
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Doingall of thiswithincreasingawarenessandrespectforthe environmentandwiththe use of
organicallygrownfreshproduce andmeatsfromanimalsraisedinahumane mannerwithout
hormonesandantibiotics.
Supporting Business Strategies
Chipotle’sstrategyforoperatingitsrestaurantsisthe principle thatthe frontline iskey. The
restaurantand kitchendesignsare intentionallyplacesmostpersonnel upfrontwhere theycan
speakto the customersina personal andhospitable manner. There theycanprepare the food,
and allowthe customertocustomize the meal totheirliking.
Chipotle hasapriorityof nurturinga people-oriented,performance basedculture inevery
restaurant. Top managersbelieve thatsuchculture ledtothe bestpossible experience forboth
customersandemployees. The foundationof thatculture startswithhiringgoodpeople to
manage the staff and company’srestaurants.
Chipotle hasalsoimplementedalong-termcampaigncalledFoodWithIntegrity,whichisa
movementuse top-quality,nutritiousingredientsandimprove the Chipotleexperience.
Chipotle wouldgoaboutdoingthisbyworkingwithexpertsinthe areasof animal ethicstotry
to supportmore humane farmingenvironments,anditstartedvisitingfarmsandranchesfrom
whichitobtainedingredients. Asof 2014, all Chipotle restaurantsnormallyservedonlymeats
fromanimalsthat were raisedwithoutthe use of subtherapeuticantibioticsoraddedhormones
and metotherChipotle standards. Almostall of the vegetablesusedare mostlyorganic. The
sour creamand cheese are rBGH free. Chipotlealsoworkswithlocal farmerstotry to make
everyproductas freshas possible.
Chipotle isknownforbeingone of the biggestinnovatorsof havingthe abilitytohave a
customer’sorderreadyquickly. Muchexperimentationandfine tuningare laidoutto create
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the most efficientcustomerthroughput. The throughputtargetwasat least200 and upto 300
customersperhour.
Chipotle embodiesthe principle of customercustomization. Throughthe service line,customers
have theirchoice of cheeses,meats,rice,vegetables,salsas,etc. Customersseemtoenjoy
havinga say inwhat goesintotheirfinal product,andaddsa unique experience foreach
customer.
Is this a Winning Strategy?
Does the strategy fit the company’s presentcircumstance? Yes
Is the strategy helpingthe company achieve a sustainable competitive advantage? Yes
Is the strategy producinggood company performance? Yes
Conclusion: Thisis a verygood strategythatis workingquite wellforChipotle. The strategy
isworkingso well thatitscompetitorsare evenbeginningtocopyit.
SWOT Analysis of Chipotle
Strengths: Chipotle’smainstrengthisitsuse of highqualityandethicallyraisedmeatsandvegetables.
Chipotle isone of the firstrestaurantstovoice thisissue,andact onit. Chipotle iswell knownasa
brand thatis GMO free,andtheyseemtomarketthisrather well. Anotherstrengthisrestaurant
staffingandmanagement,andthe abilitytoemployfromwithin. Chipotle hasbuiltaculture that
employeesare buyinginto,andare wantingtobe around forthe long-hull. Chipotle’sstrongurgency
for betterefficiencyandspeedthroughthe service line isabigstrength. Chipotle hasbeenone of the
biggestinnovatorsinthisabilitytohave a customer’sorderreadyquickly.
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Weakness: The biggestweaknessthatChipotle hasisthere inabilitytokeepcostforfood,beverages,
and packinglowdue to risingmarketpricesof organicallygrowningredientsandnatural meats.
Chipotle mustfindawayto workwithlocal farmersaboutfindingafixed,fairprice thathelpskeepthe
cost low.
Opportunities: Chipotle hasalot of opportunitiesconcerningtheircateringprogram, breakfast,and
franchising. Cateringisagoodopportunitytomake money,butalsoa way to marketto consumers who
maybe have neverhadChipotle. Itremovesthe consumercomingintothe shop,andbringsthe foodto
a customerwhomay be unfamiliarwiththe restaurant. Breakfastcouldserve asagreat opportunityto
make a profiton an earliercrowdwhoare wantingsomethingquick,butcaneatit at the diner. This
wouldalsosteal customersfromTaco Bell,andopenupa new marketshare for Chipotle. Chipotle
alwayshasfranchisingasan option. FranchisingallowsChipotle tosaturate the market,while getting
paidto do it. Althoughtheylose control of the business,theystill reapagoodmajorityof the profits
while onlyprovidingthe brandandbusinessmodel.
Threats: The competitive rivalrythatChipotleisfacingisfierce,especiallysince all of the modelsare
practicallythe same. Chipotle needstofindawayto trulydifferentiate themselves,especiallyfroma
companylike Moe’swhomalsoservesethicallyraisedmeatsandorganicfood. Chipotle mustalsofix
theirsupplychainmanagement,andfind waystoworkfarmerstohelpkeeppricesdown.
