Chipotle Mexican Grill
Now considered the leader in the fast casual industry, Chipotle Mexican Grill (CMG), first opened their doors in the spring of 1993 in heart of Denver, Colorado. Immediately Chipotle’s was a hit with the younger college crowd, and through word of mouth, CMG quickly became a staple for many residents near the college where the first restaurant opened. Since then, Chipotle has opened up 1230 stores in 46 states, including stores in Canada and recently London.
Chipotle was built around the idea of simplicity, keep the menu simple and serve high quality, farm fresh, free range ingredients. “Food with Integrity” has been the corporate credo ever since. While continuing to grow its US presence, Chipotle should focus on enhancing its menu offerings, expanding slowly, to ensure it doesn’t stray from its already successful formula. Chipotle should also highlight and continue to promote its “Food with Integrity” campaign by advertising more heavily and focusing on the saving the family farm as a major differentiating factor between themselves and their competitors.
Situational Analysis History In 1993, Steve Ellis founded Chipotle Mexican Grill in a former Dolly Madison Ice Store in Denver, Colorado. A former student of the Culinary Institute of America in Hyde Park, New York; Steve Ellis became a line cook for large restaurant in San Francisco, California. Taking what he learned, Ellis decided to open a restaurant near the University of Denver campus using a loan from his father of $85,000 dollars. He calculated that in order to turn a profit he would have to sell 107 burritos a day!
After one month in business the little restaurant named “Chipotle” (the Mexican Spanish name for a smoked, dried jalapeno chili) was selling over 1,000 a day. With the money made from the first Chipotle Mexican Grill, Ellis had planned to open a fine-dining restaurant; however following the success of his first restaurant, he decided to re-focus on the growth on Chipotle instead. Five years after he opened his first restaurant, a minority investment was made in the company by McDonald’s.
In 2001, McDonald’s had become Chipotle’s largest investor enabling the fledgling restaurant to expand from just 16 locations in 1998 to over 500 by 2005. By 2006, McDonald’s had fully divested itself of Chipotle, a restructuring move that allowed McDonald’s shed its other investments such as Boston Market and focus on its main restaurant chain. In a list of fastest-growing companies in 2009, Chipotle was ranked eighth, based on increases in U. S. sales over the past year. As of 2011, Chipotle had opened over 1100 restaurants throughout the United States and Canada.
Chipotle is considered the pioneer of the Fast-Casual restaurant market. It is a highly socially aware corporation that believes strongly in using fresh locally grown ingredients, promoting naturally and organically grown foods, and repurposing (recycling) the majority of its corporate materials for new and exciting products/uses. The Internal Environment A. Marketing goals and objectives Chipotle’s main marketing strategy is to maintain its leadership in the “fast-casual” restaurant marketing segment.
Chipotle holds the largest share of this segment and wants to continue to expand their stronghold on the competition. Chipotle currently has over 1,400 locations and plans to open an additional 10% of locations in the United States. Chipotle also targets prospects that want to experience, and expect, food quality that is in line with that of full service restaurants, and is also easily obtainable and convenient. The marketing idea and objective is to provide quality food, with quality ingredients, at the speed of normal “fast-food” restaurant chains.
Chipotle’s marketing segment is known as “fast-casual”, and implies that customers want to have a quality meal in a shorter amount of time than that of a traditional sit down restaurant. Chipotle is achieving the “fast-casual” experience in their restaurants by preparing food with fine ingredients, sophisticated cooking techniques, and serving meals in a timely manner that meets the customers’ requirement. Chipotle has engrained these high quality ingredients and cooking techniques throughout all of their restaurants.
Chipotle calls their style of cooking “Food with Integrity”. Going beyond the ingredients and cooking techniques, Chipotle also has created an architectural environment that provides a different style and feel than that of fast-food restaurants. B. Current marketing strategy and performance Chipotle Mexican Grill, a national chain masterfully combines a solid product with a new marketing campaign that integrates their advertising, packaging and website to educate consumers about the company’s core vision – “Food with Integrity”.
