Octob

er 21

1
4

Chipotle Mexican
Grill Caroline Burke, Mary

Harris,
Stuart
Hooks,
Jacob
McCanless & William Vaughan

A complete strategic analysis of the Chipotle restaurant chain from its

founding in 1993 through the fiscal year 2012.

M G T 4 1 5 0 :
se
A na ly s is

B u s i n es s

S t r a t e g y T e a m

C a

Table of Contents
Introduction

I. Core Competencies

II. SWOT Analysis

Internal Analysis: Strengths & Weaknesses
External Analysis: Opportunities & Threats
Future Prospects

III. Value Chain Analysis

Primary Activities
Support Activities

IV. Generic Competitive Strategy

Chipotles Strategy for Success

V. Financial & Operating Performance

VI. Analysis of Competition

Rival with Strongest Resources & Capabilities
Chief Differences Between Chipotles & Moes Strategies
Can Chipotle Compete Effectively Against Taco Bell?

VII. Recommendations

VIII. Appendix

Works Cited

13

In 2012, an analyst on Wall Street referred to Chipotle Mexican Grill as the

perfect stock, while another suggested it could become the next McDonalds
(Thompson C-114). Since its founding in 1993, Chipotle has utilized founder Steve Ells
leadership and culinary expertise to execute its vision of changing the way people think
about and eat fast food (Thompson, C-114). From the day Chipotles first restaurant
opened its doors to now running 1230 restaurants in three countries, it has become a huge
success and has caught the attention of leaders in the industry. One fascinating element of
Chipotles strategy that has allowed it to differentiate itself from rivals is that it never
tried to compete directly against front-runners such as its previous owner, McDonalds,
nor expand too quickly. Under the effective leadership of Ells, Chipotle has grown at a
sustainable rate and has developed numerous capabilities that set it apart in the
increasingly competitive restaurant industry.
I.

Core Competencies
Chipotles limited, focused menu is one of their core competencies because it is
central to its operations and provides a unique value to the customer. Chipotles
competitors have a difficult time competing against or imitating this competency because
the times on Chipotles menu are tested and proven. Competitors dont have the time or
ability to test this concept or perfect their menu items. Chipotle on the other hand has
been able to apply this limited menu style to the other ventures such as their two Shop
House locations in Washington D.C.
Another core competency, shown in Figure 1, is their dedication to high quality
ingredients such as the organic cultivation of produce and naturally raised meat. Chipotle
meets high customer expectations with their Food with Integrity campaign. None of
Chipotles competitors have taken as strong of a stance, nor have they moved as quickly
to increase their efforts for sustainable, humane cultivation of their ingredients. Chipotle
has and continues to lead the way in this area of fast-casual dining.
Another key factor to the success of Chipotle is the speed and effectiveness at
which their friendly and multi-skilled crewmembers serve customers. Crewmembers are
trained at every position so they are able to jump in and help any other member at any
time during preparation or service. The crewmembers, along with the serving style
maximize efficiency because the crew is energized and motivated to move customers
through the line while working as a team. Competitors have a difficult time imitating this
largely in part due to the distance between their associates.
II.

SWOT Analysis
a. Internal Analysis
i. Strengths
As shown in Figure 2, Chipotles commitment to creating an experience sets it
apart from competitors. The Chipotle experience includes friendly employees welcoming
customers to its restaurants with upscale exteriors and sleek, modern interior designs.
These simple designs have lowered development and construction costs while positioning
Chipotle as a restaurant in consumers minds. Chipotles limited menu requires minimal
employee training and advertising expenses while increasing efficiency in preparation
and throughput. In addition, customers can customize their meals by interacting with
enthusiastic crewmembers and selecting natural, fresh ingredients to add to their meal. By

