Strategic Analysis Chipotle Mexican Grill (2024)

Florida Atlantic University MAN 4720: Global Policy

By: Amanda Mann, Mark Meyer, Jorge Pasco, and Nicole Sanchez

Firm Background

The Firm’s History

From humble beginnings, Chipotle Mexican Grill began its venture in Boulder, Colorado in 1993. The first establishment had very limited funds available, yet the founder, Steve Ells, was soon able expand from one restaurant to many over a short period of time. Even through expansion the company’s style is deeply-rooted from its humble beginnings – using low cost furniture and décor from recycled and reclaimed materials. After five (5) years of prospering, Chipotle was about to gain a significant investor to help drive the company to future success – McDonalds (Value Line, 2016).

This particular investor had deep pockets – investing an estimated $50,000,000 in the company to not only ensure continued profitability, but to ensure substantial growth in terms of stores (Value Line, 2016). As the business relationship progressed, McDonalds and Chipotle began to not see eye-to-eye in terms of how the business was ran. This difference of perspective stemmed from the companies being of different sectors – McDonalds belonging to Fast-Food and Chipotle belonging to Fast-Casual. After an 8-year business relationship, McDonalds stopped its investments (Value Line, 2016). Soon after McDonalds pulled out, Chipotle was able to have an IPO. The company’s stock sky-rocketed from that day forward – until an issue arose.

In 2016, Chipotle Mexican Grill, Inc. had an outbreak of Escherichia Coli or more commonly known, E. Coli in its stores (CDC, 2016). As seen in Exhibit 3, the company’s stock evaluation began to fall steeply while the competition remained to stay steadily growing. The Founder, as a result decided to close all stores to attempt to solve the issue (Kyle, 2018). As time has progressed over the past two years, the company has slowly been able to regrow some of what was lost, albeit, the company recently had a similar issue in Ohio yet to be identified.

Mission Statement

Chipotle delivers a powerful message in its mission statement – “"Food with integrity is our commitment to finding the very best ingredients raised with respect for the animals, the environment and the farmers” (The Motley Fool, 2016). Oftentimes abbreviated as just “Food with Integrity”, Chipotle Mexican Grill, Inc. is dedicated to delivering the best quality food to its customers at the convenience of fast food.

Corporate Structure

Chipotle Mexican Grill, Inc. has undergone some recent internal structures. The Founder Chairman of the Board and CEO, Steve Ells, has relinquished his title of CEO and given it to the newly hired Brian Niccol (ex-CEO of Taco Bell) (Yahoo Finance, 2018). With that, Steve Ells’ position is now limited to the Chairman of the Board of Directors. As with any company a strong, active Board of Directors can help ensure the company’s success through advising the Officers of the company. There is a total of 14 individuals on the Board of Directors and upper-management (i.e. the officers of the company) (Please see exhibit 1 for a graphic of the hierarchy).

What Makes Them Different

Chipotle Mexican Grill is one of the few places that an individual can go to get fast, moderately-healthy food. With recent trend of health becoming a concern for nearly every American, they are looking for a convenient yet health means of fulfilling their need for food in their busy schedules. Chipotle can consistently deliver valued, quality food at more-than-reasonable prices. Aside from this aspect, Chipotle Mexican Grill, Inc. is the only restaurant chain that does not have a single dollar of debt (Yahoo Finance, 2018). The reason for their strong stock evaluation is from a combination of quality food and no debt.

Industry Overview: Restaurants

The United States Census Bureau breaks down the restaurant (i.e. food service) industry into two main categories: Full Service and Limited Service (n.d.a). In this context, Chipotle Mexican Grill, Inc. would fall into the category of Limited Service – since, the service is limited. Limited services entail ordering your own food rather than having a waiter/waitress go the kitchen to order your food. Within this category, Chipotle Mexican Grill, Inc. has successful carved out its own piece of the pie – they are capturing a market that was not previously there. Now that we have established that the company is a “first-mover,” we can be to note that Chipotle is capturing a market that was previously occupied by other businesses. Over a three year period, there has been a 37% increase in the amount of restaurant units (stores) that Chipotle Mexican Grill, Inc. has (The Motley Fool, 2014) (See Exhibit 2 and 4).