Food with Integrity” is not a corporate initiative, but is a philosophy that we can always do better in terms of the food we buy. Better means; food is better tasting, coming from better sources, better for the environment, better for the animal, and better for the farmers who raise the animals and grow the produce. It is also a process of going beyond distributors to discover how the vegetables are grown, how the pigs, cows and chickens are raised, and where the best spices come from. These details affect the flavor of the finished product and what we can do to improve it.
Chipotle is teaching people to consider the source of the food they choose to purchase, hoping to influence the decision making process for all future food purchases and showcases a viable business model for the food industry. Chipotle uses an integrated marketing approach. Everything about Chipotle has a marketing aspect; from the employees’ shirts to stories printed on the cups tell us facts about Chipotle. Chipotle is all about fresh food, even their trucks have funny, memorable marketing communication written on them like “No.
The driver can’t sell you a burrito. Chipotle’s marketing plan begins with newspaper advertisements used frequently every month. Ads will run in one paper during the beginning of the month and later in the month for a different paper. In store surveys will be done after six months of operation. Information will be collected about Chipotle’s customers and media tactics will be changed accordingly over time. They also relied on billboards, radio ads, and word-of-mouth. In 2012, Chipotle started nationally televised commercials during the 54th Grammy Awards ceremony.
Current and anticipated organizational resources As of April 9, 2012 Chipotle’s stock was trading at $432 dollars a share and has approximately $456 million dollars in cash with a net debt of $3. 66 million. From 2005 through 2010, Sales at Chipotle restaurants rose 28%, while margin for the same period rose 9. 2%. Chipotle has had staffing issues that needs to be addressed. After immigration agents raided several stores in Minnesota, hundreds of undocumented employees were terminated. Currently, the company is complying by using “e-verify” to validate status of all employees.
Chipotle also maintains an extremely close relationship with its suppliers. It prefers to do business with family owned farms versus industrial ranching and factory farming, which produces tons of waste while depleting the soil of nutrients. Chipotle has defined a high set of standards for their organic/free range farmers, and spends lots of time meeting and speaking with each of them. D. Current and anticipated cultural and structural issues Chipotle’s emphasis is that of simplicity. A limited menu, made with fresh locally grown ingredients, and served quickly in a cool, casual atmosphere.
Chipotle competes in the “Fast-Casual Dining” market, the fastest growing segment of the restaurant industry. Fast-casual blends the timeliness of fast food with the restaurant style of dining, a model of efficiency that Chipotle has been working on since Steve Ells founded the chain back in 1993. The company lives by a credo set forth from Steve Ells himself, “…we try to do a few things really well. We elevate basic raw ingredients into food that’s richer and more sophisticated through our recipes and cooking techniques. ” So Chipotle makes a few things, thousands of ways.
Looking at the menu you find: burritos, burrito bowls (a burrito without the tortilla), tacos and in 2005, they added salads. They work hard to keep the menu simple, but are always listening to their customers for sensible additions. Chipotle appears to put its political and power struggles behind her, at least for now. In 1998, McDonald’s Corporation acquired the controlling interest in Chipotle. It was during a restructuring period in McDonald’s history and by the time they had fully divested themselves in 2006, Chipotle went from 16 restaurants to over 500. Chipotle doesn’t spend a lot of money on advertising compared to its competitors.
According to its Chief Marketing Officer, the company doesn’t want to start advertising in traditional media like TV because “Once you get on that model, I think it’s very, very hard to get off. ” In fact, the nationwide company spent a whopping $6 million last year compared to its competition that spent anywhere from $100 million to $650 million. Key to Chipotle’s success is its stability at the top. Steve Ells is the founder and CEO and has been at the helm of the company since the beginning. This means that corporate philosophy and tambour has been consistent and the message to the employees has remained the same.
Ells attributes three secrets to his success: • Don’t bow to convention. When I started Chipotle, I didn’t know the fast-food rules. People told us the food was too expensive and the menu was too limited, neither turned out to be true. • Find incentives that work. The best Chipotle restaurant managers get the title “restaurateur” and a $10,000 bonus for each person they hire who starts as crew and goes on to become a manager. We have 170 restaurateurs out of 1,000 managers, and the turnover rate among them is very low. • Pick the right message.
