Chipotle Mexican Grill

Conflict Resolution: A comparative view of crisis management at Chipotle Mexican Grill and Jack in the Box.
TyRon Pope
Concordia College

Table of Contents
Abstract…………………………………………………………………………………………………………………………………………………3
Chipotle Mexican Grill, Inc.……………………………………………………………………………………………4
Jack in the Box, Inc.………………………………………………………………………………………………………………5
Mission……………………………………………………………………………………………………………………………………………………5
Corporate Structure……………………………………………………………………………………………………………………6
Financials……………………………………………………………………………………………………………………………………………7
SWOT Analysis……………………………………………………………………………………………………………………………………9
Conflict & Crisis………………………………………………………………………………………………………………………10
Leadership & Communication Style………………………………………………………………………………12

Recommendations & Solutions………………………………………………………………………………………….14
Conclusion…………………………………………………………………………………………………………………………………………17
References……………………………………………………………………………………………………………………………………….19
Appendix A………………………………………………………………………………………………………………………..20
Appendix B………………………………………………………………………………………………………………………….21
Appendix C………………………………………………………………………………………………………………………..22
Appendix D………………………………………………………………………………………………………………………….23
Appendix E………………………………………………………………………………………………………………………….24

Abstract
This study is an overview of the similarities and differences, advantages and drawbacks of how two food companies, Chipotle Mexican Grill and Jack in the Box handled the crisis effects of an e. Coli outbreak on both business and brand identity. This study will comparatively analyze each company’s leadership initiatives, management styles, and business practices when faced with a direct business crisis. Presenting a discussion on the overall strategy, perception of events and methods used to handle a crisis. An examination of any support mechanisms, procedures or policies to cope with inherent danger or opportunity in an emergency situation. A before and after look, at both company’s core values, mission, reputation and the impact of lessons learned with the maturation of the business through crisis situations.

