Group 8
Abesamis, Cadungon, Lee, Santiago, Sto. Domingo, Tagapan Tagapan
K32
Chipotle Mexican Grill in 2013: Can it Hit a Second Home Run?
1. oe! Chipot Chipotle le ha"e an# core core compete competencie! ncie! and$ i% i% !o$ &hat &hat are are the#? the#?
Chipotle Mexican Grill’s core competencies are the folloing! a" using high #ualit$ organic ingredients to pro%ide delicious and reasonabl$ priced dishes& b" ha%ing a limited, but focused menu& c" ha%ing an operationall$ efficient efficient restaurant hich has an aestheticall$ pleasing setting& d" emplo$ing and training emplo$ees to be friendl$ and multi's(illed. )irst, Chipotle pro%ides customers delicious food at a reasonable price using high #ualit$ organic ingredients and classic coo(ing methods. This is in line ith their *)ood ith +ntegrit$ campaign hich promotes using organic ingredients, and at the same time Chipotle has a #ualit$ assurance department to ensure the best is being ser%ed to customers. )urthermore, none of Chipotle’s ri%al firms -doba, Taco /ell" ha%e done this concept since the$ rel$ on industriali0ed method to prepare food& thus, it sets apart Chipotle from its competitors. Gi%en this position, Chipotle continues to meet customer expectations, and deli%er high #ualit$ food at an affordable price. Second, Chipotle offers a limited, but focused menu that caters to people loo(ing for delicious fast food. 1a%ing a limited menu gi%es Chipotle the opportunit$ to refine their food, and pro%ide a fast ser%ice. +n addition, this limited menu lets customers customi0e their burritos, burrito bols, tacos, and salads hich gi%es them a uni#ue experience. This is in contrast to the menu pro%ided b$ competitors as the$ tend to expand their menu. 2ith this, the$ are able to become efficient not onl$ in ser%ice, but also in cost. Third, Third, Chipot Chipotle le boasts boasts an operat operation ionall$ all$ effici efficient ent restau restauran rantt and gi%es gi%es the custo customer mer an aestheticall$ pleasing en%ironment to dine in. This is practiced through a fast and friendl$ ser%ice as the customers are able to pro%ide the ser%ers their specifications on ho to prepare their food. Chipotle has gi%en customers the satisfaction of seeing their food being made #uic(l$ hile the ser%ers are preparing it to perfection. Also, Chipotle designed the interiors of their restaurants in a a$ that ould support efficienc$ and organi0ation, organi0ation, and create a comfortable place for the diners. Lastl$, Chipotle ensures that the emplo$ees maintain a friendl$ attitude hich lets the customer feel elcome to their establishment. )urther, emplo$ees are trained to be multi's(illed in order to ha%e labor efficienc$ during pea( periods. This t$pe of strateg$ is based on the idea of Chipotle executi%es ho anted anted to create create a peopl people'o e'orie riente nted, d, perform performanc ance'b e'base ased d cultur culturee that that pro%id pro%ides es satisf satisfact action ion to both both customers and emplo$ees ali(e. Conse#uentl$, it became one of Chipotle’s core competencies hich encourages efficienc$ through moti%ation and empoerment. 2. 'hat are are the primar# primar# and and !econdar# !econdar# compon component! ent! o% Chipotl Chipotle(! e(! "alue chain? chain?
3orter suggested that in order to create an increased %alue in pro%iding the compan$’s products or ser%ices, the %alue created or captured must be more than the cost of creating or pro%iding that %alue -4obben 5 3robert, 6789". And the more %alue created, the higher the chances of becoming profitable and sustainable because of the created competiti%e ad%antage. 2ith this, it is important to ha%e in'depth (noledge and to full$ understand the compan$’s acti%ities in order to classif$ and exploit those that add %alue to the organi0ation as a hole.
3orter also proposed a generic %alue chain that focuses on the s$stems ithin the compan$ rather than the classification of its department or cost t$pes -Mind Tools, n.d.". The %alue chain is di%ided into primar$ and support acti%ities& appl$ing this classification for Chipotle ould gi%e us the folloing primar$ acti%ities! Suppl$ Chain Management, 4estaurant Management and :perations, Distribution, Sales and Mar(eting, and Customer Ser%ice& the support acti%ities, on the other hand, are the folloing! 3rocurement, 1uman 4esources Management, and Administrati%e and General Administration.
