How can Chipotle Mexican Grill Inc., increase customer loyalty, employee morale and profits while using sustainable and responsible ingredient sourcing?
As a business, it is important to not only focus on the financial benefits but also safety for your customers. This is the main idea behind social responsibility. Such that the models used are within the spirit of the law, national (or international) norms and adhere to ethical standards (AMP, 2013). Promoting and supporting organic agriculture is a responsibility of businesses, especially for those dealing with food like restaurants. Similarly, naturally raised poultry and meat ensures that customers do not suffer from the effects of added antibiotics and hormones. The easiest way of achieving sustainable sourcing, production and services to customers is to educate the latter on the need and advantages to health. Researchers have shown that there are significant changes in consumer trends- healthy diet tops the list (AACN, 2015). Chipotle Mexican Grill Inc had a vision of changing the way people eat and think about food. Thus they decided to change processes of sourcing for ingredients used for preparing food.
As time changes, the world is witnessing a shift in consumer preference. More importantly, there is a need for businesses to create ways of meeting the change in consumer preference (Hubble, 2017). According to the 2015 Supermarket Guru Grocers Association Consumer Survey, 50% of Americans would like have healthier foods with less processing and a shorter list of ingredients (Hubble, 2017). Also, 53% of Americans want locally prepared food (IMO, 2001). Meaning, consumers now want more fresh foods, prepared with less ingredients and from places they know (Hubble, 2017). The shift in consumer preference has made it a necessity to have alternative platforms that can deliver foods considered fresh and healthy to the consumers.
Chipotle Mexican Grill is a pioneer in the fast-casual restaurant industry. It was founded in 1993 by Steve Ells. Since then, it has grown to be among the leaders of the restaurant industry (Gold, 2005). Currently, the company has more 1600 restaurants within the US and 11 internationally. In 2000, under the leadership of Steve Ells, Chipotle made a commitment to serving customers with food sourced, produced and served through sustainable and responsible approaches (Gold, 2005). However, because of lack of effective strategy, took too long to fulfill this promise to customers. For example, in 2015, the restaurant recorded a loss because consumers questioned the quality of the food and cleanliness of in-store practices (Gold, 2005). This called for the need for Chipotle to implement integrated resource management techniques. Doing this enhanced customer loyalty, employees’ morale, increased competitive advantage and profits, and attracted big investors.
Chipotle had a vision of serving food to consumers with integrity. This would change the way people thought and ate food. This program means the company’s supply chain and corporate culture will have to be closely integrated from the time the ingredients are grown, harvested and shipped to stores (Christopher, 2016). Thus appeal to socially responsible customers deepens through the latter knowing how chipotle sources for its food.
Hyper-Local restaurant is new in the food service industry. It involves the restaurant growing own food in its backyard. It is a food service business that grows ingredients in its own property. It may be a rooftop garden or backyard. This technique is a product of vertical integration where a business proactively participates in controlling the raw materials, production and the sell of goods.
Chipotle Mexican Grill encouraged sustainable and responsible sourcing through the application of Hyper-Local restaurant method. Thus, the set aside some piece of land in their backyard and started growing food ingredients used in the restaurant. Chipotle chose this method because it was cheaper compared the cost of buying ingredients from farmers. Also, it made management and control of the business easier.
To make Hyper-Local restaurant more effective, the business used Integrated Plant Nutrition Systems approach in applying this technique (Gold, 2005). Apart from being economically viable and environmentally sound, this process was also conducive to the urgently needed increase in production of healthy food (Mason, 2013)s. As farmers, Chipotle used feasible and adequate mineral and organic inputs.
Similarly, they applied Integrated Pest Management method. This ensured that the level of pesticides on ingredients was low. They also applied ecology-based principles in methods of cultivation. This includes predator/prey relationship and pest life cycles. This helped in reducing the cost of ingredient production and risks associated with excessive use of pesticide (Kolk, 2016). Although promising, this technique had an impact on the labor cost. Thus, the company needed to employ more people to work in three areas: packaging, pesticides and fertilizer.
In 2012, a Deutsche Bank reviewed one hundred academic resources, fifty-six research papers and two literature reviews (Souza, 2013). The report showed that 76% of businesses that used environmental, social and governance activities gained competitive advantage (Gold, 2005). Similarly, more than 73% companies worldwide take part in corporate responsibility.
Chipotle Mexican Grill Inc., operates in a very competitive environment. The food industry has grown thus leading to shift in market dominance. Before, the company could be comfortable with sourcing for ingredients from environmentally unverified sources and maintaining low food prices to attract customers. However, because of availability of capital and emergence of rapid technological inventions, Chipotle could not afford to sit pretty while competitors gained mileage.
To measure the results of vertical integration, Chipotle used Value Stream Mapping (VSM). This is a lean supply chain tool employed by Chipotle Mexican Grill Inc., to separate wasteful and necessary value-adding activities. The method is used to identify all types of waste in the value stream chain and methods of eliminating them (Shorr, 2014). Resource managers also cite this to be one of vertical integration technique strength. In case of a machine breakdown, the use of a dynamic scheduling technique such as right-shift heuristics allowed farming processes to continue by simply altering the production schedule (Toyota Motor Corporation, 2016).