I thought we were going to get customers excited by telling them there were no antibiotics in our meat or no growth hormones used to raise the animals or no Recombinant Bovine Growth Hormone (rGBH) in our dairy products. Well, that’s not a very appetizing message. So now we have a marketing program that’s going to start a dialogue about why better ingredients make for better-tasting and more healthful food. Customer Environment A. Current and Potential Customers Chipotle has a diverse customer following not only characterized by demographics, but also differences in social-cultural characteristics.
Customers who decide to dine at Chipotle vary in age, ethnicity, and education. Chipotle is able to prospect to different types of demographics due to their marketing strategy. Chipotle also is able to provide value to prospects that have strong social-cultural principles. The meat, vegetables, and ingredients used to prepare Chipotle’s food can be considered ethically positive. They only use naturally raised meat (chicken, pork, beef), and organically grown vegetables. Chipotle’s food ingredients provide large benefits to the customers that value the quality of the meals in which their food is raised or grown without chemicals or drugs.
In Chipotle restaurants worldwide, you will find teenagers, young adults, adults, business people, families, wealthy, middle class, professional, and blue collar workers all dining on the same food. Chipotle’s potential customers, in relation to the new marketing plan, vary in characteristics as well. With the addition of pizza to their simple menu, Chipotle is able to maintain their “Food with Integrity” philosophy, while expanding their prospects. Potential prospects can range from children who are dining with their parents, adults who enjoy pizza with a beer, or any demographic who prefers pizza over burritos.
The new marketing plan gives patrons an additional choice for their meal. Chipotle’s management hand selects local and national farmers who raise natural meats. They also select the farms that grow the vegetables and beans. Each Chipotle restaurant is responsible in regards to ordering the correct amount of food needed to supply the public with their offerings. B. Customer Needs The products and services that Chipotle provides are based on three simple things: simplicity, attention to detail, and high-quality ingredients. The food is served in a cafeteria style line.
The customer starts with the choice of a burrito, fajita burrito, a burrito bowl, tacos, or a salad. From there, they choose the type of rice they want, whether brown rice or cilantro lime white rice. Next, they choose what kind of beans they would like. The customer can choose from pinto beans or vegetarian black beans. The customer would then choose the type of meat that they want. They have the options of chicken, steak, carnitas (which is pork seasoned with some spices), or they may get their meal vegetarian style. The customer will then finally choose which extra toppings they would like on their meal.
This includes four different types of salsas, sour creme, guacamole, cheese, and lettuce. The customer also has the option of getting tortilla chips with salsa or guacamole and may choose from a variety of drinks, both alcoholic and non-alcoholic (Chipotle). The food and atmosphere that Chipotle provides to its customers will be exactly what the target market is looking for. Chipotle is in the fast-casual dining market. “Fast casual dining is a concept that is quickly spreading throughout the food franchise industry. Fast casual food franchises manage to bring ogether the very best of the restaurant industry traits into one genre. It’s a blending of quick service speed and a casual dining atmosphere. ” (Food Franchise) “This is the fastest growing segment of the restaurant industry” (Chipotle). The customers of the fast-casual segment expect the quality of the food that they are being served to be closer to the quality of a full-service restaurant than that of a fast food restaurant (Chipotle). Chipotle provides that as well as a fun place to eat it. But, Chipotle is not just for the young people. It is perfect for an older crowd as well.
The food is served quickly and is perfect for someone who is on the go, perhaps on their lunch break from work. C. Locations Chipotle currently operates 1408 locations, in the US, Canada, and UK. Each location is unique, however each does conform to key design concepts set forth from the corporate office. This ensures that each restaurant can meet critical throughput requirements; it also simplifies training and minimizes support costs. Unlike McDonalds or other fast food restaurants, all Chipotle restaurants are company owned.