In business, a company’s primary objective is the maximization of profit by making strategic business decisions altering market conditions and behavior while at the same time increasing and protecting outcomes. The ability to make production decisions, knowing what to, how to, how much and for whom to produce a product, good or service are key elements of a company’s growth. In 1993, Steve Ells, a young, ambitious sous chef with dreams of opening up a fine dining restaurant, epitomized that concept by investing 85,000 dollars of his parent’s money and founding Chipotle Mexican Grill, Inc. A small fledging burrito stand located in the heart of Denver, Colorado that emerged into a corporate restaurant giant, setting food industry records and creating a new category in the fast food genre, called “Fast Casual Dining.”
Chipotle Mexican Grill, Inc.
Founded in 1993, Chipotle Mexican Grill, Inc., which gets its name from a Mexican smoked and dried jalapeno chili pepper, emerged from one store into a monopoly of restaurants, “taking a novel, minimal monetary risk idea which catapulted a dream into fruition.” (Chipotle, 2017) There are nearly 2,250 restaurants throughout the United States, which include 40 locations in Canada, England, France, and Germany. Chipotle is noted for being one of the first of its kind, a fast casual dining type restaurant. Chipotle restaurants are solely owned and operated without the option of a franchise. The company thrives on innovation, setting high standards and achieving new levels of profit and success.
Jack in the Box, Inc.
Jack in the Box founded in 1951 and is among the nations leading fast-food hamburger chains with over 2,200 quick-serve restaurants in 21 states and Guam. According to the company website, “Jack in the Box pioneered many firsts in the quick-serve industry, offering a selection of distinctive, innovative products targeted at the fast food customer.” (Jack In The Box Inc., 2017) Based in San Diego, the company was founded by businessman Robert O. Peterson and went public in 1992 with an offering of 17.2 million shares priced at $15 per share before poor business practices, crisis and tragedy struck. A maverick of its time, the fast food burger giant paved the way with an innovative marketing and advertising campaign geared toward children with the use of clown mascot. However, a common thread between Jack in the Box and Chipotle will ensue in years and decades to come.
Mission.
The mission of Chipotle is to change the way people think about and eat fast food by incorporating a straightforward concept, dedicated and focused on “Food with Integrity.” In 2001, Chipotle adopted the philosophy of “Food with Integrity” and increased their efforts to use naturally raised meat, organic produce and dairy without added hormones, with the idea of changing the way animals are raised and food processed in this country. Chipotle focused on providing sustainably grown ingredients in an accessible format, to bring the best out in their foods. The company committed to serving food that was not only fresh but knowing how their food was raised with intentions to create a compelling dining experience by offering better alternatives and striving for better quality food. Therefore, Chipotle reinforced their mission to build around fresh quality ingredients, incorporating classic cooking techniques, creating beautiful food with an extraordinary dining experience. Also, Chipotle promotes and embodies 13 core values or characteristics for all of their employees to possess. According to Chipotle, "All of their staff needs to be, as follows: Polite, Hospitable, Smart, Ambitious, Curious, Happy, Respectful, Honest, Presentable, Conscientious, Motivated, Infectiously enthusiastic, lastly, have high energy." (Chipotle, 2017)
Corporate Structure.
Chipotle’s corporate structure consists of a management team and board of directors, which include: two Chief Executive Officers, a Chief Financial Officer and a Chief Marketing and Development Officer. According to the company website, “the top management team (C-suite) is as follows: Steve Ells - Founder and Co-Chief Executive Officer, Montgomery F. Moran - Co-Chief Executive Officer, John R. Hartung - Chief Financial Officer, Mark Crumpacker - Chief Marketing and Development Officer.” (Chipotle, 2017) Also, seven individuals currently sit on the board of directors. They are as follows: Steve Ells, Montgomery Moran, Patrick Flynn, Albert Baldocchi, Neil Flanzraich, Darlene Friedman, and John Charlesworth. Furthermore, Chipotle promotes an atmosphere of high expectations, with high standards establishing a group of top performing field teams. These field teams are designed to work along with the top corporate management as a support system and consist of apprentice team leaders/restaurateurs, area managers, and directors. Chipotle does not franchise, and all restaurants are corporately owned.
Financials.
Since opening up its first restaurant in 1993, Chipotle has been a success story by monopolizing and creating a new market for growth.

Chipotle created a new niche of fast food restaurants reclassified as fast casual, bringing fresh food made with raw ingredients to the masses in a short amount of time. On an initial 85,000 dollars family investment, Chipotle has evolved into multi-billion dollar corporation. In 1998, McDonald’s made minority investment $ 360 Million dollars in the company and by 2001 they had grown to be the Chipotle’s largest investor. McDonald’s investment had allowed Chipotle to take advantage of its market and significantly expand. In 2006, Chipotle went public setting stock market records, gaining capital for growth, therefore paving the way for McDonald’s to divest and opt out with $1.5 billion dollars. Over the past 20 years, Chipotle’s market power has increased despite conventional barriers of entry. For instance, particular challenges that include barriers like regulatory rules and regulations (i.e. Licensing) can affect the operation of an organization. Chipotle is company owned and does not franchise. As per Chipotle, "keeping in good faith with their mission of Food with Integrity." (Chipotle, 2017) The company abides by the set guidelines of the government regulation of treatment of animals and the use of drugs in the food, which are essential input barriers on meat, dairy, and fresh produce products. The overall controls of these necessary

ingredients are essential components of the production process. Brand loyalties with strong customer allegiances to their company and product set a solid foundation.
Over the last decade, Chipotle has seen tremendous growth opening up on average of approximately 40 stores each quarter.

