Business Model of Chipotle Mexican Grill
Chipotle being a service driven and food based company deals with face to face interactions with customers. Business model of restaurant has improved by incorporating technology and due to more and more customers becoming tech savvy, further improvement has been done by adding the option of mobile payment and speeding up their online ordering process (Barrows et al., 2016).
Business of restaurant is drawn by opening in outlet having geographical draw and population density. The majority target market of Chipotle is focused on younger individual aged between 18 to 24 years of age (Gilliard et al., 2017). Initially, they based their restaurant in areas where Mexican food was prevalent such as Colorado and Denver.
Cost of labour and real estate costs impacts operation of restaurant and input cost stability is ensured by engagement of company with their supply chain. Price of various products such as beef, grains and other dairy items fluctuated due to weather conditions and change in conditions of supply and demand of three largest exporters of United States (Kim et al., 2015).
The operation of Chipotle Mexican Grill is significantly impacted by political environment and they are tethered to the guidelines and rules such as licences, permits, insurance, environmental regulations in different countries of their operations.
It is indicated by sentiment of consumers in country that most of them have the inclination of reducing their expense on eating or they would want it to maintain at best level. Hence, CMC is likely to be impacted in its margin due to rising cost of foods and unwillingness of consumers to purchase them at higher price (Cohen & Muñoz, 2017).
The business of Chipotle can be affected by some global factors as they have expanded into other countries that United States. Chipotle operations should take into considerations exporting and importing factors as it has wide impact on their input costs (Morris, 2015).
Products of Chipotle are being improved and they are raised naturally and being produced organically. For their ingredients such as beef, pork and chicken, innovation that restaurant has been engaged in is raising them, naturally.
Industry analysis of Chipotle can be explained with the application of porters five force model:
Bargaining power of buyer- Industry in which Chipotle operates has higher degree of bargaining power. In order to maintain a competitive edge, it is required by Chipotle to offer wide menu options to their customer base at reasonable prices compared to other restaurants competing with it.
Industry Analysis of Chipotle Mexican Grill
Threat of substitutes- Chipotle has higher rate of substitutes in US as many restaurants are offering Mexican cuisines such as Taco Bell and Qdoba. These restaurants keep on up scaling and enhancing their menu items.
Threat of potential entrants- Intense competition will be experienced by Chipotle in both full service and quick service segments. Fast casual restaurant has witnessed rapid growth in recent years and significant increase in fresh eateries poses a considerable amount of threat to Chipotle.
Existence of rivals- In setting them apart from competitors, a fine job has been done by Chipotle in terms of their ingredients and products.
Suppliers bargaining power- The ability of Chipotle to obtain high quality ingredients is dependent upon the power of suppliers. Usually, local areas, Chipotle engage in direct negotiations with the suppliers so that they buy ingredients at most competitive prices (Walker & Merkley, 2017).
Qdoba:
Strengths-
- Rapid expansion of brand
- Featuring of mission style burritos and wide variety of options on menu
- Reasonable prices
- Long-term potential for expansion
Weaknesses-
- Confined only to United States
- Fewer stores and locations
Vision-
- Ingredients quality
- Serving high quality Mexican cuisine
Pricing-
- Alterations in strategy of pricing for main dishes using bundling options
Financial Information-
- Sales expected to increase
- Increasing revenue trend
Taco bell:
Strength-
- Testing of new menu for experimentation
- Up scaling menu items and have Miami based chef
- Quick service segments
Weakness-
- Appealing to less value conscious and older customers
Vision-
- Expanded usage and trail of Mexican food
Pricing-
Lower price of items such as steak burrito and burrito bowl with chicken at $ 5.99 compared to Chipotle at the rate $ 9.88 and $ 10.34Financial information-
- Phenomenal increase in market share of United States
- Increased sales growth
All the restaurants of CMG were owned by company and they either freestanding, end caps and in lines. A differentiation strategy is used by Chipotle that helps in generating willingness of customers to make payment even if the menus are priced at higher costs. From the financials of company, it can be seen that there is consistent increase in revenue. Inventory valuations, account receivable and current assets have increased. Looking at year on year, stock price of CMG, it can be seen that there was phenomenal increase in the price of stock from 59.42 in year 2007 to 367.29 in year 2012. The input cost of restaurant is high due to global increase in food commodity price and sustainable sourcing practices. Strategy used by business is different from its competitors and in light of higher expected price, company has raised the menu prices (McLaughlin & Dicken, 2016).