using organic ingredients, cage free animals, and fully committing to its Food With
Integrity campaign, Chipotle can attract consumers with similar values.
Lastly, Chipotle has differentiated itself through its marketing initiatives
including the use of print, online, outdoor, transit, theatre, and radio advertisements.
Chipotle has also been involved in various community events where stores have opened
and even started its own food and music festival called Cultivate to educate attendees
about sustainability and cooking. It has stayed up to date with technological
advancements, allowing customers to place orders by phone, fax, online, or on an iPhone.
It has also been mentioned in articles and on television, generating positive publicity and
increasing brand awareness amongst consumers.
ii. Weaknesses
The limited nature of Chipotles menu may drive customers to competitors. Also,
there are few promotions for frequent customers to enjoy. Chipotles brand loyalty
program, Farm Team, is an exclusive offering that sends invitations to customers based
on their passion not on frequency of purchases (Thompson C-121). Users can receive
deals on meals once they gain access to the website and participate in games and surveys.
Since these rewards require more effort to receive, customers may prefer a competitor
who has cheaper prices or provides more opportunities to save money. Lastly, Chipotles
marketing department creates short films instead of commercials for television. This
limits their reach and effectiveness because consumers have short attention spans and
many will not go out of their way to find these films online.
b. External Analysis
i. Opportunities
Chipotle is at an advantage because its food offerings already cater to health
conscious consumers. As the trend of consuming natural, organic foods continues to grow
domestically and abroad, Chipotles target market and profits will do the same. Western
Europe could provide substantial business considering American fast food chains such as
McDonalds and Kentucky Fried Chicken have penetrated those markets and succeeded.
It is also possible that as suppliers become aware of this trend, they will use
environmentally friendly and sustainable methods for their crops, therefore increasing the
number of potential suppliers for Chipotle.
As mentioned in Figure 2, Chipotles new chain, Shop House Southeast Asian
Kitchen is another tremendous opportunity. By providing the same simple-structured
menu, layout, and ambiance as Chipotle, consumers can easily understand how the
restaurant works and the upscale dining image it is promoting. Testing Shop House in DC
was a strategically intelligent decision because now Chipotle executives can learn about
consumer preferences and what it will take for this chain to be as successful as Chipotle.
ii. Threats
One major threat Chipotle faces is the volatility of crop yields and their prices.
This risk is heightened by the fact that health conscious consumers and other chefs are
also purchasing these limited natural and organic goods. This has made is difficult for
suppliers to meet their growing demand. As a result, some Chipotle restaurants have
returned to using conventionally raised meats in 2011 and 2012, which could hurt their
image (Thompson, C-118). In addition, consumer demand for meals at restaurants
fluctuates due to macro-environmental forces such as the economy and technology.
During an economic downturn consumers are extremely cautious of their money and are

hesitant to spend on items that are not necessities. With technology, there are no limits to
the information that is shared with consumers online including the ingredients and recipes
Chipotle uses. This could motivate people to stay home and prepare a dish themselves,
causing the restaurant to lose business.
c. Future Prospects
This SWOT analysis, summarized in Figure 1, shows that Chipotles future looks
more promising than daunting. If Chipotle executives and managers continue to maintain
its strengths and develop its opportunities while combating its weaknesses and
eliminating its threats, the sky is the limit for this growing chain. If they apply these
changes in their business model to Shop House Southeast Asian Kitchen, it could very
well be the next big fast-casual restaurant in the United States and abroad.
III.