From 2006 to 2016, the company opened up over 2,250 locations worldwide, with average sales increases of 6.2% to 19.8%. Presently, Chipotle employs over 64,570 workers and generates revenue of over $3.9 billion with an operating income of $710.8 million, a net income of $327 million, a total equity worth over $2.3 billion. (See Appendix D. Figure 4) Chipotle is a member of the New York Stock Exchange/CMG (Common Stock) with a current stock price of $338.39 per

share.
SWOT Analysis.
By building Chipotle into a food industry giant, the company’s pursuits of constant improvements are a clear reflection of the strengths, weaknesses, opportunities, and threats of the organization. Driven by a vision, which set a tone to establish a benchmark for the food services industry. Several internal factors attest to the strengths of Chipotle Mexican Grill, Inc. For example, a knack for innovation and high brand equity accompanied by a solid management team with a sound financial base are strengths of the organization. In contrast, internal weaknesses that can be attached to Chipotle are its limited menu, high prices and availability of brand specific sourced foods. A few external factors that lead to opportunities for the company are the emergence of new markets and global expansion. Also, the use of the company’s brand image to attract new customers and consumers becoming more aware of healthy options. A few external threats that affect Chipotle are the company’s ability to capitalize on current dining trends. Also, additional factors like consumer taste and the desire for more natural and fresh food alternatives accompanied by rising food costs. (See Appendix C. Figure 3)
Conflict & Crisis.
How do we define a crisis? What are the overwhelming factors that affect the operation of an organization? According to Author John A. Parnell, in “Strategic Management: Theory and Practices,” he defined ‘crisis’ as “any substantial disruption in operation that physically affects an organization, its underlying assumptions, and core activities.” (Parnell, 2014) How a company reacts to pressure can either be the windfall or the downfall of the business. Once the hottest restaurant in the United States, according to Forbes Blogger Antoine Gara, “at one time, Chipotle was a stock market darling.” (Gara, 2016)
Conversely, in a 2015 Wall Street Journal article titled “New Outbreak Chills Chipotle’s Rebound,” Reporter Julie Jargon pointed out “how Chipotle Mexican Grill, Inc. was battered by a series of a multistate E. coli outbreaks.” (Jargon, 2015) The Reporter goes on to state “the company was stuck in limbo by E. coli, a norovirus that slammed the chain’s sales and stock.” (Jargon, 2015) According to the Mayo Clinic, “Escherichia coli (E. coli) is a bacteria that lives in the intestines of healthy people and animals, that can cause severe abdominal cramps, bloody diarrhea, and vomiting.” (Mayo Clinic, 2017) A person can be exposed to the E. coli bacteria from contaminated food or water. As per the Mayo Clinic, “In extreme cases, young children and older adults when subjected to the bacteria can be life threatening.” (Mayo Clinic, 2017) In which, according to Writer Julie Jargon, “Restaurant companies in the past usually recover pretty quickly after food-borne disease outbreaks, except for Jack in the Box.” (Jargon, 2015) A company, which nearly went bankrupt after a 1993 E. coli contaminated hamburger break out that killed four children and sickened 600 individuals.
Any crisis would threaten a company’s reputation and financial outlook. Customer dedication and loyalty can lead to a flood of lawsuits, litigation and regulatory scrutiny that may result in the decline of any organization. Management’s ability to weather a crisis and repair company value is of the utmost importance. Some foodborne illness incident associated with the Chipotle Mexican Grill has resulted in negative publicity and had a severe adverse impact on sales and profitability. As a result, these business challenges have shown a dramatic decline in stock prices. According to a 2016 Money.CNN.com article titled “Why Chipotle could crash another 50%?” a flow chart examined the incidents, as follows: “August 2015 Norovirus and Salmonella outbreaks emerge, October – November 2015 E. coli outbreak sickens 60 customers, January 2016 Chipotle discloses subpoena, February 2016 CDC: E. coli outbreak over, July 2016 Chipotle unveils summer loyalty program, September 2016 Chipotle hits all time low.” (Money.CNN.com, 2016)(See Appendix E. Figure 5) In light of the challenges faced by Chipotle, in a 2016 Forbes.com article, Columnist Antoine Gara stated, “Notwithstanding all the challenges, the company is one of the greatest successes in the restaurant industry, an innovative company led by talented entrepreneurs and visionaries.” (Gara, 2016)
Leadership & Communication Style.
The importance of good leadership is vital to the overall success of an organization. Good leaders should be ethically sound, corporately transparent and mindfully accountable to the organization that they represent. Straight talk and communication are essential elements of good decision-making in critical environments. In the food and beverage industry, every restaurant aims to have excellent food and outstanding customer service. The value of real leadership cannot be overlooked. In the face of adversity, during crisis management, a company can minimize the effects that can occur. The ambiguity of the cause, effect, and means of resolution must be met. As per John A. Parnell, “Emergency management refers to the process of planning for and implementing the response to a wide range of negative events that could severely affect an organization. (Parnell, 2014)
In the cases of Chipotle and Jack in the Box, the amount of denial, defensiveness, and violation of health protocols was embedded in a culture that was ripe for change. In a 2015 Fortune.com article on leadership titled “Chipotle’s E. coli Fiasco Teaches Us How Not to Respond to a Crisis” Writer Geoff Colvin examined “how Chipotle co-CEO’s, Monty Moran and founder Steve Ells demonstrated how crisis leadership is and is not done.” (Colvin, 2015) Food safety procedures and the risk of vulnerabilities are matters of life or death. Risk management and identification of the main performance indicators in the food supply chain are critical not only to the food service industry but the national infrastructure. Appropriate measures must be taken toward the potential compromise of the food supply.
