Chipotle Mexican Grill started in 1993 out of Denver, Colorado. Steve Ell’s, the founder of Chipotle, is a graduate from Culinary Institute of America. His restaurant grew rapidly from being one small local location to over 2,000 locations in 43 states. “Between 2007 and 2013, Chipotle’s revenues grew at a robust compound average rate of 19.8 percent. Net income grew at a compound rate of 29.1 percent” (JANES, 2017). In 2013, Chipotle’s annual report shows revenue of $3.2 billion (“2016 ANNUAL REPORT AND PROXY STATEMENT”).
Ell decided to open his own restaurant and “change the way people think about and eat fast food” (JANES, 2017).
His plans for Chipotle consisted of a fast food style restaurant that was quick while serving quality food. There are many ways Ell’s visions came to life. Chipotle’s menu is simple and is limited on their options in order to perfect the options they do offer. Chipotle serves salad, tacos, burritos, and burrito bowls. Customers are able to customize each option they choose.
In order to achieve high customer satisfaction, the company’s strategy is also based on the quickest way possible to complete a purchaser’s order. This was achieved by an open restaurant style. This provides customers with answers on how their food is prepared and what the ingredients look like ahead of time. With this assembly line, the purchaser is able to select which ingredients they want by directly speaking to the employee. The plan also stated that good tasting food did not have to be extremely expensive.
Chipotle has been known to create a more diverse atmosphere. Chipotle is geared towards a younger generation. The ages however, attract people from 18 to 49.
Since Ell’s vision for Chipotle included changing the outlook on fast food and the stereo type on it, top executives began to research the ingredients used. Experts began to look into farms that operated on a natural basis instead of using chemicals. Chipotle began to slowly convert into serving organic ingredients only and eventually projected that all of ingredients served are high quality fresh ingredients while increasing awareness and respect for the environment. This was challenging for Chipotle to uphold. Consumer’s were purchasing large amounts and organic product supply could not keep up with the large demand. When there was a shortage of “Responsibly Raised Meats”, Chipotle was forced to serve conventional meat at times. The cost acquired with organic and natural products were usually higher. This caused an upward trend in the cost of goods sold in market prices. The ongoing concern for management is finding a solution to the high cost products in order to sustain a low cost and quality food menu. Chipotle has very high ethical standards. Chipotle receives ingredients from only about 22 independently owned and operated distribution centers. They have extreme quality requirements that make their group of available suppliers limited. This company refuses to work with environmental companies. As a result of their high ethical standards, ethical groups and non-profits such as PETA for constantly watching them. They have also been under inspection for discrepancies in their wages of the farm workers.
Seeing as this is a big issue for Chipotle, an even bigger problem arose in 2015. Chipotle had to shut down many locations because of an e. coli outbreak. This crumpled the trust of many of the people who support Chipotle. Chipotle had a significant setback. From the E. coli, Chipotle dealt with many legal issues. In recent years, Chipotle had legal issues from hiring illegal immigrants to work. Even though this was also aa set back, the outbreak of E. coli would really disrupt their sales and stock price. It is up to management to address these issues and provide strategies in order for Chipotle to survive.
Chipotle has many stakeholders throughout the business. Steve Ells father is a stakeholder as well as a lender. Many people such as Steve Ell’s father is concerned with the success of the company in terms of Net Profit, ROI, ROE, etc. Other stakeholders can be their employees and also include the cities that Chipotle is located in, and the suppliers that purchase from them. When it comes to their employees, an employee might become a stakeholder because of their concerns. Some of these concerns might be the workplace environment, salary, company growth, and many other characteristics. When it comes to cities and suppliers, they are always concerned with the company’s success. For example, if Chipotle were to grow, this means both city and suppliers would grow as well. Even customers who are concerned with the quality of the product, the price of the product, and the quality of service provided become a stakeholder.
The outbreak of e. coli has significantly hurt profits for Chipotle. The net income from 2015 to 2016 is devastating. According to Chipotle’s annual report, net income in 2015 was $475,602 and decreased to $22,938 in 2016. (“2016 ANNUAL REPORT AND PROXY STATEMENT”). In the result of the e. coli outbreak, the negative publicity is a major problem. The customer’s impacted by the outbreak as well as the shareholder class filed lawsuits against Chipotle which also affected the decrease in profits. In order to revive Chipotle’s profits again, many obstacles have to be overcome. Steve Ell’s took new position as executive chairman and Brian Niccol, former Taco Bell CEO, became the new CEO for Chipotle. Niccol along with his executive team prepare strategies to overcome the old and new problem.