Business Cycle analysis

The industry that Chipotle Mexican Grill, Inc. participates in is the restaurant industry. More particularly, it is in the Fast-Casual sector of the economy. Both this sector and industry are cyclical to the U.S. economy – meaning that they move parallel to one another. The economy has remained strong and has recovered completely from the 2008 recession. Food is a necessity for every living creature. In particular, humans need food – but, they do not particularly need it from Chipotle Mexican Grill, Inc.

This being said, Chipotle is a want – not a need. So during times of economic downturn people will look for more affordable means of getting the food they need. If demand in the market goes down but the supply remains the same (i.e. the stores) then prices will have to lower in order to keep individuals coming. Chipotle is, however, unlikely to lower its prices on food with already slim margins (Shreeves, 2011). All-in-all, if the market is in a growth period, as it is now, then the industry will grow as well – and ultimately the firm.

Competitive Landscape

The restaurant sector is extremely competitive, with many options in every direction. Overall the industry competes on either price, quality and/or convenience. Although Chipotle is in a niche sector that it created “Fast-Casual,” it still must compete with other restaurants both within the sector and in the industry as a whole. Customers will seek out different types, price ranges and others. In order to capture the market, Chipotle Mexican Grill, Inc. has to be able to appeal to a large amount of people. The biggest competitors for Chipotle Mexican Grill, Inc. are Panera Bread, McDonalds, Starbucks, Wendy’s and the Yum! Brand (i.e. Pizza Hut, Taco Bell) (Kyle, 2018).

Recent Industry Tendency

The United States is experiencing an expansion period in the economy. As a result of the industry’s cyclical parallelism, the restaurant business has been prospering with a compounded annual growth rate of 12% since (U.S. Census Bureau, n.d.a). Many companies are attempting to find a new edge against their competition whether it be through promotion, increasing margins or expanding market. Regarding margins, the companies are constantly looking to improve their supply chain and other operations to ensure maximum efficiency.

Porter’s Five Forces Model: Entertainment / Mass Media Industries

PESTEL Analysis

Chipotle has many locations in many different countries. They are spread across twelve countries therefore have many different markets and cultures to deal with. Overall Chipotle has been able to do well when it comes to adjusting and working around the PESTEL factors. Aside from some major issues like that of the E Coli outbreak they have had success and growth.

Political Factors

Chipotle can be affected by many political factors and they can have various political factors that affect their long-term profitability. They do well in in dealing in different political environments as well as dealing with political risks. Some political factors that they must be on the lookout for when expanding into new territories or even in the current territories they are in are: Political stability for the restaurant sector in country’s economy, level of corruption, taxation, and trade regulations and tariffs related to services to name a few. An example of dealing with one of these factors was when Chipotle had to deal with a tariff here in the US not so long ago. President Trump proposed a twenty percent markup tariff with Mexico. Chipotle had to consider raising prices to protect their profit margin as their costs would be going up. Specifically, when it came to avocados as they mainly sourced this from Mexico. They thankfully were not affected too bad by this and had work around that prevented them from having to increase prices.

Economic Factors

Chipotle can use economic factors as advantages if worked along with their systems. At the same time if attention is not given to these factors it can bring down big losses for the company. Some of the economic factors that Chipotle needs to keep in mind are: inflation rates, interest rates, labor costs, and economic growth proportional to countries economy. Here in the US Chipotle has been able to have a steady growth overall and they did take a big did when the outbreak occurred, since then they have been slowly but surely growing back. In proportion to the US they have been keeping relative in terms of overall growth.

Social Factors

Social factors can be a big one for Chipotle as they have a health image to maintain. Some social factors to investigate for them are: demographics, class structure, culture and attitude. Chipotle has acquired a brand of being a health-conscious environment therefore they really try to keep up with their customers to continue having that image. They have been able to keep this going for some time now and look to bring that trust back after their outbreak.