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Strength ü All ingredients are sourced and raised naturally and there are no pesticides and genetically engineered hormones involved. ü Work of mouth strategy employed by Chipotle help in gaining brand loyalty and building image ü Social responsibilities initiatives and employment of green house technologies ü Innovative and different marketing strategies |
Weakness ü Higher procurement costs of input and raw materials compared to their competitors such as Qdoba. ü Limited menu options with higher prices of items and have few international outlets. ü Limited advertising ü Small business units and they are required to adhere to performance standards and equivalent quality (Wilford, 2016). ü They are predominantly located In United States that might restrict them in exploring |
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Opportunities ü Growing consciousness and popularity of healthy food. In order to gain popularity in market, Chipotle has opportunity in terms of incorporating superior and healthy ingredient on their menu. ü Digital platforms will enable Chipotle in gaining and enhancing customer base by adding features such as launching of applications that enable customers in ordering online food at quick delivery system (Cohen & Muñoz, 2017). ü Possibilities of franchisee and expansion of their menu items. |
Threat ü Higher and intense competition in restaurant industry in US as well as internationally ü Cost and price of menu items of their competitors ü Fluctuation in price of raw materials due to change in climatic condition and other macro economic factors ü Any decrease in quality of food will lead to declining demands of menu items of restaurant. |
Some of strategies that should be considered by Chipotle to continue their expansion and becoming renowned leader in the restaurant industry are listed below:
- Increasing variety on menu list- One of the most feasible strategic options for Chipotle would be increasing items on their menu lists. It is perceived by the restaurant will yield highest benefit from option risk to reward ratio. Taco Bell and some other restaurant in the market are proving to be formidable competitors. Adding more items will help them in taking advantage of economies of scale in terms of input costs (Shin et al., 2018). Moreover, these will also help in increasing sales volume and flexible menu pricing.
- International expansion-In the current scenario, there is limited international presence of Chipotle and they are mostly confined to European countries. Expanding at international level will make organization in generating higher revenue and making brand popular globally. This will also provide them with the opportunity of accessing new market and brand recognition.
- Increasing budget on advertising-The advertising strategy that Chipotle relies on is word of mouth strategy. They do not implement any mass media marketing campaigns and they are very instrumental in using technology and social media for reaching their targeted customers. Advertising strategy plays a very crucial role in attracting customers and sparking intense competition in restaurant market (Rowell, 2016).
The action plan of Chipotle would incorporate the techniques that will be used to achieve the objectives and the person in different departments who are entitled to perform it. The time plan of each strategy to be implemented should be outlined in the strategic plan. Chipotle is an organization that is growing on constant basis and for further flourishing in the restaurant industry; they need to plan some of the strategies in a way that helps in addressing some of the ongoing business issues. For incorporating the innovative factor in their business operations, Chipotle has adequate financial backing (Swenson & Olsen, 2017). The strategic plan development of Chipotle needs the expansion of recommended strategies. It is necessary for organization to make the identification of crucial strategies and core values should be communicated that pertains to triple bottle line. Implementation of strategies will help company them in gaining competitive advantage and offering healthier items to their customers. Main focus of company should be on working on adding newer items on their menu, offering healthier items for attracting customer demographics (Ho et al., 2014). Desires of customer can be ascertained by conducting surveys. Price range of customers needs to be understood in a better way that will help them in accordingly designing their products. The objective of restaurant is to diver higher quality products with high quality ingredients by aligning it its sustainable and environmental friendly source.
References list:
Autry, C. W., Williams, B. D., & Golicic, S. (2014). Relational and process multiplexity in vertical supply chain triads: an exploration in the US restaurant industry. Journal of Business Logistics, 35(1), 52-70.
Barrows, C. W., Vieira Jr, E. T., & DiPietro, R. B. (2016). Increasing the effectiveness of benchmarking in the restaurant industry. International Journal of Process Management and Benchmarking, 6(1), 79-111.
Cohen, B., & Muñoz, P. (2017). Entering Conscious Consumer Markets: Toward a New Generation of Sustainability Strategies. California Management Review, 59(4), 23-48.
Gilliard, D. J., Hoffman, D. L., & Baalbaki, S. (2017). Is Chipotle Mexican Grill Successfully Recovering from Its Food-Related Incidents?. Journal of Marketing Development and Competitiveness, 11(4), 34-48.
Ho, B., Liang, W., Chan, H., & Ma, P. (2014). STRATEGIC ANALYSIS FOR: Chipotle Mexican Grill.
Kim, S., Koh, Y., Cha, J., & Lee, S. (2015). Effects of social media on firm value for US restaurant companies. International Journal of Hospitality Management, 49, 40-46.
McLaughlin, P., & Dicken, C. (2016, May). Evolution of the Food-Away-From-Home Industry: Recent and Emerging Trends. In 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts (No. 236077). Agricultural and Applied Economics Association.
Morris, R. J. (2015). Sorry, no carnitas: balancing “Food with Integrity” and growth at Chipotle. The CASE Journal, 11(3), 369-371.
Rowell, K. M. (2016). Food with Integrity: A Financial Analysis of Chipotle Mexican Grill (Doctoral dissertation, The University of Mississippi).
Shin, Y. H., Im, J., Jung, S. E., & Severt, K. (2018). The theory of planned behavior and the norm activation model approach to consumer behavior regarding organic menus. International Journal of Hospitality Management, 69, 21-29.
Swenson, R., & Olsen, N. (2017). Food for Thought: Audience Engagement with Sustainability Messages in Branded Content. Environmental Communication, 1-16.
WALKER, R., & MERKLEY, G. (2017). Chipotle Mexican Grill: Food with Integrity?.
Wilford, M. (2016). Understanding Beef as a Business: A Corporate Social Responsibility Analysis of Chipotle Mexican Grill.
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