Figure 1. Chipotle Value Chain Analysis Primary Activities: a. Supply Chain Management : Chipotle does not purchase ingredients for its dishes directl$ from farmers or purchase supplies and materials directl$ from manufacturers& but rather, the compan$ relies the most on its long'term relationships ith some selected reputable food industr$ suppliers that pro%ide high'#ualit$, fresh ingredients, and other products that meet Chipotle’s specifications. b. Restaurant Management and perations : 3art of the compan$’s operations is the #ualit$ assurance and food safet$ chec( in order to ensure compliance ith applicable federal, state, and local food safet$ regulations. Strict compliance of the standards throughout Chipotle’s suppl$ chain all the a$ through the ser%ing lines at restaurant is being implemented. Moreo%er, executi%es of the compan$ sought to build and nurture a people'oriented, performance'based culture in each Chipotle restaurant as the$ belie%e that such a culture led to the best possible experience for both the customers and emplo$ees. ;%er$ restaurant is operated and managed in such a a$ that pleases e%er$ customer, a (ind of en%ironment that is achie%ed through hiring of staff ith good or( ethic. c. !istribution: +nstead of ma(ing purchases directl$ from Chipotle’s suppliers, the compan$ ma(es use of its 6< oned and operated regional distribution centers that deli%ers ingredients and other supplies to Chipotle restaurants. These distribution centers are also re#uired to ma(e their purchases from the appro%ed list of suppliers so as to conform ith the agreed'upon pricing guidelines and protocols. The expansion of Chipotle globall$ re#uires adding more distribution centers, hich is alread$ the plan of Chipotle’s management.
d. Sales and Mar"eting: Chipotle utili0es %arious forms of mar(eting its products and compan$ as a hole& some of them include print, outdoor, transit, theater, radio, and online ads. The management also decided to ma(e use of tele%ision ads hen it launched its first'e%er national T= commercial during the broadcast of the Gramm$ Aards. +t as also able to recei%e considerable media co%erage from scores of publications that has largel$ fa%orable articles describing Chipotle’s food, restaurant concept, and business& it as also featured in a number of tele%ision programs. Aside from the mentioned common forms of ad%ertisement, Chipotle had also been testing the use of *oned media, hich includes ne %ideo and music programs, and it is considered a more %isible e%ent strateg$ that included the launch of the compan$’s first festi%al of food, music, and ideas. The management belie%es that the said ne programs alloed the compan$ to communicate better its stor$ and to establish emotional connections ith its customers. The compan$ is also increasing the use of digital, mobile, and social media in its o%erall mar(eting mix as the management sees the opportunit$ for greater access and information communication to the customers. e. Customer Service: :ne of Chipotle’s biggest commitment and inno%ation is to ha%e customer’s order read$ #uic(l$. Customers are able to customi0e their dishes b$ personall$ selecting hat the$ anted and ho the$ anted it b$ spea(ing directl$ to the emplo$ees that prepared the food and ere assembling the order behind the counter. Management ensures that Chipotle’s speed in ser%icing customers is impro%ing so that orders placed b $ fax, online, or %ia a smartphone ordering app are accommodated ithout hampering the ser%ice ithin the stores and compromising the interaction beteen customers and cre members on the ser%ice line. Support Activities Procurement: As mentioned pre%iousl$, Chipotle hea%il$ relies on its appro%ed list of suppliers, hom the$ had been or(ing ith for a long term. The compan$ or(ed ith them on a regular basis to establish and implement a set of forard, fixed, and formula'pricing protocols for determining the prices that suppliers charged Chipotle for %arious items. +ncreasing the number of appro%ed suppliers ill also help Chipotle to obtain best prices hile pro%iding the best #ualit$ dishes. a.
#uman Resources Management: Chipotle highl$ %alues its emplo$ees regardless of the position and achie%ement. +ts emplo$ees are the source of %alue'creating en%ironment for its restaurants, thus, moti%ating and empoering them is one of the compan$’s commitment. ;ach restaurant is t$picall$ composed of a general manager, an apprentice manager, one or to hourl$ ser%ice managers, one or to hourl$ (itchen managers, and an a%erage of 68 full and part time cre members. Most emplo$ees are cross trained to or( in different stations and situations, both to pro%ide people ith a %ariet$ of s(ills and to boost labor efficienc$ during bus$ periods. +n addition, both managers and cre members are expected to deli%er an interacting and friendl$ attitude ith the customers. +t is also orth stating that Chipotle stri%es to hire and retain or(ers ho ha%e a strong or( ethic, too( pride in preparing food items correctl$, en>o$ed interacting ith other people, and are team pla$ers at all times. b.