As in the beginning, Chipotle still prefers to open restaurants near colleges or near social networking areas i. . , shopping malls, amusement parks, etc… Chipotle fulfills the need of people who are looking to have a quick yet healthy lunch. Ells describes Chipotle as the “pioneer concept in the fast-casual restaurant industry. ” He adds that Chipotle’s goal is to demonstrate that food can be served “fast without being a typical fast-food experience. ” The fast-casual chain is estimated to have 750,000 daily customers. Chipotle’s target demographic is 18 to 34 year olds, with a strong focus on college students. D. Peak Hours of Engagement The primary customer demographic for Chipotle is between the ages of 25 and 54.
The upper limit is a bit higher than the traditional fast-food customer typically is, that’s because of their desire for a healthy menu served quickly. Lunch is still Chipotle’s busiest times, with sensationally long lines. The lines are so long in fact that recently Steve Ells told analysts on a conference call that the company was testing a new concept where an experienced employee would use a hand-held POS device to ring up sales for customers who are stuck in slow-moving lines. These long lunch lines have had a slightly negative impact to Chipotle sales as intimidated consumers look for less crowded venues.
With the handheld devices, Chipotle believes they can cut 18-22 seconds out of the time it takes the average customer to order and get their food, which in turn should increase customer throughput and satisfaction. Dinner is also becoming a very popular time for consumers, especially in college towns and near malls. Consumers are now starting to see significant lines at dinner, with the throughput being typically much slower. That’s because dinner traffic tends to attract a lot of families with more children therefore orders are much larger as well.
Chipotle is hoping their new ordering model, hand-held POS, will not only improve lunch but dinner wait times as well. E. Why (And How) Do Customers Chose Chipotle & Why They Don’t Chipotle has a distinctive advantage in their menu options in regards to their competition. Considering that fast food restaurants do not market natural or organic food items, prospects and customers see Chipotle as a preferred choice. Chipotle is also known for larger dishes compared to other restaurants in the same segment. Between the quality of food prepared and the quantity of food provided, Chipotle fulfills the needs of the customer.
Customers in this market segment can chose to eat wherever and whenever they want; the value that Chipotle provides satisfies their needs. The External Environment A. Competition Chipotle’s competitors are not directly part of the fast casual segment as that segment has never been truly defined. Instead they are defined more broadly as part of the restaurant and bar industry. The market share of Chipotle’s top competitors: McDonald’s (13%), Yum! Brands (10%), Wendy’s/Arby’s Group (6. 5%), Burger King Corporation (5. 1%), Doctor’s Associates Inc. , owner of Subway (5. 9%), Jack in the Box, owner of Qdoba (1. 5%),
The rest of the market (64. 5%) is made up by smaller competitors such as Chipotle, Panda Express, Panera Bread and Pei Wei. The six major competitors command 35. 5% of the market share, making the industry unappealing for new competitors. Chipotle’s primary competitors are Panera Bread, Taco Bell (Yum! Brands), McDonald’s and Qdoba (Jack in the Box). Panera Bread operates in the growing fast casual industry and is seen as one of Chipotle’s biggest competitors. Qdoba has a similar menu and promotes a similar brand message as Chipotle. Qdoba has experienced some success and is quietly expanding throughout the country.
Taco Bell is a close competitor because it offers Mexican style food and is a low cost alternative to Chipotle. McDonald’s is also a primary competitor as it is a dominant player in the fast food industry, commanding the largest market share. B. Economic growth and stability Given the current economic climate, Chipotle’s incredible shareholder gains should have been over by now, but they are not. Chipotle Mexican Grill is now the 3rd largest restaurant chain in the market, a far cry from the company’s focus of being a niche burrito maker. As stated earlier, the price per share of Chipotle stock was $432, which is up more than 20% this year.
That makes a 60%-plus gain for the past 12 months and 470% plus gain for the past three years – a figure that made it a better investment than Apple. This year the company looks to increase its number of restaurants 13% to 1,390, despite forecasting 5%-7% store sales growth. Also, the company believes food costs will also rise by the same amount, whose costs constitute 32% of sales. The company still is projecting a period of growth and many analysts concur. Why not, so far Chipotle has been very good to its investors to date, and in fact have enough cash to follow Apple’s lead and start paying a dividend it chooses.