Competitively Important Competencies
Chipotle’sdedicationtoservingthe highestqualitymeatsandvegetablesallowsChipotle to
developastrongsustainable advantage,evenwithMoe’sfollowingthe same model. Today’s
societyisbecomingmore aware of the thingsthattheyconsume and putin theirbodies.
Consumerswanta foodthat isnot onlygoodfor them, butalsogoodfor the environment.
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One of Chipotle’smaincore competenciesisthere dedicationto efficiencyand“through-put”.
Chipotle hasagoal of getting200-300 customersthroughthe service line perhour. Consumers
will appreciate thisbybeingable toenjoythe speedyqualityof afastcasual meal,while also
beingable toenjoya nice dining experience.
Chipotle’slimitedmenualsohelpsthembe able togetcustomersthroughthe line quickly,while
alsoallowingChipotle be able toserve the foodata reasonable price.
Chipotle Value Chain Analysis
InboundLogistics: Chipotle’sinboundlogisticsisveryhigh. Chipotleisspendingalotof moneyby
receivingone of theircompetitive advantages,higherqualitymeatsandvegetables. Chipotle’scostfor
food,beverages,andpackingare at33.4 in2013. TheirbiggestcompetitorwiththisMoe’s,whoalso
offersthe highestqualityof meatsandvegetables. QdobaandTaco Bell fairprettylow,because the
qualityof the meatsand vegetablesismuchlower,makingthe price lower.
Operations: Operationsisverylowinthe value chain,due tothe fastspeedand efficiency of the
“throughput” model theyhave. There isn’tmuchaddedvalue due tothe fact that the competitorsof
Chipotle all followaverysimilarmodelof “throughput”.
Marketing and Sales: Chipotle preferstomarketthroughword-of-mouthpublicityfromcustomers
tellingtheirexperiencestootherpeople. Chipotletypicallydoesmarketingfortheirrestaurantswhen
theirenteringanewcommunity. Chipotle hashadadsfor itsnewlyexpandedcateringprogram. They
alsohave helda festival calledCultivate totryto informconsumersabouthealthyfoods,organic
agriculture,andoveruse of antibioticsinlivestock. Chipotlealsodidviral videoadsthatwere satire,to
spark conversationaboutissuesinindustrial foodproduction. Chipotle’sadvertisingandmarketing
costs were $44.4 millionin2013. They’re biggestcompetitorinadvertisingandmarketingisTacoBell,
whoruns a lot of national televisionadsandpromotions.
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Competitive Strength Analysis of Competitors
Taco Bell: Yum! Brands,Taco Bell’sparentcompany,providesalotof marketingpowerbyhavingsucha
large marketingbudgetforadvertising. TacoBell isable tocommunicate itsmessage veryeffectivelyto
consumersveryquickly. TacoBell isalsopricedlowerthanChipotle,makingitamore intriguingoption
if you’re ona budget. Taco Bell alsoisintroducingbreakfast.
Moe’sSouthwestGrill: Moe’s useshigh-qualityingredients,whichincludesall-natural,cage-free,white
breastmeatchicken;steroidfree andgrainfedpulledpork;100% grass-fedsirloinsteak,andorganic
tofu. None of the dishesthatMoe’s servesincludetrans-fatorMSG. Theyemphasize hospitalityand
friendlyservice ateverylocation. One of theirbiggestcompetitive advantagesoverChipotle isthatthey
offerfree chipsandsalsawitheverymeal,unlike Chipotle.
Qdoba MexicanGrill: Qdoba iscurrentlyownedbyJackin the Box,Inc. whocouldprovide alot of
national marketingpowerif theysowanted. Oddlyenough, Qdobahasnotundertakenandnational
advertisementorpromotions. Qdobaisthe onlyfast-casual Mexicanrestaurantthatservesbreakfast,
makingthemthe ownerof that marketshare.
C. Financial Analysis(Ratio Analysis)
Major Trends and Red Flags
The major trendsthat are showninthe Chipotle Financialsisthattotal revenue andnetincome are
risingeveryyear. The companyisstill increasingmoneyeveryyear,despitethe majorredflagof food,
beverage,andpackagingcostrisingconsistentlyeveryyear. Since 2009, food,beverage,andpackaging
cost have gone up almost3%. Thisismostlydue to the cost of organicvegetablesandhighquality
meatsbeingsohigh,due to scarcityand the lack of yieldthattheyproduce. Chipotle mustfindawayto
reduce these cost,sothat theycan continue toshow a profitinyearsto come. The comparable-
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restaurantsalesincreasesisalsoanotherredflag. In2011, the comparable-restaurantsalesincrease
was at 11.2%, 2012 7.1%, 2013 5.6%. New restaurantsaren’tmakingasmuch moneyinthe first
calendaryear,as theywere inthe past.