Technological Factors

Technology is always changing and growing and if a company does not keep up, it can really bring them down. Chipotle does not have too much to worry when it comes to overall technological advances as it is not a major factor in their restaurants. But they still must keep up with the competition. Some factors are: recent technological developments and technology impact on product offering. Chipotle has been investing in technology like flat panels to speed up their order process and make it a smoother transition for their employees to provide a fast and accurate service. They have recently invested around ten thousand on these upgrades and will continue to work on other technological advancements.

Environmental Factors

When it comes to environmental factors there are quite a few that can play a role on Chipotle, mainly when it comes to their supplies and products. Some environmental factors are: weather, climate change and attitudes towards ecological products. Chipotle has a lot of locally grown produce and well raised animals. Climate can really take a toll on this. Sometimes they will run out of certain produce or meats due to these factors. They have had to pan out and get multiple suppliers to avoid being out of stock.

Legal Factors

Valuable, Rare, Inimitable, Non-substitutable, Exploitable (VRINE)

Valuable:

Chipotle creates value with their dedication in keeping an atmosphere of trust in knowing they are using fresh ingredients, expanding their business, and innovating as much as they can. They may have a small menu but this is because small menus means quick service and it reduces the number of ingredients needed on-hand, which makes for less waste.

Rare:

Chipotle does have a lot of competition, so it does not make their concept rare. But however, they do strive to be unique in not using freezers, ethically and naturally producing and serving food.

Inimitable and Non-substitutable:

There are quite a number of substitutes that people may choose instead of chipotle which is what we saw during the e. Coli outbreak. However, they are planning to innovate as we mentioned before they plan on creating an easier to- go stations, and a happy hour amongst other things that’ll help the business. Even Ells said “I don’t want anything to be part of Chipotle that wouldn’t be the very best.”

Exploitable:

Since the e. coli incident of 2015, Chipotle was worried that the restaurant was going to have a hard time coming back from it. Since the new CEO, he plans on adding new things to the menu along with creating some new specs to vamp up the restaurant.The menu that they have has been the same menu since the start of Chipotle. The management team is concerned that this may cause customers to feel the need to try other places that may offer different things. Chipotle decided to use some of their facilities as their “testing” kitchen to be able to see what the customers would like and what they wouldn’t like including their queso and frozen margaritas.

SWOT Analysis

Strengths

Since its inception, Chipotle Mexican Grill, Inc has been able to prove its resilience in all aspects of its finances. Chipotle Mexican Grill, Inc since 1993 has sustained a positive compounded annual growth rate regarding its growth and profitability and accompanied by steady liquidity ratios and maintaining leverage ratios of 0 (Value Line, 2016). As being one of the first-movers in this sector, Chipotle has an advantage over others.

Weaknesses

Their abbreviated slogan of “food with integrity” has turned one of its main strengths into one of its main weaknesses since the E. coli breakout in 2016. People are beginning to distrust the quality of the food that is at Chipotle Mexican Grill, Inc. In fact, as a direct result from the E. coli break out, Chipotle Mexican Grill, Inc saw a 13.3% reduction in sales in 2016 from the year prior. It would appear that sustainable source of ingredients is proving to be difficult since their most recent issue of an unknown contaminant (Yahoo Finance, 2018).

As time progresses, individuals that purchase food at this establishment will begin to question the so-called integrity their food possesses – ultimately, this continuous lack of quality food will be a wound that if not treated in-time will be the downfall of the company. Oftentimes, companies can manage to turn weaknesses into strengths, just as the strength can become a weakness. Hopefully Chipotle Mexican Grill, Inc. will be able to figure out how to keep its food of untainted quality.