Value Chain Analysis

a. Primary Activities
Supply Chain Management: Rather than purchasing food products from farmers or
restaurant supplies from manufacturers, Chipotle has built up strong long-term
relationships with reliable food industry suppliers. Chipotle keeps a list of approved
suppliers, which contains ones that can meat their quality specifications and guidelines.
Operations: Chipotle has employed a Quality Assurance department that monitors quality
and food safety. This department sets Chipotles standards for everything from the
suppliers they buy from, the distribution centers they control, and the food they serve.
Distribution: Chipotle uses distribution centers to make purchases from suppliers. There
are twenty-two distribution centers that are independently owned and operated in
different regions that supply ingredients and other supplies to all Chipotle restaurants.
Chipotle is planning to add more distribution centers as they expand.
Sales and Marketing: In February 2012, Chipotle ran its first commercial on television
during the Grammys, which was a short film called Back to the Start. Chipotle also
gains publicity from favorable articles about their food and service. Chipotle has been
trying to connect with the public through social media to facilitate direct communication
with its customers. One part of their marketing strategy involves the use of promotional
activities in newly opened restaurants to raise awareness about the new store opening.
Service: Chipotles biggest goal with service is to have a customers order ready as
quickly as possible. They do this by using a service line that the employee and customer
can move through efficiently as the customer tells the employee what they want. This not
only helps the customer have an easy and quick experience with ordering food, but it also
lets the customer see the fresh food and ingredients that are used to create it.
b. Support Activities
Product R&D, Technology, and Systems Development: In 2003 and 2004, Chipotle
started their Food With Integrity campaign. This campaign involves Chipotle
researching ways to use organically grown ingredients. They researched farming
companies who practiced animal ethics and cared about the environment. This effort was
to ensure that they receive fresh and pure products that are healthy for their customers.
Human Resources Management: In each of its stores, Chipotle employs a general
manager, an apprentice manager, one or two hourly service and kitchen managers, and an
average of twenty full and part time crewmembers. The general managers hire and

maintain crewmembers with a strong work ethic. Chipotle seeks to hire individuals who
are very enthusiastic and team oriented to ensure a very positive work environment.
General Administration: Internally, Chipotle has a team of real estate managers who
research potential locations for new restaurants. A lot of time and thought is dedicated to
this process for things such as projected sales in an area and targeted return on
investment. In 2011 alone Chipotle opened 150 restaurants. Chipotle is also looking to
expand globally by opening stores in places such as Paris, France. Chipotle has started a
new project by opening Shop House, which serves Southeast Asian cuisine.
IV.
Generic Competitive Strategy
a. Porters Five Forces
Figures 3 and 4 highlight how Porters Five Forces affects Chipotles success.
Competition Among Existing Rivals is moderate due to the low number of true
competitors, increasing consumer demand for healthy, quick meals, and their product is
differentiated by quality and most importantly, experience. The Threat of New Entrants
is low because it takes a significant amount of time and a great product to develop the
brand loyalty that Chipotle has. There are high barriers to entry considering the suppliers
they use as well their presence domestically and abroad. The threat of substitutes is
moderate because there are a variety of Mexican food options available and customerswitching costs are low. However, this does not include the experience Chipotle offers.
Power Among Buyers is low because there are few large buyers, increasing consumer
demand, and variable substitute availability depending on location. Power Among
Suppliers is high because there are few that offer natural, organic ingredients and
Chipotle has a number of requirements they look for potential suppliers to possess.
b. Chipotles Strategy for Success
Considering the elements of Porters Five Forces, Chipotle has employed a
differentiation strategy that is proving to be successful in their industry. From their
unique ingredients and meals, to the distinctive experience they provide and commitment
to Food With Integrity, Chipotle will continue to stand out from other fast-casual chains
and attract customers.
V.

Financial & Operating Performance

Chipotles outstanding financial and operating performance, displayed in Figure
5, has made it one of the restaurant industrys leading companies. It has shown consistent
growth trends and impressive operational data. Since 2007, Chipotle has shown revenue
growth at an average rate of 20.2% with net income also growing at a compound rate of
32.1%. Between 2007 and 2011, average sales grew by $928,000. In 2006, Chipotle went
public with the initial offering price set at $22 per share. As of late 2012, Chipotles stock
has traded in the upper ranges of $380 to $385 per share.
In the 2011 fiscal year, Chipotles financial power became more evident, starting
with an impressive Operating Profit Margin of 15.45%, which climbed by 5.49% since
2007. Chipotles Earnings per Share in 2011 was $6.89, which grew by $4.73 since 2007.
These financial gains can be attributed to operating efficiency and increased market
share. Because of CEO, Steve Ells goal to maximize customer throughput, Chipotle
was able to expand and now serves over 800,000 customers per day with the average
customer tab being around $9.