In the midst of a crisis, a coercive leadership type style should be considered to demand an immediate compliance, especially in the case of food borne illnesses. According to fastcompany.com blog titled “6 Leadership Styles, And When You Should Use Them”, Blogger Robyn Benincasa examined “the two different roles of a manager and leader and how their styles were interchangeable.” (Benincasa, 2017) For example, leadership styles like “the pacesetting, authoritative, affiliative, coaching, democratic or coercive leaders.” (Benincasa, 2017) The coercive style is the most useful in times of crisis, during an actual emergency to help control a problem when everything else has failed. As per Benincasa, “It’s the ‘Do what I tell you’ type of style, which can take over and turn a company around.” (Bernincasa, 2017) In a nutshell, it was an example of that type of leadership that Chipotle CEO Steve Ells displayed in the mix of turmoil by going on national television issuing a public apology. According to NRN.com Reporter Lisa Jennings, “If there is a silver lining, CEO Steve Ells told Matt Lauer in the Today show interview “We’re doing a lot to rectify the situation so that it won’t happen again.” (Jennings, 2015)
Recommendations & Solutions.
According to a case study on crisis management titled “Crisis Management And Turn Around: A Case Study” Researcher Sharu S. Rangnekar highlighted “Crisis management and the role of leadership in overcoming crisis situations.” (Rangnekar, 2010-2011) He goes on to list “Four aspects of the influence crisis management, as follows: Leadership, the cause, immediate and long-term measures.” (Rangnekar, 2010-2011) As per Rangnekar, “Leadership is vital, and the credibility of a leader is the most important aspect of having effective crisis management.” (Rangnekar, 2010-2011) He goes on to state “the cause of the crisis has to be deal with accompanied by immediate short measures to improve the company.” Furthermore, emphasizing the need for long-term measures according to Rangnekar that “create stability, establish transparency and increase the credibility of the organization.” (Rangnekar, 2010-2011) All of which, were measures that Chipotle incorporated in the company’s attempt to change the culture in the food service industry. Key actions, characterized by new sets of behaviors and standards geared toward adequate food production and delivery of products. The implementation of new strategies and procedures to change the culture and combat against human factors that may pose a threat to food safety.
According to a 1995 Harvard Business Review article titled “Managing the Crisis, You Tried to Prevent” Graduate Norman R. Augustine stated, “Almost every crisis contains within itself the seeds of success as well as the roots of failure.” (Augustine, 1995) I believe that Chipotle Mexican Grill and Jack in the Box both shared aspects that were complex and pose a threat to health and safety and continuity of the businesses. The leadership of each company found itself in a predicament that it had considered extremely remote until that moment. Both companies recognized their crises and took appropriate measures to remediate the situations that the companies found themselves in. However, in the 1993 case of Jack in the Box rebounding in the age before social media proved to be difficult. The inability to overcome scandal and rewrite the history of the company’s reputation seemed beyond repair. The mishandling of a problem is critical in any management situation. Although, ensuing media attention almost brought Jack in the Box to its knees. According to a 2013 Nation’s Restaurant News article titled “1993 Outbreak Still Drives Food Safety Advances” Columnist Alan Liddle highlighted “the role Jack in the Box played as a food safety innovator as the chain fought back to regain public trust, rebuild sales and return to profitability.” (Liddle, 2013) The outbreak at Jack in the Box spurred modifications to process operations, inspections, and product testing within the food service industry. The change of culture in the food service industry led to new policies and in procedures in the safe handling of food products. As per Liddle, “the U.S. Food and Drug Administration Model Food Code was revised after the 1993 outbreak.” (Liddle, 2013) Knowledge and accountability became crucial factors in the setting new governmental rules, regulations, and standards. As a result, programs like the Hazard Analysis and Critical Control Point system and ServSafe were established to remedy the influx of contaminated foods in the industry. As per Liddle, "The federal Centers for Disease Control and Prevention in Atlanta estimates that each year, roughly 48 million people get sick, 128,000 hospitalized, and 3,000 die from foodborne illnesses." (Liddle, 2013)
In an open letter from Chipotle CEO and Founder Steve Ells, the corporate executive explained: “How the company failed to live up to its food safety standards and made a promise to all customers to elevate the food safety program.” (Ells, 2017) He goes on to list the following eight important changes to be made, as follows: “1. Supplier interventions 2. Advanced Technology 3. Farmer Support & Training 4. Enhanced Restaurant Procedures 5. Food Safety Certification 6. Restaurant Inspections 7. Ingredient Traceability 8. Advisory Council.” (Ells, 2017) As per Ells, “the company’s commitment to serving food that is safe, delicious and made from ingredients raised with care and accessible to everyone.” (Ells, 2017) (See Appendix B. Figure 2)
Conclusion.
Communication is critical in handling crisis management situations. Any attempt to try to deny or forget an emergency situation is a thing of the past. According to a 2013 Grocer article titled “How to clean up your reputation in the digital age” Columnist, Julie Glotz stated, “You can’t communicate enough in a crisis.” (Glotz, 2013) She goes on to state “How many companies make the mistake of having a burst of activity and then a long silence, that doesn’t work.” (Glotz, 2013) I believe that food service companies should rethink their policies and procedures about quality assurance initiatives and safe handling protocols. A step up in the responsibility for the frontline defense against the proper handling of dangerous goods is essential. The lack of knowledge where real leadership has to be committed and hold people accountable.

