Chipotle Mexican Grill Analysis
Case Summary
Steve Ells founded Chipotle Mexican Grill (CMG) in 1993 when he first opened the first restaurant in Denver, Colorado. The company went public in 2006, and it became listed on the New York Stock Exchange (Chipotle.com). As at 31 December 2015, CMG was operating 2,010 establishments in different geographical areas. These include 1,971 in the United States, 11 in Canada, 7 in London, England and 4 in Paris, France and 1 in Germany. It has also opened 13 additional ShopHouse Southeast Asian Kitchen restaurants that serve food inspired by Asian Cuisines. There are also three Pizzeria Local restaurants. The Chipotle Mexican Grill restaurants serve a limited menu of high-quality tacos, burrito bowls, Burritos, and Salads. To increase the market share, Chipotle has introduced the organic products approach due to the rising demand for pasture-raised animals (Chipotle Mexican Grill, Inc. 4). In 2015, CMG encountered a huge crisis after the Norovirus and E-coli virus that negatively affected the company’s revenues and growth (Chipotle contends with E. coli and norovirus outbreaks. par.2)
CMG Vision, Mission, and Values
CMG values focus on the using ingredients and cooking techniques of high quality to offer great food to all people at reasonable prices. The company strives to find out where all its ingredients are sourced to promote local farmers in their job of growing sustainable and naturally raised products that meet the goals of its mission statement, “Food with Integrity.” The mission statement means that CMG objectives are to offer the best sustainably raised food possible, provide support to farmers who are devoted to their animals and land and use meat from animals raised in a natural manner whenever it is possible (Chipotle Mexican Grill, Inc. 6).
External Audit
Opportunities
There is rising demand for sustainable food that surpasses the supply in the market, and the consumers of socially sustainable foods are wealthier as compared to typical fast food consumers. 57 % of adults between 18 and 29 years eat fast food, at least, weekly; this is the most often as compared to other consumer groups. The millennial forms a large segment for fast casual and quick service restaurants. Millennial use of their mobile technological devices to get information for their health and fitness choices and 85 percent of persons between the age of 18 to 34 years shop on the internet. The fast casual segment has grown every year since the economic recession of 2009 from 4% to 8% as compared to the quick service whose growth has remained stagnant. Fast casual restaurants report an average purchase value of $ 7.40 as compared to the 5.30 average for quick service restaurants (Maze 38).
Threats
There are many requirements to comply within the industry that vary from country to country. These requirements include the regulations on food quality and hygiene, labeling and labor regulations. There is high competition in international markets from the fast casual restaurants outside the Mexican food category since the market for Mexican fast casual items is undeveloped. Market conditions and weather changes cause shortages for sustainable ingredients resulting in increased prices for ingredients like beef, dairy and chicken products (Simpson 38).
EFE Matrix
| Opportunities | Weight | Rating | Weighted Score | |
| 1 | Rising demand for sustainable food that surpasses the supply in the market. | 0.4 | 3 | 1.2 |
| 2 | Millennial use of their mobile technological devices to get information for their health and fitness choices and 85 percent of persons between the age of 18 to 34 years shop on the internet.
|
0.25 | 3 | 0.75 |
| 3 | The fast casual segment has grown every year since the economic recession of 2009 from 4% to 8% as compared to the quick service whose growth has remained stagnant. Fast casual restaurants report an average purchase value of $ 7.40 as compared to the 5.30 average for quick service restaurants. | 0.35 | 4 | 1.4 |
| Weaknesses | Weight | Rating | Weighted Score | |
| 1 | There are many requirements to comply within the industry that vary from country to country. | 0.4 | 4 | 1.6 |
| 2 | There is high competition in international markets from the fast casual restaurants outside the Mexican food category since the market for Mexican fast casual items is undeveloped.