Research and !evelopment: Last 677<'677?, Chipotle had started to gi%e emphasis on using organicall$ gron local produce, organic beans, and meats from animals that ere raised in accordance ith animal elfare standards and ere ne%er gi%en feeds containing chemicals. This shift in ingredient usage had led the compan$ to commit itself in using top'#ualit$, nutritious ingredients, and impro%e the *Chipotle ;xperience, an effort designated b$ the management as *)ood ith +ntegrit$. The management had begun b$ or(ing ith animal ethics experts, and continued b$ %isiting farms and ranches, in%estigating the use of produce supplied b$ farmers ho respected the en%ironment, and a%oiding the use of chemical fertili0ers and pesticides. c.
$eneral Administration: As the expansion of the compan$ is continuous, it emplo$s a team of real estate managers that de%otes substantial time and effort in e%aluating potential locations for its ne and future restaurants. The compan$ also sought the help of external real estate bro(ers in order to select the best location for its future restaurants. Some of the factors considered in selecting for the appropriate site include trade area demographic and business information, and food establishment operations of competitors. Chipotle Mexican Grills had also pro%ed to be successful in selecting for its site location be it in regional malls, donton business districts, and others. d.
3. 'hat are the chie% component! o% Chipotle(! !trate)#? 'hich one o% the %i"e )eneric competiti"e !trate)ie! mo!t clo!el# approximate the competiti"e approach that Chipotle i! emplo#in)?
+n order to succeed and secure a fa%orable position in a competiti%e mar(et, a firm must choose one *generic strateg$ to pursue and it must be effecti%el$ implemented through total commitment. -3orter, 8@7 as cited in :rmanidhi 5 Stringa, 677". Chipotle committed itself to gi%e its customers a uni#ue experience. This uni#ue experience has been deli%ered to its customers through its core competencies and mar(eting strategies. As pre%iousl$ mentioned, Chipotle’s core competencies include its dedication to pro%ide health$ and great'tasting food using high #ualit$ and organic ra ingredients at a reasonable price. This sets Chipotle apart from its competitors since the compan$ is able to pro%ide consumers #uic( meals ithout sacrificing the nutritional content of the food and the compan$ is able to promote aareness and respect for en%ironment as ell. +ts focused menu also ma(es Chipotle different from its ri%als because e%en though it products are limited to four, Chipotle allos customi0ation from its consumers. This also permits them to gi%e efficient and #uic( ser%ices ithout the traditional fast'food ambience since its restaurants are distincti%el$ designed similar ith fine'dining. )inall$, all these practices are maintained because Chipotle ensures that its emplo$ees are multi's(illed and friendl$. This significantl$ contributes to its success since customers are elcomed and catered ith utmost concern and efficienc$. Aside from its core competencies, Chipotle’s mar(eting initiati%e ma(es them distinct from its competitors. +ts mar(eting includes the use of %arious media such as print, online, outdoor, transit, theatre and radio ad%ertisements. Chipotle has also been in%ol%ed in different communit$ e%ents, food and music festi%als to educate consumers on health$ and sustainable coo(ing hich also assist the compan$ in promoting its ser%ices through connecting emotionall$ ith the consumers. Lastl$, the compan$ also ta(es ad%antage of the technolog$ as the$ increase the use of digital, mobile and social media in o%erall mar(eting. Chipotle utili0es %arious forms of ad%ertising since their executi%es belie%e that best brands are built through all the a$s people experienced the brand. 2ith these (ind of practices emplo$ed b$ Chipotle, it can be concluded that the compan$ is ban(ing on a differentiation strateg$ to outperform its competitors. Chipotle pro%ided its customers ith #uic(, nutritious and delicious meals ithout the usual fast'food treatment.
Figure %. Chipotle&s Strategy *. 'hat doe! an anal#!i! o% the data in ca!e +xhi,it 1 re"eal a,out Chipotle(! %inancial and operatin) per%ormance?