Similarly, to reduce risks associated with labor size, the business contracted farm training operators to equip laborers with multi-tasking skills. This way, the process of ingredient sourcing would not be interrupted incase a laborer fell ill (Gold, 2005). Multi-skilled employees trained to do tasks on machinery at different levels of manufacturing caused an increase in employee labor rates because vary of years of service, contract negotiations and positional status (Mazutis, 2012). Consequently, the value of optimal assignment was affected.
Nevertheless, this technique yielded fruits for Chipotle. For example by 2010, 100% of pork, chicken and beef served in the restaurants were naturally raised. Also, beans served to the customers were organically grown. By 2014, the company gained recognition for serving customers food made by ingredients sourced through responsible and sustainable means (Gold, 2005).
This is also the moment when Chipotle customer loyalty came to test. Because of the increase in food production cost, the company had to increase its food prices. Surprisingly, having seen the results of sustainable and responsible sourcing, Chipotle customers embraced the change. Consequently, the company made profits; despite increasing prices.
Strategy formation in organizations needs concerted efforts. More importantly, it needs careful implementation. Failing to do this can be a great setback. Chipotle knew that their mission is to change ways in which people think and eat fast food (Gold, 2005). Therefore, they sought ways of ensuring customers are served fresh food made from ingredients sourced through sustainable and responsible ways (Gold, 2005). For example, they started serving naturally raised pork, beef, and chicken and organically grown black beans. Because of the nature of the strategy, they had to increase food prices by one dollar. Because of the nature of the technique, the company had to increase its food prices by $1.
Implementation of vertical integration strategy is not for the faint hearted. It takes long and require close monitor to establish progress. Moreover, it has tendencies of being expensive, especially for an organization that has not dealt with it before (Dickey, 2017). Chipotle majored in preparing and serving customers with meals. In terms of sourcing, the company sought suppliers. However, after realizing that 50% of the food they served was being sourced through unsustainable and irresponsible means, they decided to create a backyard farm in most of its restaurant to help in production of ingredients (Gold, 2005). Of course this came with cost. For example, the company had to purchase farming machineries and seek the services of suppliers for seeds and fertilizers. Additionally, they had to the cost of construction and training laborers on responsible and sustainable processes of farming.
At the beginning, Chipotle experienced a decrease in profits. After conducting an assessment of cost, Chipotle management realized that they had spent $ 2 million in production (Gold, 2005). This led to a consequent decrease in profits. This was shocking. Although they had seen strong evidence that consumers wanted food prepared by ingredients sourced through sustainable and responsible means, there was no reflection in sales (Gilmour, 2013).
This shows the importance of conducting a thorough market research to understand the target market of a strategy. It enables a business to better understand the attitude and values among both loyal and potential customers (Grant, 2016). Strategies that lead to increase in cost are often avoided by companies that fear losing customers. Nevertheless, if a company chooses to implement any of them, then it should ensure that the anticipated results will impress customers beyond doubt.
The performance of a business depends on stability in its supply chain. This is possible through balance and collaboration in supply, management and delivery. Therefore Chipotle can invest heavily in staff so that the latter can contribute to efforts of growth and development within it (Wynstra, 2013). A motivated employee is the best for persuading customers to continue being part of a brand. For example, when Chipotle decided to serve naturally raised chicken, beef, pork and organically grown black beans, there may have been resistance within some section of the staff (Gold, 2005). However, through open communication, inclusion and responsible management, they chose to embrace it and be part of its implementation (Grant, 2016). Similarly, organizations should include employees in strategy formation and implementations to enable effective and efficient results (DoorDash, 2017). Chipotle should seek the services of an integrated information system to enable free flow of information and resources in its supply chain.
In conclusion, this report was based on a case study of Chipotle Mexican Grill., a fast food restaurant. T experienced decrease in sales because of not being cautious about the methods of ingredient sourcing by suppliers. Therefore, the management implemented Hyper-Local restaurant, a form of vertical integration technique in the food industry to promote responsible and sustainable ingredient sourcing. Although the company had to increase food prices, it still made profits because of customer loyalty.
References
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Christopher, M. (2016). Logistics & supply chain management. Pearson Higher Ed.
Dickey, M. R. (2017, April 10). Doordash will pay $5 million to settle class-action lawsuit over independent contractors. Retrieved July 23, 2017, from techcrunch: https://www.techcrunch.com
DoorDash. (2017, May 18). Strategy & Ops Has Its Finger on the Pulse of Doordash’s Three-Sidede Marketplace. Retrieved July 21, 2017, from https://www.blog.doordash.com
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Gold, A. N. (2005). Conscious Captalism: Serving food with integrity. In T. W. Hunger, Cases in Strategic Management. Prentince Hall.
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Hubble, E. (2017, February 7). 7 Food Delivery Industry Trends for 2017. Retrieved July 22, 2017, from https://www.veinteractive.com
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Mazutis, D. (2012). Authentic Leadership. In W. G. Guerrero, Cases in Leadership (pp. 240-250). New York: SAGE Publications, Inc.
Shorr, E. (2014, December 16). Reindeer Herders of Northern Europe Confront Climate Change. Retrieved October 13, 2016, from https://www.foodtank.com
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