Chipotle has also shown consistent expenses since 2007. The reasons for this are
because of its increased operations around the world. Chipotle has operations in over 40
states in the United States and also holds operations in British Columbia, Canada, and the
United Kingdom. With this international expansion, Chipotle showed increased: Food,
Beverage, and Packaging costs of $738,720 in 2011 compared to $346,393 in 2007,
Labor costs of $543,119 compared to $289,417 in 2007, and Other Operating costs of
$251,208 which also increased from $131,512 in 2007. With revenue consistently
growing faster than expenses, Chipotle has shown net income growth of 20% in the most
recent year. With Chipotles basic five-element strategy proven to be one of integrity and
competitive uniqueness, the idea behind the company will continue to drive financial and
operational success.
VI.

Analysis of Competition
a. Rival with Strongest Resources & Capabilities
Of all Chipotles competitors, Moes poses the largest threat. Although Moes is
newer and has a smaller presence, specifically 420 restaurants in 26 states, it does offer a
larger menu. For example, it provides quesadillas, fajitas, nachos, rice bowls, and desserts
in addition to the same items Chipotle offers. It also has a kids menu and a variety of
vegetarian, gluten free, low calorie, and side dishes. Food quality, efficiency and
customer service is most comparable as well.
b. Chief Differences Between Chipotles & Moes Strategies
A chief difference between these competitors strategies is that Moes franchises
its restaurants, whereas Chipotle does not. As stated earlier, Moes has a larger menu,
however this can result in a longer working line and often times a separate kitchen. These
expanded distances result in degraded communication and ultimately decrease
efficiency. However, because Moes provides chips and salsa with meals, unlike
Chipotle, some consumers may view Moes as the best-cost option. Lastly, although
Moes utilizes natural ingredients and cooking methods, it does not market this aspect as
much as Chipotle. Rather, it offers frequent promotions including the weekly Moes
Monday deal on burritos.
c. Can Chipotle Compete Effectively Against Taco Bell?
Recently, Taco Bell introduced the Cantina Bell menu, which consists of new
ingredients such as black beans, cilantro rice, and corn salsa. These new items seem to
mimic more upscale chains including Chipotle, Moes, and Qdoba. With that being said,
Taco Bell has not come close to being a true competitor of Chipotle. In September 2011,
a survey found that it had the lowest score in terms of food quality and atmosphere. It has
also experienced a decline in the amount of restaurants due to underperforming, which
could be a result of people seeking a better alternative in Chipotle. Despite Taco Bells
recent breakthroughs in their menu including the Doritos Locos Taco and their new
breakfast menu, it seems that consumers now prefer the healthier and better quality
option of Chipotle.
VII.

Recommendations
There are a number of recommendations Chipotle can apply to have continued
growth and success. First, they need to gain power over supplies rather than vice versa.
They could achieve this by integrating backwards. Specifically, they can invest in their

own farms to cultivate products and raise meat to their specifications. Another option is
to find more local suppliers by utilizing a team to conduct regional searches. Second,
Chipotle could experience tremendous success in Western European countries such as
France and Germany considering companies such as McDonalds and KFC have already
penetrated those markets. Third, Chipotle should consider selling breakfast burritos or
other meals that are quick and simple to make. By offering this at similar prices and on
weekends, consumers may be more enticed to try it. Fourth, Chipotle can apply its
business model to creating restaurants of other cuisines, like Shop House, at a time thats
best suited for the company. This could greatly increase net profits and revenues in the
long term. Last, Chipotle should continue to reach out to communities in restaurant
locations. Specifically, they could partner with agricultural schools to provide student
scholarships, and planting gardens in schools.

VIII. Appendix
Figure 1: Core Competencies
Small, Focused Menu

High Quality Ingredients

Such As Naturally Raised
Meat and Organic
Produce

Create Efficient and

Appealing Method of
Service

Valuable

Allows for fast service

Unique

Most restaurants bombard you with options and a large menu

ex) Moes huge board with many entree, add on, and combo options.