The financial anal$sis presented on ;xhibit 8 shos that o%erall, the compan$ is constantl$ impro%ing. Loo(ing at its total re%enues o%er the fi%e'$ear period, e can sa$ that the impro%ement in its operations is outstanding. )rom re%enues of B8,79,6,777 in 677 to a gradual increase per $ear leading to B6,<8,66?,777 in re%enues in 6786, and more or less an a%erage of 67 annual increase, it pro%es that it continues to be a leader in the fast'casual sector of the restaurant industr$. The figure belo shos a summar$ of the groth in re%enues and it might be indicati%e of the fact that Chipotle ill certainl$ be bigger in the future than it is toda$ basing it from the increasing steepness or slope of the line, and that it ill be financiall$ successful. -Disclosure! ;xhibit 8 in the case presents the $ears 677'6786, but lac(s the information for the $ear 677, so the group researched for Chipotle’s annual report for 677".
Figure '. (otal revenues )or the period %**+,%*1%
Figure -. Restaurant perating Costs )or the period %**+,%*1%
2ith its e%er increasing and expanding operations, it is ine%itable that Chipotle’s costs increased o%er the $ears to accommodate the rising re%enues that ere the direct result of its effort in emphasi0ing #ualit$. As can be seen from the figure abo%e, Chipotle’s ma>or expense is food, be%erage, and pac(aging costs folloed b$ labor. Although the food, be%erage, and pac(aging costs increased o%er the $ears, Chipotle as able to effecti%el$ manage its costs because, as presented on ;xhibit 8 on the case, the amount spent on those expenses relati%e to sales did not get substantiall$ higher compared to the pre%ious $ear at an$ gi%en period. +n fact, the percentage of these costs compared to sales ranges from <8'<< hich suggests a %er$ lo de%iation, and indicates that this cost, as a percentage of sales, remains stead$ annuall$. 1oe%er, upon loo(ing at ;xhibit 8 in the case, e noted that the labor costs as a percentage of sales graduall$ decrease annuall$. )rom 6E. in 677, it decreased to 6<.9 in 6786. This is a clear indication that operations are effecti%e. ;mplo$ees are constantl$ impro%ing because the$ are generating more re%enue annuall$ as pro%en b$ a decrease in labor costs as a percentage of re%enues -Fones, 678?". +t might mean that Chipotle highl$ %alues emplo$ee training and is directl$ gaining ad%antage from it.
Figure . /et 0ncome )or the period %**+,%*1%
A loo( at the abo%e figure shos the increasing net income of Chipotle o%er the $ears. This means that generall$, Chipotle is profitable and it that this profitabilit$ is intensif$ing as the $ears go b$. A sharp increase that occurred from 677 to 677@ is noticeable compared to the net income groth from 677 to 677. )inanciall$, Chipotle is impressi%e because of the rising net income, but this does not represent ho much the compan$ sa%es from the re%enues it generates. )urther anal$sis re%eals the folloing graph that represents the net incomeprofit margin.
Figure . /et Pro)it Margin )or the period %**+,%*1%
As can be seen from the graph, Chipotle experienced a decline from 677'677, but the compan$ managed to come bac( and impro%e afterards. +t experienced a slightl$ stead$ profit margin from 6787' 6786, and it is noticeable that the compan$ is continue to go upard. :ther information on the exhibit such as the net cash pro%ided b$ operating acti%ities are also constantl$ increasing, together ith the capital expenditures needed to open ne restaurants, hich are e%idenced b$ the number of restaurants open at $ear end -also increasing because of the expansion". +n totalit$, Chipotle’s potential to be a leader in the fast'casual restaurant sector is obser%able ith reference to the pre%ious discussion. The positi%e and increasing trends in its financial data pro%ide e%idence of the aforementioned. 2ith its impro%ing operations, the future of Chipotle’s financial and operational performance ill be a success. -. 'hat action recommendation! &ould #ou mae to Chipotle(! top executi"e! to !tren)then )ro&th and pro%ita,ilit#?