|
0.25 | 4 | 1 |
| 3 | Market conditions and weather changes cause shortages for sustainable ingredients resulting in increased prices for ingredients like beef, dairy and chicken products. | 0.35 | 3 | 1.05 |
Competitive Profile Matrix
| Chipotle Mexican Grill | Taco Bell Corp | Qdoba Restaurants | ||||||
| Critical success factors | Weight | Rating | Score | Rating | Score | Rating Score | Score | |
| 1 | Use of sustainable ingredients | 0.15 | 4 | 0.6 | 3 | 0.45 | 4 | 0.6 |
| 2 | Well established supply chains | 0.05 | 2 | 0.1 | 3 | 0.15 | 3 | 0.15 |
| 3 | Quality of the food | 0.13 | 1 | 0.13 | 4 | 0.52 | 4 | 0.52 |
| 4 | Varieties of food in the Menu | 0.06 | 1 | 0.06 | 1 | 0.06 | 4 | 0.24 |
| 5 | Adaptation to different customers tastes and preferences | 0.09 | 1 | 0.09 | 1 | 0.09 | 0.09 | |
| 6 | Using technology to enhance customer experience | 0.09 | 4 | 0.36 | 4 | 0.36 | 3 | 0.27 |
| 7 | Expansion to international markets | 0.13 | 4 | 0.52 | 1 | 0.13 | 3 | 0.39 |
| 8 | Financial strength | 0.1 | 4 | 0.1 | 3 | 0.3 | 3 | 0.3 |
| Environmental sustainability in restaurants construction designs | 0.05 | 4 | 0.2 | 2 | 0.1 | 2 | 0.1 | |
| 9 | Location of the restaurants | 0.05 | 4 | 0.2 | 3 | 0.15 | 2 | 0.1 |
| 10 | Targeted segment of consumers | 0.1 | 4 | 0.4 | 4 | 0.4 | 3 | 0.3 |
| Totals | 2.76 | 2.71 | 3.06 | |||||
Internal Audit
Strengths
Chipotle Company has undergone rapid growth since its public offering in 2006. It has 2,010 restaurants with a huge presence in the U.S and Canada, and it plans to open about 220-235 new restaurants this year. In all markets, Chipotle restaurants are located in urban centers with high foot traffic, neighborhoods with high household incomes and locations with businesses, tourist attractions and schools (Czaplewski, et al. 7). These have contributed to its good financial growth enabling it to generate solid cash flows, avoid debts and maintain a strong balance sheet. CMG cash and cash equivalents as at January 1, 2016, were more than $1 billion. The targeted market segments of millennial between the ages of 18-34 years are less price sensitive as compared with other consumer groups and they identify with CMG philosophy of “Food with Integrity.” The company’s commitment to sustainability that is reflected in its operations by selecting organic ingredients and using materials that are environmentally conscious in their stores (Chipotle Mexican Grill, Inc. SWOT Analysis 5).
Weaknesses
In the last quarter of 2015, Chipotle restaurants in the U.S suffered from outbreak cases of norovirus and E.coli across the country disrupting in the establishments’ growth (Chipotle contends with E. coli and norovirus outbreaks. par.3). The company that has been built on the motto of Food With Integrity is now facing a tough challenge of defending the safety and quality of its food and gain consumers confidence once more. Due to the shortages of supplies of sustainably raised ingredients, the company has been forced to sources conventionally raised beef and chicken sometimes compromising the quality of its food (Glassman 22). They have also been increasing the prices of their products, for instance, an increase in the price of their menu was announced in April 2014 due to the rising costs of cheese, avocados, and steak. Chipotle restaurants have a focused menu that has made it impossible to adopt a menu with local tastes and preferences, especially in the international markets. Its competitors like Yum! Brands restaurants have tailored their menu to local customs by changing to local flavors and ingredients (Chipotle Mexican Grill, Inc. SWOT Analysis 8)
IFE Matrix
| Strengths | Weight | Rating | Weighted Score | |
| 1 | Rapid growth reflected by the increase in the number of stores in the U.S and internationally as well as the financial strength. | 0.4 | 4 | 1.6 |
| 2 | A culture of commitment to sustainability resulting in the use of organic ingredients and environment sustainable materials in construction designs. | 0.3 | 3 | 0.9 |
| 3 | Targeting the right segment of the millennials in the fast casual industry, that is wealthier and more conscious of their health choices. | 0.3 | 4 | 1.2 |
| Weaknesses | Weight | Rating | Weighted Score | |
| 1 | In the last quarter of 2015, Chipotle restaurants in the U.S suffered from outbreak cases of norovirus and E.coli across the country disrupting in the establishments’ growth. | 0.4 | 4 | 1.6 |
| 2 | Shortage in the supplies of sustainable ingredients for the restaurants has led to use of conventional products at times and an increase in food prices | 0.35 | 2 | 0.7 |
| 3 | Chipotle has failed in adapting to the tastes and preferences of the consumers in the international markets where the Mexican cuisines are not common. | 0.25 | 3 | 0.75 |
SWOT Matrix