Hard to imitate

These items on the menu are tested and proven- competitors dont have
the time or ability to test this concept and perfect the menu

Applied to more
than 1 business

Shop House- 2 successful locations in D.C.

Valuable

The Chipotle customer places a high value on quality of the ingredients

in their products. They have high expectations, but Chipotle meats them
with their Food with Integrity cultivation campaign.

Unique

None of Chipotles competitors have taken as strong of a stance nor

have they moved as quickly to increase their efforts for sustainable,
humane cultivation of their ingredients. Chipotle had and continues to
lead the way in this area of fast-casual dining.

Hard to imitate

Chipotle started with local farmers and has kept those long-term
relationships to ensure that their competitors cannot gain an advantage
in this area. This conversely gives Chipotles suppliers more power than
some of our competitors, but that give Chipotle even more of a reason to
continue to make moves that are in the best interest of everyone
involved with the production and consumption of their products.

Applied to more
than 1 business

Shop House- 2 successful locations in D.C.

Valuable

Customers enjoy being able to walk through the line and watch their
food being made. This ensures customer satisfaction; from the guy who
hates cheese, to the woman who is a germaphobe, everyone can
specify exactly what they want at Chipotle and the multi-skilled crew
workers are prepared to handle it.

Unique

Moes Southwest Grill offers a similar style of service to Chipotle, but

they do not offer the same experience that Chipotle offers with their
minimalistic approach to dining and preparation areas. This setting
provides an experience that is unique to Chipotle.

Hard to imitate

Many of the large chain restaurants are moving towards a minimalist,

chic design when they are constructing new establishments or
renovating old ones. Often times, this change in decor or food style
drives away long time customers who were happy prior to all the
changes.
This is something that Chipotle has made central to their image from the
get go, so they do not have to worry about this.

Applied to more
than 1 business

Shop House- 2 successful locations in D.C.

Valuable

Everyone values being served quickly, thats a fact. But, Chipotle

crewmembers not only serve their customers as efficiently as possible,
they also do it with a smile.
Chipotle crewmembers are trained at every position in the store so that
they are able to jump in and help any other member at any time during
prep or service.

Unique

The crew members paired with the serving style maximizes efficiency
because the crew is energized and motivated to move customers
through the line while working as a team.

Hard to imitate

Competitors have a difficult time imitating this largely in part due to the
distance between their associates. Chipotle only offers a few items,
which allows them to have a short work line and a relatively small prep
kitchen. Other restaurants, such as Moes have a much larger menu,
which results in a longer working line and often times a separate kitchen.
These expanded distances result in degraded communication and
ultimately decrease efficiency.

Applied to more
than 1 business

Shop House- 2 successful locations in D.C.

Friendly, Multi-Skilled
Crew Members

Figure 2: SWOT Analysis

Internal Analysis

We ak ness es

Str engths

Creating an experience
Strong company culture
o Hires friendly & enthusiastic employees
Distinctive interior & exterior designs
Simple menu has improved efficiency and throughput
Fresh, natural, organic ingredients and cooking methods as part of its Food
with Integrity Campaign
Marketing and Accessibility

Menu too limited?

Will consumers watch short films?
Dont offer promotions frequently
o Farm Team
o How do we find out about them
o Moes Monday
10

Figure 2: SWOT Analysis (Continued)

External Analysis

Opportunities

Threats

International Expansion
Shop House Kitchen
o Applying business model to other cuisines
Health trend may motivate suppliers to use more
sustainable farming methods Increase suppliers for
Chipotle

Fluctuations in crop yields & prices!