Considering that Chipotle is currentl$ on an upard course, it ma$ do them ell to 1old and Maintain their current expansionar$ strateg$, enhancing their core competencies as necessar$, but sta$ing the course in the grand scheme of things, since hat the$ ha%e appears to be or(ing ell. 2ith that, the group recommends that the$ continue to strengthen their core competencies, continue to build the brand of Chipotle (non to public, and expand their mar(et either in domestic and foreign locations. The group belie%es that Chipotle should continue to ser%e their limited and focused menu. =er$ fe actuall$ can imitate the taste of the food at Chipotle because Chipotle created a burrito experience that is different than its competitors. Li(eise, Chipotle has been %er$ appealing to the mar(et because it is %ocal about using organic ingredients. Hsing onl$ 877 naturall$ raised meat and sourcing cheese ith no r/G1, Chipotle has e%ol%ed into a burrito'ma(ing poerhouse that actuall$ cares about the food it ser%es. Moreo%er, the$ should continue to empoer and train their emplo$ees so as to be able to ser%e hundreds of customers in a %er$ short period of time. 1igh customer throughput $ields greater customer satisfaction and also more re%enue generation.
Ionetheless, the$ should also be ar$ of the possible negati%e impact of purchasing organic ingredients. As in the recent situation, Chipotle is faced ith the problem of internal control failure in 6789. 1ealth officials closed a Chipotle location in Seattle after repeated food safet$ %iolation and after ;.coli and noro%irus incidents.-Little, 6789". This %iolation can be attributed to the fact that their ingredients are organic, thus, these are easil$ contaminated as compared to those treated or gron ith chemicals. )rom this incident, Chipotle must re%amp their suppl$ chain management and their #ualit$ assurance management to pre%ent similar incidents in the future. )or instance, the$ should be more careful in selecting suppliers through inspections of the agricultural processes in the farms., so that their suppliers do not %iolate an$ health safet$ precautions. Chipotle should continue to penetrate the mar(et b$ ma(ing their brand recogni0able. 1oe%er, there should still be careful planning before the executions. )irst, Chipotle must do mar(eting research J ethnograph$ stud$, identification of target mar(et, and forecasting of food trends. +n this a$, the$ ill (no ho or hat approach the$ ill execute their mar(eting. Also, since the compan$ is reliant on the ord'of'mouth publicit$ from customers, potential customers ill tend to search about the restaurant, first. Therefore, the group suggest that compan$ information must be ell organi0ed in the internet, so that hene%er potential customers are curious about Chipotle, the compan$ can be easil$ communicate hat the$ ha%e to offer. +n line to this, their ad%ertising should be refurbished and geared more in the digital and social media sites. Another approach that the$ can use is to broadcast their brand in tele%isions, print ads, radio, etc., so that the$ ill not hea%il$ rel$ on ord'of'mouth publicit$. Lastl$, ha%ing man$ assets and lo liabilities, the compan$ can le%erage on expanding their operations to foreign and domestic locations. +n their efforts to expand, the$ should continue to uphold their rigorous site selection process, so that the$ ill construct a branch in a strategic spot here car and foot traffic is abundant. The$ must ta(e into consideration that organic ingredients are readil$ a%ailable in the geographical mar(et that the$ expanded in, in%estigate the characteristics of the people present in the location, and e%aluate potential ris(s that ma $ arise after establishment.
Re%erence!
Chipotle Mexican Grill. -677@". %**2 Annual report and pro3y statements. 4etrie%ed from http!ir.chipotle.comphoenix.0htmlKc8@?95pirol'reportsAnnual Fones, A. -678?". An in,depth overvie4 o) Chipotle Me3ican $rill . 4etrie%ed from http!mar(etrealist.com678?86chipotle'mexican'grill
Little, . -December 88, 6789". C/5C. Chipotle >ust got more bad food safet$ nes. 4etrie%ed from http!.cnbc.com67898688chipotle'>ust'got'more'bad'food'safet$'nes.html Mind Tools. -n.d.". Porter&s Value Chai: 6nderstanding #o4 Value Chain is Created 7ithin rgani8ations. 4etrie%ed from https!.mindtools.compagesarticleneST4NEE.htm :rmanidhi, :., 5 Stringa, :. -677". 3orterOs Model of Generic Competiti%e Strategies. 5usiness 99'E?. 4etrie%ed from http!7' 9conomics, -'-<", eds.a.ebscohost.com.lib8777.dlsu.edu.phedspdf%ieerpdf%ieerKsidEEde797?'b978'?f@@'@e7' d<9677Ec6?7sessionmgr?7875%idE5hid?67 4obben, P., 5 3robert, C. -6789". Michael Porters Value Chain : 0ncrease Value and 5eat the Competition. Iamur Q/elgiumR! 97Minutes.com.