| Chipotle Mexican Grill | Strengths –S
· Rapid growth · Commitment to sustainability · The right target segment of millennial |
Weaknesses –W
· Compromised food quality · Increase in food prices · Products failure to adapt to local tastes and preferences |
| Opportunities -O
· Rising demand for sustainable products · Increase in the use of technological devices · Higher growth in the fast casual industry |
SO strategies
· Increase the number of restaurants internationally using the created wealth (S1). · Invest in technological innovations that to enhance customer experience among millennials’ (S2). |
WO strategies
· Increase social media marketing to restore consumer (S3) confidence in the quality of their products. · Introduce more products in the international markets to satisfy diverse customers’ needs (S4). |
| Threats – T
· Regulations and requirements in the industry · High competition in international markets from non-Mexican cuisines · Shortage of sustainable products |
ST strategies
· Establishing reliable supply chains (S5). · Invest in educating and raising awareness among their staff for the existing requirements and regulations in the industry (S6). |
WT strategies
· Use the existing regulations to ensure the quality of food products is guaranteed (S7). · Establish reliable supply chains that ensure the price of their products is not increased (S8). |
QSPM Matrix -Strategies 1-4
| S-1 | S-2 | S-3 | S-4 | ||||||
| S | W | AS | TAS | AS | TAS | AS | TAS | AS | TAS |
| Rapid growth | 0.4 | 4 | 1.6 | 3 | 1.2 | 2 | 0.8 | 4 | 1.6 |
| Commitment to sustainability | 0.3 | 2 | 0.6 | 3 | 1.8 | 4 | 1.2 | 0 | 0 |
| Have the right target segment of millennial | 0.3 | 0 | 0 | 4 | 0 | 4 | 1.2 | 0 | 0 |
| Total | 1 | ||||||||
| Weaknesses | |||||||||
| Compromised food quality | 0.4 | 0 | 0 | 3 | 1.2 | 4 | 1.6 | 0 | 0 |
| Increase in food prices | 0.35 | 2 | 0.7 | 3 | 1.05 | 3 | 1.05 | 0 | 0 |
| Products failure to adapt to local tastes and preferences | 0.25 | 0 | 0 | 0 | 0 | 1 | 0.25 | 4 | 1 |
| Total | 1 | ||||||||
| O | |||||||||
| Rising demand for sustainable products | 0.4 | 4 | 1.6 | 1 | 0.4 | 0 | 0 | 0 | 0 |
| Increase in the use of technological devices | 0.25 | 2 | 0.5 | 3 | 0.75 | 3 | 0.75 | 0 | 0 |
| Higher growth in the fast casual industry | 0.35 | 3 | 1.05 | 0 | 0 | 0 | 0 | 2 | 0.7 |
| T | 1 | ||||||||
| Regulations and requirements in the industry | 0.4 | 0 | 0 | 3 | 1.2 | 4 | 1.6 | 0 | 0 |
| High competition in international markets from non-Mexican cuisines | 0.25 | 0 | 0 | 2 | 0.5 | 2 | 0.5 | 4 | 1 |
| Shortage of sustainable products | 0.35 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 1 | 6.05 | 8.1 | 8.95 | 4.3 | ||||
QSPM Matrix –Strategies 5-8
| S-5 | S-6 | S-7 | S-8 | ||||||
| Strengths | W | AS | TAS | AS | TAS | AS | TAS | AS | TAS |
| Rapid growth | 0.4 | 4 | 1.6 | 4 | 1.6 | 4 | 1.6 | 4 | 1.6 |
| Commitment to sustainability | 0.3 | 3 | 0.9 | 4 | 1.2 | 4 | 1.2 | 3 | 0.9 |
| The right target segment of millennial | 0.3 | 2 | 0.6 | 3 | 0.9 | 4 | 1.2 | 4 | 1.2 |
| Total | 1 | ||||||||
| Weaknesses | |||||||||
| Compromised food quality | 0.4 | 3 | 1.2 | 4 | 1.6 | 4 | 1.6 | 3 | 1.2 |
| Increase in food prices | 0.35 | 3 | 1.05 | 2 | 0.7 | 1 | 0.35 | 4 | 1.4 |
| Products failure to adapt to local tastes and preferences | 0.25 | 1 | 0.25 | 0 | 0 | 0 | 0 | 0 | 0 |
| Total | 1 | ||||||||
| Opportunities | |||||||||
| Rising demand for sustainable products | 0.4 | 3 | 1.2 | 2 | 0.8 | 2 | 0.8 | 2 | 0.8 |
| Increase in the use of technological devices | 0.25 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Higher growth in the fast casual industry | 0.35 | 3 | 1.05 | 1 | 0.35 | 2 | 0.7 | 2 | 0.7 |
| Threats | |||||||||
| Regulations and requirements in the industry | 0.4 | 1 | 0.4 | 4 | 1.6 | 4 | 1.6 | 2 | 0.8 |
| High competition in international markets from non-Mexican cuisines | 0.25 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Shortage of sustainable products | 0.35 | 4 | 1.4 | 0 | 0 | 0 | 0 | 4 | 1.4 |
| Total | 1 | 9.65 | 8.75 | 9.05 | 10 | ||||
Financial Analysis
The common size income statements analysis indicate a decline in Chipotle the revenues in the year 2015. The cost of revenue increased from 72.79% in 2014 to 73.91% in 2015 resulting in a decrease of the gross margin from 27.21% to 26.09%. Selling, General, and Administration expenses reduced from 6.67 % in w2014 to 5.56% in 2015. The non-recurring expenses remained the same and the loss on disposal of assets increased by 0.46 % while other operating expenses increased by 0.21%. The operating incomes reduced from 17.3% to 16.96% and the incomes before taxes reduced by 0.29%. The net incomes in 2015 were less than the 2014 net incomes by 0.27%. According to the Comparative analysis income statements, there was an increase in the gross margin by 5.06%. The loss on the disposal of assets had a significant increase of 89.13 percent. The selling general and administration expenses reduced by 8.65% while the net incomes increased by 6.78% (NASDAQ n.p). The profitability ratios illustrate a decline in the profitability of the company in 2015. The net profit margin has reduced from 10.84 percent to 10.57 percent. The asset turnover ratio has reduced from 1.8 to 1.7 percent while the return on assets has reduced from 19.55 percent to 18.04 percent. The growth ratios illustrate a significant reduction in the growth of the Company’s revenues, operating incomes, net incomes and earnings per share (Morningstar n.p)