The biggest concern for Chipotle is to address the food safety incident and future actions.
“As a result of the food safety incidents associated with our restaurants during 2015, we have implemented a number of enhancements to our food safety protocols, and intend to make additional enhancements, to ensure that our food is as safe as it can be” (“2016 ANNUAL REPORT AND PROXY STATEMENT”). In order to gain the trust back of many customers, quality and food safety measures are being significantly enhanced in order to avoid bigger losses and further legal trouble.
Chipotle has plans to open many new locations This brings many cultural challenges for the company. When you expand oversees, there is high risk. Chipotle currently has three international locations, one in Canada and two in the UK. When companies expand, they need to be aware of the cultural differences. Each cultural might have their own philosophies and beliefs. Some cultures to do not value the ethics Chipotle chooses to uphold. This could result in a major loss of competitive advantage. Chipotle operates in a simple organizational structure. This structure creates some difficulties on a communications basis, as well as for understanding some local and cultural differences in perceived value, quality, and philosophy. “In addition to designing new restaurants more cheaply, Chipotle will slow its growth of domestic locations. After opening 247 new stores over the past year, it will open 195 to 210 in 2017, said Mark Crumpacker, chief marketing and development officer” (SEALOVER, 2016).
Chipotle has also decided to renovate the old locations. The back of the location will be getting upgraded as well as the front. “The company plans to spend $50 million, or $20,000 per restaurant, to upgrade the interiors to have more comfortable dining areas and allow for more ordering options, better presentation of its beverage selection and improve the mobile ordering experience” (Whitten, 2018).
Chipotle has used social media as a marketing tool. For example, Chipotle has more Facebook followers that most restaurants in the industry. One of Chipotle’s solutions is technology innovation. This factor is based on mobile/digital ordering, delivery and catering choices. About nine percent of their total sales come from mobile sales. Many people are not aware you can order ahead for pick up. Niccol plans to change this by increasing marketing and remodeling the online ordering process. CNBC shares Brian Niccol’s thoughts over the reason. “When we talk about modernizing and digitizing our restaurant, it means making it easier to access Chipotle,” Niccol said. “We want our guests to enjoy Chipotle whatever way is most convenient for them. Whether it be through ordering and paying digitally ahead of time through delivery or via a group ordering options.” (Whitten, 2018). The experience for customers convince in pick up also displays a new exact location for pick up. This is a shelf for digital orders making it easier and quicker to find. The company also is improving delivery by partnering with Door Dash. Another way for increasing customer’s experience is by creating a second line. This allows the employees to fulfill catering and digital orders without the disruption of the man service line. This also creates much quicker processing time ensuring the customer of faster pick up times.
There are many existing factors to Chipotle surviving this hardship. In order to get out of this downfall, Niccol plans to spend a lot on market campaigns and to build “love and loyalty” with its customers. (Whitten, 2018). For the end of 2016, marketing and promotional expenses was 5.1% of revenue. In the past, marketing and promotion expense averaged around 2.1% of revenue (“2016 ANNUAL REPORT AND PROXY STATEMENT”). Advertising included radio ads, printing, outdoor transit, digital advertising, and includes promotional activities.
“On the marketing front, Mr. Crumpacker said Chipotle’s priorities are to attract new and lapsed customers, build brand affinity, promote its digital ordering and catering capabilities and explore new menu ideas” (adage.com). Chipotle has many ideas in how to reform their company and marketing is essential in making sure customer’s know the new information. “Our ultimate marketing mission is to make Chipotle not just a food brand but a purpose-driven lifestyle brand, too— one that is more visible, more engaging, and more relevant in culture” (“Chipotle Issues New Sustainability Report And Shares Progress On Waste Diversion Goal Of 50% By 2020”, 2019).
Chipotle’s roots are based on food with integrity. Instead of people seeing Chipotle as a restaurant chain, the idea is to have Chipotle seen as a lifestyle brand. Part of that will require changing the style of the restaurants and making social and technology upgrades. Advertising also included promoting new operation hours. This would enhance even more convenience promoting that Chipotle would open earlier as well as close later. Regarding food safety, it is essential to provide the customers with future protocols. A lot of restoring trust has to be put in place. Assuring customers of many new safety protocols is the first and very crucial step in regaining this trust.
