Chipotle Essay

Chipotle

To formulate a strategy, one must understand what a corporate strategy is. According to Hitt, Ireland, & Hoskisson (2013, p.164) “a corporate strategy is a specific action a firm takes to gain a competitive advantage. Corporate level strategies help companies to select new strategy positions”.

Fast Casual Food

Moreover, Hitt, Ireland, & Hoskisson states that Chipotle primarily competes in the fast-casual industry (2013). The fast casual is not as established as other industries, but it is commonly defined as having higher prices, and better décor when compared to places like McDonalds (Hitt, Ireland, & Hoskisson 2013).

Therefore, Chipotle is emerging from a new business model or strategy. Chipotle current strategy is in the fast-casual

food industry, which focuses more on quality than the typical fast food restaurant. However, going forward it would be wise for Chipotle to form strategic alternatives to help differentiate themselves from their competitors.
Strategic Alternatives
Forming strategic alternatives is one of the most difficult and important things a firm can do (Hitt, Ireland, & Hoskisson 2013). Additionally, it is common four different for the corporate level. The three strategies that this paper will explore are: continue as the same business model of fast casual, transition to a completely fast food restaurant, and transition to a slow casual restaurant.
Staying as Fast Casual
From 2008 to 2010 Chipotle total revenue increased from 1.331 billion to 1.835 billion, moreover, their net income increases from 78 million to 178 million. Moreover, in 2010 Chipotle current ratio was 3.30 up from 2.92 in 2008.anaylyzing this data Chipotle is making money and doing well in the fast-casual market but let us compare them to other firms in the fast-casual industry.
“Chipotles three closets competitors in 2010 were Panera Bread, Qdoba, and Pei Wei (Hitt, Ireland, & Hoskisson 2013, p.75)”. To truly understand the success of a company one must compare them to other companies in the same industry. In 2010 Panera Bread total revenue was 1.542 billion, Qdoba was 168 million and Pei Wei was 310 million. This author believes Qdoba and Pei Wei and not large enough to be compared to Chipotle going forward. However, Panera Bread is, in 2010 they had almost four hundred restaurants, spent more on marketing and still made less. Additionally, in 2010 Panera Bread had a store sales growth of 7.5% and Chipotle had a growth of 9.4% (Hitt, Ireland, & Hoskisson 2013). Examining this data, it becomes clear that in 2010 Chipotle is the clear market leader for fast casual dining.
Transitioning to Fast Food
To examine the fast food industry, it would be best to look at the market leader and therefore the best-case scenario.

According to Macrotrends (n.d.) in 2010 McDonalds had a total of 4.37 billion dollar in assets, 2.93 billion in liabilities and a current ratio of 1.49. Additionally, they had net income 4.95 billion dollars Macrotrends (n.d.).

The net income of McDonalds when compared to chipotle is massive, however, the current ratio of Chipotle is much better. If Chipotle decided to transition to fast food what are the chances of Chipotle overtaking McDonalds as the market leader and how long and how much money will that take? It is hard to speculate such things, but we know that Chipotle has found a market for their product and they are turning a healthy profit, therefore, it does not seem wish to change their business model to fast

food.

Slow Casual Restaurant
The largest slow casual restaurant in the U.S.

is not a single entity, but in a corporation which several brands. According to Macrotrends “Darden Restaurants, Inc. is a restaurant company featuring a portfolio of differentiated brands that include Olive Garden, LongHorn Steakhouse, Cheddar's Scratch Kitchen, Yard House, and The Capital Grille” (n.d., para.1).

In 2010 Darden Restaurants had a net income of 440 million dollars over double that of Chipotle, but that is the revenue from over six different brands (Macrotrends, n.d.). Moreover, Darden Restaurants had a current ratio of .45 in 2010. Simply, what benefit does the slow casual dining experience model give Chipotle that they do not already have.

Examining all the data it is clear to this paper that the best course of action or strategic alternative is to keep the same business model. In the slow casual restaurants model there appears to be lower profit margins. Whereas, in the fast food industry Chipotle could possibly be successful and become the largest fast food chain, however, there are many barriers and cost to entry that arguably that is not the best course of action for a possible

outcome.
However, if Chipotle continues to focus on providing fast quality food they will continue to flourish and be able to shape the market they have created, while becoming the premier brand
Summary of Distinctive Competitiveness
Examining the financials of Chipotle in 2010 they are clearly a company that has a future. They have shown growth, the ability to generate profit and have a unique business models with only one close, lesser competitor. “Chipotle targets customers seeking high quality food ingredients from a source that is faster and/or less expensive than full service restaurants” (Hitt, Ireland, & Hoskisson 2013, p.77). In summary Chipotle has found a unique formally to success and with continued focus on said competitive strategy they will continue to succeed at a high level.