Long-term objectives
The first long-term objective is to establish a reliable source of suppliers that will serve in the local and international markets. This objective will help in ensuring that Chipotle restaurants obtain all the suppliers that they require. It will also play the role of ensuring that the quality of the food is maintained. This objective will be supported by a cooperative strategy whereby the company can form an alliance with its suppliers to improve the quality and quantity of their produce. They can make investments in the farms that supply their ingredients ensuring a stable supply and quality of these ingredients. A reliable supply chain should be established in each of the international markets reducing the costs of transferring ingredients from the suppliers in the U.S to the international markets. Similar alliances should be made with suppliers in the international markets to ensure the quality and enough quantity for ingredients are maintained at all times. Chipotle will also enforce the rules and regulations in the industry that guide the production of sustainable suppliers to ensure the quality of the ingredients sourced from suppliers. The benchmarks that can be used to measure the progress is the percentage increase in the volume of supplies, reduction in the cost of making their food and improved consumers loyalty.
The other objective is to come up with other sources of revenues for CMG. Revenues currently obtained are mainly from four menu items accounting for 95% of the company’s revenues. This implies that its diversification is low even if it has launched the ShopHouse Asian Kitchen and the investment in Pizzeria Locale. The businesses are still very young and do not make many contributions to CMG revenues. Thus, the Company can diversify more by investing in different businesses or expanding the Chipotle concept to other cuisines. The proposed strategy for this objective is diversification strategy that will allow the company to introduce a variety of food items in the company’s menu by offering different cuisines especially in the international markets where the Mexican cuisines are not very common. The new products will help to meet the tastes and preferences of all its customers and compete effectively with its competitors. Social media marketing will be used to market the new products in the markets. Alternatively, CMG can invest in other already established restaurants that offer other kinds of cuisines to their customers. The investments can be in the form of acquisitions, joint ventures or buying shares in those companies. The benchmarks that will be used to measure progress is the amount of revenues obtained from additional food items added to their menu and increased consumer awareness of the new products reflected by their comments on social media platforms.
The third objective is the expansion of CMG operations to other international markets and particularly to the developing nations. Currently, the company huge presence is in the U.S and Canada and a few Europe nations. Developing nation’s strategy is the proposed strategy for this objective. The lack of popularity of the Mexican cuisines in various countries provides an opportunity for Chipotle to enter new markets for their main food items. This is especially the case for Asian and African countries that do not have major restaurants specializing in Mexican cuisines. CMG should take advantage of the growth of the economies in these developing nations like China. This is because as the economies grow the households, disposable incomes also increase allowing its targeted segment of persons between the age of 18-34 years to spend more in healthy food choices. Technological advancements and the rise in the use of mobile devices in these nations will also enable CMG to market their products easily and enhance customers’ experiences. The benchmarks to ensure progress for this strategy are the amount of revenues obtained by entering into new markets and the number of new restaurants that are launched in the new markets.
Works Cited
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