Appendix B represents Chipotle’s SWOT analysis. SWOT stands for strengths, weaknesses, opportunities, and threats. Next will be discussed is each of these for Chipotle. There is three strengths on Appendix B. However, Chipotle has many strengths. High quality made ingredients from sustainable food, marketing programs, and fast growth is the three strengths that are on the appendix. Weakness is high food cost, limited menu items, and upward pressure on labor costs. For opportunities, international expansion and growing foodservice market. Lastly, there is a lot of threats when working in this market. Intense competition, increasing labor cost, and increase food safety regulations are just some of the threats.
Chipotle upholds many existing characters that uphold the overcoming of this downfall. The company also has a reputation of a simple focused high quality low cost menu. “Serving high quality food while still charging reasonable prices is critical to our mission to ensure that better food is accessible to everyone. We believe that purchasing fresh ingredients and preparing them from scratch in our restaurants is not enough, so we spend time on farms and in the field to understand where our food comes from and how it is raised” (“2018 ANNUAL REPORT AND PROXY STATEMENT”). This also shows support to health concerns which many people choose to live by. Chipotle has many strengthening key factors that play a huge roll for their company. Like all great success, history shows the key success factors. “Ironically, what was once one of the Chipotle’s strengths, fresh and quality ingredients, has become something of a weakness due to the recent E. coli outbreak. The company has always prided itself on serving safe, high quality food, so once the safety of its food was questioned, many customers began to flee. And unlike many of the big burger chains, who typically use only a handful of beef and potato suppliers and distributors, Chipotle depends on a more complex supply chain that includes scores of small, independent farmers. This has made it difficult to monitor quality and safety, as many of these small, local suppliers don’t have the resources to effectively track the latest food safety concerns” (DALAVAGAS, 2016).
Seeing as a big matter for Chipotle, an even bigger problem happened in 2015. When Chipotle had to close down many places because of an e. coli eruption. This crumpled the trust of many of the people who support Chipotle. Chipotle had a significant setback. From the E. coli, Chipotle dealt with many legal issues. In recent years, Chipotle had legal issues from hiring illegal immigrants to work. Even though this was also aa set back, the outbreak of E. coli would really disrupt their sales and stock price. It is up to management to address these issues and provide strategies in order for Chipotle to survive.
Chipotle has a few weaknesses that can be improved on before and after the e. coli outbreak. As discussed, the shortage of suppliers is a big weakness. When there are not enough suppliers, there are not enough products. In the past, Chipotle has had to stop serving organically grown meats and products because of shortage. The company had to announce that they would be serving conventional meats and products. This caused a very big weakness for the company because it goes against their beliefs and what their company stands for. Another weakness Chipotle has is a difficulty of replacing suppliers.
Chipotle has so much room for so many opportunities. As discussed above in Chipotle’s weaknesses, the company has opportunity to increase the number of suppliers. It has been proven that will be pay more for quality. While going through this hardship, Chipotle has slightly increase their prices to get out of liabilities quicker. Customers are willing to pay more for a company with this much historical success. Social media has also become a big part of everyone’s everyday life. This creates a lot of opportunity for Chipotle to advertise and get their message out through social media. In today’s society, there is so many opportunities for Chipotle. Chipotle is taking advantage of these opportunities and putting their best practice forward.
With the idea of fast-casual and quick service, Chipotle has many highly competitive threats. Entry of new competition remains a threat for many companies. There is already a great deal for substitute products in the marketplace. What makes Chipotle stand out is their uniqueness in taste and vision. In order to keep threats of substitute low, Chipotle must maintain a steady price point and keep their products and ethics quality at high standards.
Chipotle falls under sector 72 (Accommodations and Food Services) of the the NAICS code system. Chipotle or other establishment must fall under one of the following activities: 1.) providing a service to patrons who sit and order and are served and pay after eating, 2.) providing a service to patrons who usually order from a counter and pay before eating, and 3.) providing a specialty snack that is prepared and served. An example of a specialty snack includes sodas, coffee, and juices. Activity three can be consumed on or off the property.
Many factors such as “taste, price, good quality and presentation, service, location, brand reputation, and the ambience and condition of each restaurant” all play a roll in competition. In order to make it more difficult for new companies to enter the market, Chipotle has had to develop some barriers to entry. One-way Chipotle keeps companies entering their market is through product differentiation. Chipotle’s products are different than others by their limited focused menu. Customers are able to create thousands of combinations. They way they source their supplies is also different than other competitions. Chipotle must maintain ethically and humane standards by purchasing only from small number of supplies.