Opportunities

With the additional of its new CEO, Brian Niccol, Chipotle Mexican Grill, Inc. has opportunity to learn from what new insight he has to offer. For instance, B. Niccol intends on expanding the once limited menu at chipotle to include a broader range of food (Yahoo Finance, 2018) The opportunities associated with Chipotle Mexican Grill, Inc are all stemming from their new CEO. By introducing a broader menu, Chipotle Mexican Grill, Inc will have the unique ability to capture more of the market. Aside from attracting a larger group of the current market, Chipotle Mexican Grill, Inc is looking at alternative methods of attracting the young individuals. In fact, Chipotle Mexican Grill, Inc is attempting to become “culturally relevant” by inserting themselves in different atmospheres such as the wildly popular (Fortnite) (Carmen). By becoming culturally relevant, individuals will connect with chipotle outside of the normal scope.

Threats

Ultimately, Chipotle Mexican Grill’s weaknesses have lead to a domino of threats. One of the main issues facing Chipotle Mexican Grill, Inc, in terms of revenue and growth is there recent negative publicity in the past two years. The E. coli outbreak has lead to issues regarding both negative public relations and ultimately the lack of loyal customers. The lack of loyal customers stems directly from Chipotle Mexican Grill, Inc’s inability to deliver consistently clean food over the part two years. There have been customers getting sick in isolated locations popping up (e.g. Virginia, Ohio) (Yahoo Finance, 2018). If the company can manage to stop this trend and revert their weakness back to a strength (i.e. deliver quality food), the threats will stop. Although the treats are external, they were created from internal weaknesses.

Strategies

Business Strategy

Chipotle has a business strategy of setting themselves apart from their competitors by having a differentiated strategy, like unique brand and food. Their slogan is “food with integrity” and they pride themselves on this. They want to be known as the healthy fast casual alternative. They do so by providing thing like non-GMO products, locally grown produce, responsibly raised animals, home style cooking and organic ingredients that are high quality. Chipotle has acquired smaller chains and continues to grow through this. They did lose a lot of customer since they are all about health but then had the horrible E coli outbreak.

More recent business strategy has been to revamp their business to be relevant and regain their customers trusts.They want to not only regain their customers but gain new ones. They plan on changing their hours to open earlier and close later. Change the menu to offer more verity and options and add things like happy hour to invite more customers in. They also plan on closing their underperforming stores and really focus on the ones that are shining to continue to improve. Lastly, they want to update their locations to look more modern and upkept. This is all a work in progress and they do know it will take time not only to implement the changes but more importantly regain the trust of their customers.

Corporate Strategy

Chipotle Mexican Grill, Inc corporate strategy entails expanding their target market as the new CEO is attempting to do with the new business hours and additional options on the menus (Carmen, 2018). In conjunction with this target market expansion, the company is also attempting to expand internationally and have a stronger standing outside of the United States of America. Currently, Chipotle Mexican Grill, Inc corporate has their eyes set on expanding across the world to Australia (Yahoo Finance, 2018) with this increase in their global foothold, it ensures additional cash flows to the company. As long as the company continues to lack debt financing, investors will be pleased with stock prices and dividends.

Financial Comparison

In comparison to recent years, Chipotle Mexican Grill has been regaining strength financially from the hard hit of 2016’s E. coli outbreak. Despite such struggles (i.e. the E.coli Outbreak), Chipotle Mexican Grill has been able to retain a 0% of long-term leverage. This is one of the main reasons that there stock evaluation is amount the best in the industry (Value Line, 2016). Many businesses in the “Fast-Casual” Sector (i.e. a sector of the market that Chipotle carved out) financials paint quite a different picture. Chipotle revenues have grown a staggering 15% since last quarter from 3.9 billion to 4.5 billion (Yahoo Finance, 2018). In conjunction with a strong growth that is historically characteristic of Chipotle Mexican Grill, their EBITDA Margin has steadily increased each quarter from the with a compounded annual growth rate of 4.5% each year (Yahoo Finance, 2018) since the outbreak. Although, there is key indicators signifying that the company is recovering, they are still behind the industry regarding sales and EBITDA Margin – a margin of nearly 10%. The aggregate of the industry’s EBITDA Margin in nearly 17% meaning that Chipotle Mexican Grill, Inc is strengthening in comparison to itself but falling short and under-performing compared to the industry. In part, this relates to a smaller sustainable growth rate since the company lacks desire for external financing needs to boost their SGR.

