Review the industry and competitive conditions in CMG’s environment.
Identify the market opportunities and external threats which have the greatest
relevance to the company’s capital market and product market stakeholders.
2012 projected restaurant sales in the United States was $613.8 billion or
nearly four percent of the gross domestic product. With about 970,000
restaurants in the US the industry employees about ten percent of the population.
The restaurant industry holds several segments, the three largest being full
service, quick service and fast casual. Chipotle Mexican Grille (CMG) belongs
to the fast casual segment which is the smallest, but speediest growing,
segment. In 2011 fast causal restaurants accounted for about $24 billion in
revenues and about four percent of the market share. The basis of fast casual
dining is, easy, convenient meals that are customizable and use healthy
ingredients; all at a reasonable price.
the Mexican food category, CMG has two major rivals: Taco Bell and Qdoba. A
subsidiary of Jack-in-the-Box, Qdoba serves mission style burritos. Like CMG
they use high quality ingredients. They cook fresh each day, and start prepping
ingredients three hours before the store opens each day. Qdoba also prepares
their salsa, cilantro with rice and guacamole in the open where customers can
watch and their menu is more varied than CMG’s menu, so they have a slight
advantage when it comes to menu options.
Taco Bell is part of Yum Brands,
Inc. In 2012 Taco Bell added chicken and steak burrito bowls to their menu in
an attempt to lore some of CMG’s customers. Taco Bell’s president said they
could provide these menu items with the same quality at about half the price of
Chipotle. While they are less expensive, Taco Bell does not provide the same
high quality food, their ordering structure is not interactive and they have
the strong commitment to being green that CMG has.
of CMG’s main market opportunities are strengthening the message of its
dedication to sustainable sourcing and being green. While many restaurants
serve meat raised on concentrated animal feeding operations, CMG does not serve
mass-marketed meat products (page 87). As part of their “Food with Integrity”
program, CMG sources their pork, chicken and beef from open-range suppliers.
The plan also includes sourcing at least 35 percent of their bulk produce items
(lettuce, cilantro, tomatoes and dairy items) from local producers (page 88).
The company also tries to reduce its carbon footprint by reducing energy
consumption as much as possible. Many people are willing to pay more for
products from companies that are dedicated to caring for the planet, but CMG
markets their green and sustainable sourcing efforts to a very small segment of
the population. They could also consider diversifying their menu like Qdoba and
research delivery options. CMG stores are generally centrally located so they
could try delivery service to homes or businesses within a small radius.
Some of the threats are a lack of
sustainable suppliers. If they are unable to find enough quality suppliers
locally, they will either need to source lower quality product or pay more to
get quality products. This could cause consumers to distrust CMG’s “food with
integrity” mission and look for other places to eat.
Evaluate Chipotle’s organizational
resources and recent financial performance. What does a SWOT analysis reveal
about positioning CMG in the current business environment?
SWOT analysis is a tool firms use
to identify their strengths and weaknesses. By understanding their strengths, they
are able to discover opportunities; and understanding weaknesses help them recognize
threats. By looking at your own SWOT
analysis and your rival’s SWOT you can better create a strategy that will keep
you competitive in the market.
STRENGTHS include rapid growth. The company went from 16 stores in 1998, to
over 500 in 2005, to about 2250 in 2017, and plans to open more. They are
strong financially, in 2011 revenues were $2.270 billion and net income was
$215 million. They were able to find their target consumer; people who want
delicious, quick customizable meals, that are healthier than traditional fast
food restaurants from a company with integrity.
One WEAKNESS is their dependence on
the US market, 99% of their stores are located in the United States so when the
US economy slows, so does their overall business. A strength that could become
a weakness is the quality of their ingredients. Sourcing their ingredients from
small independent farmers makes it difficult to monitor quality as seen in the
E. coli outbreak a few years back. It is also hard to get produce from local
farmers year-round in many areas of the United States. If they are unable to
source quality ingredients at the price people have become accustom to, they
may lose customers. Competitors are also a concern for CMG, some have already
tried to imitate CMG’s menu; because they do not have a dedication to natural
and sustainable ingredients they are able to add similar menu items at a lower
OPPORTUNITIES include expansion, CMG
could explore international markets. In 2016 CMG operated 2221 stores in the
United States, 17 in Canada, 5 in France, 1 in Germany, and 6 in the United
Kingdom. They have plenty of opportunity to expand in those areas and other
regions of the world. They could also explore delivery services to increase
sales as well. Some people would be likely to purchase CMG more often if they
could have it delivered to their door.
Some THREATS are further food safety
issues, if they don’t find a way to monitor the quality of their ingredients. If
CMG has continued food safety issues they could lose the trust of dedicated
customers it would be difficult to gain new customers. So they need to be
vigilant in maintaining food safety. They are also susceptible to competition
from competitors who try to imitate their menu offerings. Many of their rivals
have been around a long time and have experience making changes to create
Define the components of Chipotle’s
business strategy. How should the analysis influence the strategic direction of
the firm? In light of economic and competitive forces, do you think CMG’s
sustainability practices add value or diminish potential for the company?
to our text, “The differentiation strategy is an integrated set of actions
taken to produce goods or services (at an acceptable cost) that customers
perceive as being different in ways that are important to them. (Hitt, Ireland,
and Hoskisson, pg. 117)” CMG’s follows a differentiation strategy by providing
a unique dining experience at an affordable price. Consumers are able to watch
as their food is being prepared, they get to see all the ingredients go into
their meal. This is a much different approach than other lower cost restaurants
that prepare food in behind a barrier and serve it in a wrapped package. The
sustainability practices they use in choosing their ingredients and
constructing their restaurants appeal to their customers which gives them an
advantage in the market and adds to their value. Customers generally remain
loyal to businesses that provide products and services that are important to
has grown very quickly, going from 1410 stores in 2012 to 2250 stores in
2016. Sustainability has become
increasingly important to consumers, because of that I believe CMG will
continue to grow as long as the economy is strong.
Outline the specific challenges presented
in the case and identified during the assessment above. Based on the results of
your analysis, is CMG prepared to address its greatest concerns? What
recommendations can you make to strengthen the company’s ability to confront
The economy is
probably CMG’s largest challenge, because eating out is one of the first things
people cut out during economic downturns. To prepare for shifts in the economy,
CMG should continue to invest in their “Food with Integrity” program by
maintaining long-term and creating new relationships with local food suppliers.
Strong relationships with these farmers will help strengthen the program and
make it difficult for other companies to enter CMG’s market. According to
Ellis, “The supply chain has yet to catch up, organic ingredients are still
pricy and supply is limited. What we are doing is an ‘incremental revolution.’ If
we went all-organic and natural now, a burrito would be like $17 or $18
(Chipotle, page 88).” Good relationships with farmers can help increase the percentage
of organic and ethically raised food products the restaurants use and help
drive down cost for the ingredients. To continue
their differentiation strategy, it is important CMG continues to strengthen and
improve their sustainable practices.
Chipotle Mexican Grill: Food with Integrity (2012).
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2001).
Strategic management: competitiveness and globalization. Ohio: South-Western –