Ingredients hard to find in high quantities
could hurt image!
Demand for eating at restaurants depends on
economic and technological factors

Figure 3: Porters Five Forces

P o r te
rs Five Forces

Threat of New Entrants: Low

Decent brand loyalty
High Barriers of entry leading to small pool of
candidates for entry
Power among Suppliers:
High
Differentiated products required
Suppliers
have
shortages
Suppliers have environmental
requirements

Competition among Rivals:

Moderate
Few
close
competitors
Increasing customer demand
Moderately differentiated products
Spend little time and effort competing

Threat of Substitutes:
Moderate
Substitutes not considered better
quality
Experience is difficult to substitut

Power among Buyers: Low

Many
individual
customers
Increasing customer demand
Low cost of switching

11

Figure 4: Porters Five Forces in More

Detail

Competition
Moderate
among Existing
Rivals

Threat of New
Entrants

Low

Threat of
Substitutes

Moderate

Power among
Buyers

Low

Power among
Suppliers

High

Chipotle incurs low numbers of competitors that are

operating on the same scale.
They are experiencing increasing customer demand.
They spend little time and effort competing due to their
revolutionary business model.
Their products are moderately differentiated due
quality ingredients, and most of all the experience.
Chipotle has decent brand loyalty, which is common
for differentiated products.
There are high barriers of entry for large-scale
operations such as Chipotle, which deter new entrants
and results in a small pool of candidates for entry.
Chipotle does not spend much effort competing due to
the fact they are thriving in a business model that they
essentially created.
Price is not a factor among substitutes for Chipotle.
Substitutes such as the products of Taco Bell are hardly
comparable to Chipotle, and those who are do not offer
an experience that exceeds Chipotles.
Though customers do incur low costs of switching,
there are few if any real substitutes for Chipotle.
There are many individual customers for Chipotle,
rather than a few large buyers.
Chipotle is experiencing increasing customer demand.
Customers incur low costs of switching to substitute
products, but they are not always available.
Suppliers have differentiated products that are central
to the Chipotle mission and thus its products.
Different ingredients are in short supply at various
times of the year due to growing seasons, and even
natural disasters.
Chipotle also limits the number of their suppliers
because they have a set of environmental and
humanitarian requirements to ensure their mission is
being met at every step of production.

12

Figure 5: Financial & Operating Ratios

Ratio

2011

2010

2009

2008

2007

Gross Profit Margin

Operating Profit Margin

15.45%

15.68%

13.42%

9.31%

9.96%

Net Profit Margin

9.47%

9.75%

8.35%

5.87%

6.50%

Return on Assets

15.29%

15.98%

13.23%

9.84%

9.81%

Net ROA

15.08%

15.96%

13.19%

9.48%

9.77%

Return on invested capital

16.95%

17.92%

14.76%

10.45%

10.88%

ROE

20.58%

22.07%

18.03%

12.56%

12.55%

EPS (basic)

6.89

5.73

3.99

2.39

2.16

Current

3.18

3.30

2.91

2.75

2.75

Debt to assets

343,739
0.27

283,167
0.28

195,301
0.27

134,284
0.25

128,543
0.22

Longterm debt to capital

0.18

0.19

0.18

0.17

0.13

Debt to Equity

0.36

0.38

0.37

0.33

0.28

Times interest earned

119.04

1070.00

502.98

41.32

365.48

289,883

247,902

188,153

130,972

114,158

Revenue

2269548

1835922

1518417

1331968

1085782

Operating Expenses

1918986

1548091

1314712

1207929

977599

Operating Income

350562

287831

203705

124039

108183

Interest expense

2945

269

405

3002

296

Income before taxes

349705

289061

204225

127206

114002

Provision for income taxes

134760

110080

77380

49004

43439

Net income

214945

178981

126845

78202

70563

Total current assets

501192

406221

297454

211072

201844

Total assets

1425308

1121605

961505

824985

722115

Current Liabilities

157453

123054

102153

76788

73301

Liabilities

381082

310732

258044

202395

160005

Equity

1044226

810873

703461

622590

562110

Net cash provided by oper 411096

289191

260673

198507

146923

Capital Expenditures

151100

113200

117200

152100

141000

Depreciation

74938

68921

61308

52770

43595

Working Capital

Internal cash flow

Financial Statement Info

13

Works Cited
Arthur A. Thompson, Chipotle Mexican Grill in 2012: Can It Hit A Second Home
Run? in Crafting & Executing Strategy, ed. 19 (New York: McGraw-Hill, 2012),
p. C-114-121.

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