One of Chipotle’s major strength has played a big role in their success. The code of conduct has a lot to say about the company. “Chipotle is a company based on integrity. Integrity is about being real and being honest. It means doing the right thing even when no one is watching. These values permeate the way we do, and do not do, business” (Chipotle’s Code of Conduct). People value and respect the ethics Chipotle choose to live by. “Always be fair and courteous to fellow employees, customers, suppliers or people who work on behalf of Chipotle” (Chipotle’s Code of Conduct). Its no secret that people want to be surrounded in happy and positive environment. Adam and Arnold describe Chipotle’s brand personality as “honest”, “respectful”, “smart”, “reliable” and “sometimes witty” (RAGAS & ROBERTS, 2009) Chipotle “always tries to be honest” and “keeps telling the truth” says Adam and Arnold (RAGAS & ROBERTS, 2009).
Chipotle has grown from a one store to large chain location with a few thousand locations. Chipotle has strived to bring environmental factors into their business practices. Since the first Chipotle opened in 1993, fresh, natural, and organic ingredients were a main priority. Chipotle has supported and encouraged local farms who produce natural products. Animal welfare has also been an importance factor in their company. Animals are raised through the safest and most sustainable method with respect to the animals, farmers, and the environment.
Since 2015, Chipotle has made it a priority to reduce waste from landfills. Many times, landfills contain much waste that could have been recycled. Chipotle sets goals on the percentage impact they plan to achieve. The goal is “increasing its diversion rate from 31 percent that year to 40 percent in 2017. Now the company embarks on achieving a 50 percent diversion rate” (JACKSONVILLE, 2018). Caitlin Liebert, head of sustainability, tells us that they “remain deeply dedicated to bringing guests great tasting food while upholding Chipotle’s values and commitment to food made with respect for the land and environment” (JACKSONVILLE, 2018). Chipotle plans to achieve this by implementing 6 strategies. These six strategies are recycling, waste audits, food donations, composting, reduce, and right sizing.
Chipotle’s roots are based on food with integrity. Instead of people seeing Chipotle as a restaurant chain, the idea is to have Chipotle seen as a lifestyle product. Portion of that will require changing the style of the restaurants and making social and technology upgrades. Advertising also included promoting new operation hours. This would enhance even more convenience promoting that Chipotle would open earlier as well as close later. Regarding food wellbeing, it is necessary to keep the customers with upcoming protocols. A lot of restoring trust has to be put in place. Assuring customers of many new safety protocols is the first and very crucial step in regaining this trust.
In order for Chipotle to attain their goals, they have had to apply many strategies in their company. As previously discussed, Chipotle has a shortage for supplies. They have not yet been able to provide ingredients that are 100% sustainable and organic. They have these shortages because of their extreme quality standards that suppliers are expected to meet. Identifying these suppliers is a very tough mission. This takes a long time to achieve, and because it takes so long to achieve, there are higher costs and other associated risks with purchasing these naturally raised and sustainable grown ingredients. These costs result in higher costs for the end customer which is something Chipotle is trying to avoid. In order to stop this from occurring, Chipotle has attempted to lower their operating costs by centralizing their purchasing department. This department works with local suppliers and regional distributer to help reduce the cost of transportation. By doing these things, Chipotle hopes that they can have more time to discover the suppliers they need to become 100% sustainable and organic.
Chipotle also plans to find the best ways to advertise. Advertising is so important for a company. This is how more people hear about your company and more customers are created. “Additionally, we will also continue to invest in marketing and advertising strategies that we believe will increase customers’ connection with our brand. If these marketing and advertising investments do not drive increased restaurant sales, the expense associated with these programs will adversely impact our financial results, and we may not generate the levels of comparable restaurant sales we expect” (“2018 ANNUAL REPORT AND PROXY STATEMENT”).
Promotions were important in winning back old customers and creating an incentive for new customers. The promotions included free food or discounts on food. Greed is never good when trying to win back trust which is why giving away millions of free meals showed Chipotle cared. Even though this was a smart step for Chipotle to make, it is over all not enough to survive. Here are some recommendations for Chipotle to survive.
Overall, Chipotle has done an outstanding job in growing their business and holding their values on the company. However, many companies can always create room for improvements. A successful business is always looking for new products or services for its customers. With the world always changing, sometimes its just the fact of improving the existing products or services to say in trend with the new age. In Conclusion, Chipotle has many years of success on their side to help them get through this hard time. With their integrity and passion for doing the right thing shows what kind do people they are and how they do business. Many people will continue to support people and businesses with such high standards of doing what is right. Chipotle has the ability to continue growth as long as it continues to improve and strive to establish strategies for best marketing, works at finding the solution to its suppliers, keeping up with changing trends, decrease spending, and overall Chipotle will start to see improving sales and profits once again.
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