Recommendations for Competitive Advantage

As a first mover in the industry, Chipotle Mexican Grill, Inc. possesses a durable foothold in the doorway – a foothold that is beginning to be pushed out of the way. This movement and volatility are derived from the weakness of having a safe supply chain. With an E. coli outbreak of 2016 and now the most recent incident of an unknown breakout in Ohio (Yahoo Finance, 2018), the customers are beginning to fully question the so-called “integrity” of their food. If Chipotle is to lose more customers, then they will continue to see a reduction in cash flows and revenue streams and respectively a lower stock valuation. The company must strive for success and by doing so they may find themselves back to there once good-standing regarding their customers. Chipotle Mexican Grill, Inc has a significant amount of positive going for it, if it is able to solve their one main issue of a safe, sanitary supply chain, the company will prosper.

In regard to the new CEO, it is in the strongest recommendation to be able to distinguish itself from fast-food and remain it is market of fast-casual. The new CEO, Brian Niccol, was from Taco Bell – a Mexican-style fast food restaurant. It is essential that the company find itself to be separated from comparisons to this company. Many of the intended new menu items and later hours has a resonation with business strategies from Taco Bell.

Bibliography

Carman, T. (2017, August 29). Fast Casual Nation: The movement that has changed how America eats. Retrieved July 31, 2018, from https://www.washingtonpost.com/lifestyle/food/fast-casual-nation-the-movement-thats-changing-how-we-eat/2017/08/28/23f6d710-86c5-11e7-961d-2f373b3977ee_story.html?noredirect=on&utm_term=.c9d7829897f4

Center for Disease Control (CDC) Multistate Outbreaks of Shiga toxin-producing Escherichia coli O26 Infections Linked to Chipotle Mexican Grill Restaurants (Final Update) Retrieved from August 3, 2018, from https://www.cdc.gov/ecoli/2015/o26-11-15/index.html

Chipotle illnesses: Stock falls after customers get sick in Ohio. (n.d.). Retrieved July 31, 2018, from https://money.cnn.com/2018/07/31/news/companies/chipotle-stock/index.html

CMG Cash Flow | Chipotle Mexican Grill, Inc. Stock. (2018, July 31). Retrieved July 31, 2018, from https://finance.yahoo.com/quote/CMG/cash-flow?p=CMG

Cole, S. (2014, July 09). How Chipotle Changed American Fast Food Forever. Retrieved July 30, 2018, from https://www.fastcompany.com/3027647/how-chipotle-changed-american-fast-food-forever

Daszkowski, D. (n.d.). Chipotle Mexican Grill's Humble Beginning. Retrieved July 31, 2018, from https://www.thebalancesmb.com/history-of-chipotle-mexican-grill-3973222

Duberstein, B. (2017, July 28). Can Menu Innovation Lead to a Chipotle Turnaround? Retrieved July 31, 2018, from https://www.fool.com/investing/2017/07/28/can-menu-innovation-lead-to-a-chipotle-turnaround.aspx

Department, S. M. (n.d.). Chipotle Mexican Grill, Inc. PESTEL Analysis & Environment Analysis. Retrieved from http://fernfortuniversity.com/term-papers/pestel/nyse4/2666-chipotle-mexican-grill--inc-.php

Doubling Down on Food With Integrity. (n.d.). Retrieved August 3, 2018, from https://www.chipotle.com/localgrowersupport

Kyle, M. (2018, July 27). Who are Chipotle's main competitors? Retrieved July 30, 2018, from https://www.investopedia.com/ask/answers/052015/who-are-chipotles-cmg-main-competitors.asp

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2012).Strategic management cases: competitiveness and globalization. Cengage Learning.

