business

Overview

Chipotle is a fast casual dining experience committed to fresh and high quality meats and vegetables. The menu is limited in serving tacos, burritos, and bowls in a customizable style with its organized line of meats, vegetables, beans, rice, and salsas of preference. Each store cooks and prepares the food daily with no frozen ingredients. “Whenever possible, it uses meat from animals raised without the use of antibiotics or added hormones. And when practical, it uses local and organic produce” (Munch, 2011, 2014). The company emphasizes their philosophy of “Food with Integrity”. As stated by Founder Steve Elis (Chipotle, 2014) "it is our commitment to always look closer, dig deeper, and work harder to ensure that our actions are making things better, not worse. It’s our promise to run our business in a way that doesn’t exploit animals, people or the environment” (ND, 2014).

History

CEO Steve Ellis opened Chipotle in Denver, Colorado. Steve’s original ambition was to open a high-end restaurant, and Chipotle was a means for start-up funds. “Horrified by the confinement conditions at factory farms, he started to use naturally raised livestock. He bought organic when he could and vowed to avoid products with hormones” (Kaplan, 2011). Steve realized that genetically modified vegetables and factory grown livestock was not right for Chipotle and this initiated the company motto, “Food with Integrity”. As the company grew, McDonalds grew an interest in the franchise, and “at one point had invested $360 million” (Kaplan, 2011). McDonald’s large investment in the company helped Chipotle grow fast, but Elis did not feel as if it was the right fit for Chipotle. The companies reached an agreement to terminate the investment and Chipotle went public. “Chipotle’s stock price doubled its first day of trading on the New York Stock Exchange. In the end McDonald's walked away with a profit of more than $650 million” (Kaplan, 2011).

Elis has yet to open up his fine dining restaurant, but he certainly surpassed his goal of original startup funds. “The company recorded revenues of $3,214.6 million in the financial year ended December 2013 an increase of 17.7% over FY2012” (Mint Global, 2014). Instead Elis kept expanding the company. Since the initial public offering, the company has continued to expand into new markets. “As of December 31, 2012, the Company operated 1,410 restaurants, including Chipotle restaurants throughout the United States, as well as five in Canada, five in London, England, and one in Paris, France, and also one Shop House Southeast Asian Kitchen, a restaurant in Washington, D.C.” (Mint Global, 2014).

Recent Expansion

The company has been busy expanding it’s brand and locations by opening an Asian style food venue, expanding into Europe and adding spirits to their existing Chipotle menu. The company used their business model and customizable line-up style to open an Asian style location called Shop House. Shop House serves the same fresh meats and vegetables but with Vietnamese and Malaysian flavorings. The company recently expanded internationally with their first overseas location in London in 2010 and a second in Paris, France. The company feels their affinity for quality no hormone meats helps them do well overseas. “Chipotle's cooking methods would serve it well in Europe, where people are more attuned to where their food is sourced and what's in their food than most Americans are. Also, there's a bigger supply of naturally raised foods in Europe, making sourcing more efficient for Chipotle” (Munch, 2011 March 3). Chipotle has recently added spirits to select locations by adding premium margaritas. “The new margarita is hand- made using Patron Silver tequila, triple sec, a blend of fresh lime and lemon juices, and organic agave nectar” (Kaplan, 2011).

Strengths

The strengths of Chipotle are their ingredients are from sustainable sources and they keep low marketing costs. Chipotle does not waste money on advertising, with only about 1.75% of total revenue allocated to the expense. This is low compared to most companies which spend about 3-5% of their revenue on marketing (Gariaga, 2014, August 12). Chipotle explains that they are able to keep the costs this low by not offering new products. With new products comes the training of employees, developing, and marketing the product. “Chipotle is not pursuing the kinds of gimmicks that fast-food companies pursue, such as new products. Those are very expensive; a lot of R&D goes into developing new menu items, then you have to spend a lot of money on marketing" (Gariaga, 2014, August 12). The naturally raised meats and GMO free products the company prides themselves on helps greatly with their brand image and customer loyalty. The brand has become a trend through word-of-mouth marketing, which has been doing wonderfully for the company.

Weaknesses

A disadvantage of this model is with better ingredients comes higher cost. Naturally with higher supply cost comes at higher prices to consumers, and this will make it difficult to compete with nearby competitors. “Chipotle food ranges from $7 to $8, whereas its competitors such as McDonalds, Taco Bell and KFC have options such as value menus that start from $1” (Mint Global, 2014).

The Chipotle Company also offers a limited amount of items on the menu. The items served are limited to the ingredients in a burrito, with choices being if you want your meal served in a taco, salad, or bowl. The limited menu can hinder sales due to other fast causal restaurants offering a much larger variety.

Values in Expansion

The Chipotle Company prides themselves on their high-quality ingredients. When deciding on new locations to expand, it is necessary to consider the local farming and livestock communities available. When committing to sustainable food products, it would be most preferable to have organic or free raised farms nearby. The menu options at Chipotle are centered on their proteins, whether it be a burrito, salad, or bowl. Therefore, it is vital that they enter in a location where there are carnivorous consumers. Chipotle’s meals are at a medium price range of about $10-$15 per dish, and wherever they expand the population would need to have enough purchasing power to be able to afford the higher-end fast food. The company needs to enter into an economically stable environment. Lastly, Chipotle needs to be in a densely populated region to generate enough business to support each of the store’s locations.

The Fast Casual Industry

Industry

Chipotle is a part of a new market trend called “Quick-Casual” which take high quality ingredients and homemade items of restaurants and combine it with the quick service of fast food joints. Some examples of the quick casual eateries are Panera Bead, The Habit, Flame Broiler and Boston Market. “Fast casual” emerged in the 1990s as a refinement of conventional fast food. The fast-casual segment remains a small part 3% of the overall restaurant market, but has doubled its share over the past decade (Kaplan, 2011).

Current Threats

Current threats in the industry involve the rising price of food, an unhealthy economy and large competitors in the industry. Food costs are rising and chipotle’s demand for farm raised, GMO free quality ingredients can come at a high price. The company's food, beverage and packaging cost as a percentage of revenue increased to 33.6% in the quarter ended September 30, 2013 from 32.6% in the quarter ended September 30, 2012(Mint Global, 2014). The situation can epically be grave when the competition is paying a third of the price for their magic meats.

Consumers themselves have been put on a budget. Growth in the casual dining segment has been hurt in the past year primarily by rising fuel prices and fears about the general economy which have put a strain on most family budgets (Hoover, 2014). A limited budget means customers will turn to eating at home or to cheaper venues that offer a $.99 cent menu in lieu of a $10 Chipotle burrito.

Not only are the other fast food guys paying less for their ingredients and charging lower prices but they are major players in the game. Chipotle’s main competitors are McDonalds Corp, Yum Brands Inc, Darden restaurants, Jack in the Box, Sodexo, and OSI Restaurant (Mint Global, 2014). “Most of its competitors grow faster than the company through franchising which the company doesn't undertake” (Mint Global, 2014). This can be a big deal when there are numerous Subways franchised on every corner when compared to the limited arm of Chipotle storefronts.

Opportunities

“Chipotle is a niche in a huge market. American fast food is dominated by burger joints” (Kaplan, 2011).Also, the fast food present in today’s fast food market is typically unhealthy with high fat and sodium contents. Chipotle’s home-style cooked meats loaded with vegetable toppings and fresh condiments of salsas and guacamole set the restaurant apart from the McDonald’s and Taco Bell’s in the industry.