References
Augustine, N. R. (1995, November/December). Managing the Crisis You Tried to Prevent. Harvard Business Review , 147-159.
Benincasa, R. (2017, August). 6 Leadership Styles, And When You Should Use Them. Retrieved from fastcompany.com: http://www.fastcompany.com/1838481/6-leadership-styles-and-when-you-should-use-them
Chipotle. (2017, May 30). Chipotle - Mission. Retrieved from Chipotle.com: http://www.chipotle.com/mission
Colvin, G. (2015, December 11). Chipotle's E. coli Fiasco Teaches Us How Not To Respond to a Crisis. Retrieved from Fortune.com: http://amp.timeinc.net/fortune/2015/12/11/chipotle-ecoli-crisi-management/?source=dam
Ells, S. (2017, August). Open Letter from CEO Steve Ells. Retrieved from Chipotle.com: http://www.chipotle.com/openletter
Gara, A. (2016, March 11). Chipotle Suspends Exec Bonuses After Outbreaks Of E. Coli, Norovirus. Forbes , 4.
Glotz, J. (2013, April 27). How to clean up your reputation in the digital age: online repuattion management companies can limit bad publicity...but they come with a health warning. (Grocer) Retrieved June 19, 2017, from Business Insights: Essentials: http://bi.galegroup.com/essentials/article/GALE%7CA330826098/3ab8fb3e9e932b3024db927687fa2849?u=nysl-me-concoll
Jack In The Box Inc. (2017, May 30). Jack In The Box Inc. - Company. Retrieved from Jack In The Box Inc.: http://www.jackintheboxinc.com/company/about-us
Jargon, J. (2015, December 28). New Outbreak Chills Chipotle's Rebound. The Wall Street Journal, Eastern edition , B 1.
Jennings, L. (2015, December 10). Experts unimpressed with Chipotle's crisis management. Retrieved from nrn.com: http://www.nrn.com/blog/experts-unimpressed-chipotles-crisis-management
Liddle, A. (2013, February 11). 1993 Outbreak Still Drives Food Safety Advances. Nation's Restaurant News , 47 (3), pp. 1-12.
Mayo Clinic. (2017, August). Definition of E. coli. Retrieved from mayoclinic.org: http://www.mayoclinic.org/definition/con-20032105
Money.CNN.com. (2016, September 6). Why Chipotle could crash another 50%. Retrieved from www.money.cnn.com: http://www.money.cnn.com/why-chipotle-could-crash-another-50
Parnell, J. A. (2014). Strategic Management: Theory and Practice. Thousand Oaks, CA, USA: SAGE Publications, Inc.
Rangnekar, S. S. (2010-2011, October-March). Crisis management And Turn Around: A Case Study. International Journal of Business Insights & Transformation , 80-81.