QSR Magazine. (2014, February 5). Fast Casual Sees Traffic Growth in 2013. Retrieved from QSR Magazine: http://www.qsrmagazine.com/news/fast-casual-sees-traffic-growth-2013

Shreeves, R. (2011, August 29). Chipotle Mexican Grill's pros and cons. Retrieved from Mother Nature Network: http://www.mnn.com/food/healthy-eating/blogs/chipotle-mexican-grills-pros-and-cons

The Motley Fool. (2014). Chipotle SWOT Analysis. Retrieved from The Motley Fool: http://beta.fool.com/adamlevy/2012/11/05/chipotle-kind-swot-analysis/15767/

The Motley Fool. (2016). Chipotle Mission Statement and the Far-Flung Ingredients in Your Burrito Retrieved from The Motley Fool: https://www.fool.com/investing/2016/05/31/chipotles-mission-statement-and-the-far-flung-ingr.aspx

US Census Bureau. (n.d.a.). Restaurant and other eating places. Retrieved from the United States Census Bureau https://www.census.gov/data.html

Value Line (2016) SWOT Analysis: Chipotle Mexican Grill, Inc. Retrieved from the Value Line: http://valueline.com/Stocks/Highlights/SWOT_Analysis__Chipotle_Mexican_Grill,_Inc_.aspx#.W2ZBOPZFzOY

Yahoo Finance (2018) CMG FINANCIALS Chipotle Mexican Grill, Inc.. Retrieved on August 2, 2018 from https://finance.yahoo.com/quote/cmg?p=cmg

Strategic Analysis Chipotle Mexican Grill (2024)

FAQs

What type of strategy does Chipotle use? ›

Chipotle uses a value pricing strategy. Its prices are just about the same as compared to other fast-casual places. Its food is usually in demand as compared to others but has always maintained a constant rate.

Find Out More ›

What are the key issues of Chipotle Mexican Grill? ›

Some critical issues Chipotle might have faced in their expansion plans include maintaining food quality and consistency across locations, competition from other fast-casual restaurants, supply chain disruptions, and public health concerns related to food safety.

What is Chipotle's unique value proposition? ›

Chipotle was born of the radical belief that there is a connection between how food is raised and prepared, and how it tastes. Real is better. Better for You, Better for People, Better for Our Planet.

Learn More Now ›

Why is Chipotle Mexican Grill stock so high? ›

Key Points. Chipotle's fresh approach to fast casual dining is still drawing crowds. The stock has gained 68% over the past year, and management recently announced a major stock split. Improved throughput, a robust rewards program, and higher purchase frequency should continue to drive growth.

Learn More Now ›

Is Chipotle a successful business? ›

Chipotle Mexican Grill smashed fourth-quarter earnings and sales expectations amid traffic gains that bucked recent industry trends. We believe Chipotle's success is a result of delivering on 5 essentials of all strong brands.

Get More Info ›

Is Chipotle still successful? ›

In 2023, Chipotle grew revenue 14% to $9.9 billion, while diluted earnings per share (EPS) jumped 38% to $44.34. Additionally, Chipotle's comparable restaurant sales jumped 7.9%, and restaurant-level operating margin continued its relentless trek higher, climbing above 26%.

Find Out More ›

What factors contributed to the loss of confidence in the Chipotle brand? ›

Chipotle Mexican Grill has a trust problem and its finally addressing it. The burrito chain has struggled to regain customer confidence since a series of food-borne illness outbreaks caused diners to flee the restaurant chain two years ago.

Find Out More ›

Does Chipotle use a differentiation strategy? ›

The differentiation approach has held strong for the brand since 1993. The strength of their stock, high yielding profits and imitating competitors are all examples of the differentiation strategy being a success within the firm. Chipotle implements this differentiation strategy by promoting green farm to table.

Know More ›

How does Chipotle differentiate itself from competitors? ›

Essentially, they try to source the very best ingredients and prepare them by hand. By choosing to serve their Mexican cuisine with whole, fresh ingredients and high-quality meat, Chipotle has a clearly defined differentiator in the Mexican fast food category.

Discover More ›