C. Political Trends Many political trends affect Chipotle and their food. Government regulations not only mandate that Chipotle provide nutritional information, but they also have regulations on restaurants who claim to have “free range” or “organic” foods. Chipotle has to abide by these regulations and provides information to the government and its customers. The advantage for Chipotle being able to claim “free range” and “organic” is that it draws in customers who have the want to eat this type of food.
Chipotle can market their food to the customers who desire organic and free range foods. This is a very desirable segment because better quality food results in higher sales and profits. D. Legal and Regulatory Issues The U. S seems to have a labor problem. Hard-working workers are forcefully being kicked out by the immigration. The latest company that was targeted by immigration is popular fast food chain Chipotle. Chipotle Mexican Grill is facing a criminal investigation over its hiring practices and whether the company willingly employed illegal immigrants at restaurants.
In the 2009 Annual Report, Chipotle also outlined several risk factors including one in particular immigration. Various states in which we operate are considering or have already adopted new immigration laws, and the U. S. Congress and Department of Homeland Security from time to time consider or implement changes to Federal immigration laws, regulations or enforcement programs as well. Some of these changes may increase our obligations for compliance and oversight, which could subject us to additional costs and make our hiring process more cumbersome, or reduce the availability of potential employees.
In addition, we have been subject to audits by immigration authorities from time to time. Although we require all workers to provide us with government specified documentation evidencing their employment eligibility, some of our employees may, without our knowledge, be unauthorized workers. Unauthorized workers are subject to deportation and may subject us to fines or penalties, and if any of our workers are found to be unauthorized we could experience adverse publicity that negatively impacts our brand and may make it more difficult to hire and keep qualified employees.
If a significant number of unauthorized workers are identified in a particular market or across our company, the resulting disruption to our operations could be significant and our financial performance could be materially harmed as a result. ” E. Technological advancement Chipotle continues invest in new media/technology advancements. The company has expanded its web presence and actively updates the contents of the site. Recently they added online ordering capabilities where users can logon and place an order via the internet, their phone or other mobile device.
Recently, Chipotle invested in Point of Sales (POS) technology to help expedite long lines of customers during lunch and dinner rushes. The new POS devices will be managed by a Chipotle team member who will walk the line of the customers taking orders and payments on the spot, thus eliminating 90 seconds from the end of the purchase process. 90 seconds is not a lot for one customer but multiplied across the entire lunch population of 500 people, that adds up to hours of time savings and a huge increase in the throughput of a Chipotle’s line. F. Sociocultural trends
The company continues to focus on the concept of selling simple, fresh, healthy food made quickly and served in a pleasant atmosphere. Chipotle has made it a point to become a trusted corporate citizen of the world, promoting social awareness around recycling, repurposing, and organically grown ingredients. This year on Earth Day (April 22nd), Chipotle will give every customer who purchases a repurposed billboard bag (made from recycled Chipotle billboards) a free burrito. Consumers tend to favor the companies that take a large sociocultural stand, regardless of whether they’re the biggest or not in their category.
Chipotle has become the undisputed king of “Food with Integrity” precisely because it has positioned itself as the most credible and socially responsible challenger to the markets top leaders. Consumers recognize and promote a company like Chipotle, because it put a visible stake in the ground and consciously works to stay true to that proclamation. As long as they continue to be true to their word, consumers will continue to reciprocate the only way they can, with their hard earned money. Chipotle’s goals line up directly with their mission, which is to provide high quality food in a timely manner at a reasonable price.
The external environment is trending toward healthier choices which are based on changing customer requirements. The fast-casual segment is the fastest growing segment in the restaurant industry. Chipotle is a leader in the external environment by establishing which high quality ingredients to use, select where they come from, and communicate this to the prospects. Customers in the fast-casual environment have shown that they want high quality food, in a timely manner, at a pleasant location, and Chipotle has followed their voice.