Appendix A.
Figure 1 Graph of Chipotle Stock

Appendix B.

Figure 2

(An Open Letter from the CEO Steve Ells)
OUR FOOD SAFETY ADVANCEMENTS
A LETTER FROM CHIPOTLE FOUNDER STEVE ELLS
Since I opened the first Chipotle more than 23 years ago, we have strived to elevate fast food, by using better ingredients which are raised responsibly, without synthetic hormones, antibiotics, added colors, flavors or sweeteners typically found in processed fast food. And I’m very proud of that.
But in 2015, we failed to live up to our own food safety standards, and in so doing, we let our customers down. At that time, I made a promise to all of our customers that we would elevate our food safety program.

Here are the important changes we made:
1. Supplier Interventions
Our suppliers have implemented additional, proven steps that eliminate or dramatically reduce food safety risks before the ingredients ever reach Chipotle.

2. Advanced Technology
We are pioneering advanced technologies including using high pressure to eliminate any possible food safety issues without changing the flavor of the ingredient.

3. Farmer Support & Training
We are providing funding and training to local farms so they can meet our elevated food safety requirements.

4. Enhanced Restaurant Procedures
We deployed robust, industry leading new food safety procedures in our restaurants including new handling procedures for produce, citrus and meats as well as comprehensive sanitizing protocols.

5. Food Safety Certification
We require that our managers and field leaders be certified in food safety by a nationally recognized institution—a first for any national restaurant chain.

6. Restaurant Inspections
We dramatically increased the number, and intensity, of restaurant inspections—both by independent auditors and our internal teams.

7. Ingredient Traceability
We implemented an advanced electronic tracking system to ensure that ingredients can be monitored and quickly removed from our supply if necessary.

8. Advisory Council
We created an independent advisory council comprised of industry experts who continually review our procedures and provide insight into new food safety advancements.

Our commitment to you is that every day, in every restaurant, we will serve food that is safe, delicious, and made with ingredients raised with care.
I never could have imagined that one burrito restaurant would become the company it is today. On behalf of our entire team, we look forward to continuing with you on our quest to make better food accessible to everyone.

Steve Ells
Founder, Chairman & Co-CEO

Details at chipotle.com/food safety.

Appendix C.

Figure 3 Chipotle SWOT Analysis

Appendix D.
Figure 4 Chipotle Income Statements 2006-2016

Appendix E.
Figure 5
Chipotle’s stunning decline