Chipotle Case Study
A. Problem Summary
Chipotle Mexican Grill is a fast food restaurant chain which prides itself on being environmentally friendly with healthy food options for a low price and delivered quickly with a smile. Chipotle Mexican Grill’s root problem is that the primary area where they gain competitive advantage through “Food with Integrity” is also an area which incurs high costs and carries the risk of food suppliers selling to competitors. Chipotle’s core competency is the use of organic and all-natural ingredients including meats and produce. This is an area of value creation because Chipotle’s competitors in the fast food industry are not pursuing strategies of high quality and fast food provided at a low price. Currently, Chipotle is incurring high costs utilizing distribution facilities which are in charge of buying all natural meats and organic produce from several local farmers. The secondary concern is the local farmers’ loyalty to Chipotle. If other fast food restaurants can buy from the same farmers then Chipotle’s competitive advantage is lost.
B. Analysis
Porter’s five forces model reveals that Chipotle is suffering from high supplier power and low buying power. Suppliers have power because there
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are few farms which provide meats and produce that stand up to the requirements and standards Chipotle demands. Buyer power can be increased by a larger volume being bought, therefore Chipotle needs to compete with Taco Bell and Moe’s by utilizing economies of scale. A value chain analysis identifies supply chain management, operations, distribution, and service as the primary activities which create customer perceived value.
The value is created in supply chain management by buying food from local farmers who have built a long-term relationship with Chipotle and meet the quality requirements. Operations is the primary activity which involves a quality assurance department who is charge of checking quality of food throughout the supply chain. The use of distribution facilities which make purchases from suppliers is a primary activity but also a costly one. Service must remain robust for Chipotle to keep increasing sales because this sets them apart from their competitors who are not know for good
service. C. Alternatives One option is for Chipotle to utilize economies of scale by opening more store locations which would cause them to make larger supply orders. The positive effects of lowering supply costs is the main benefit of this alternative while the con is the increased costs in labor and startup costs for construction. Another option to leverage buyer power in the way of farm ownership. If Chipotle has their own farm then they have the benefit of cutting cost related to distribution centers and other variable costs that are an effect of environment factors. D. Recommendations A recommendation for Chipotle is to gain power over their suppliers. As shown in Porter’s Five Forces, the supplier power effects costs in their primary quality ingredient suppling activities. One way they can do this is by buying out some of the local farms which provide supplies at the required standards in order to create their own farms and have more control over the whole process. This would cut costs which are incurred in each of the distribution centers and also give Chipotle the opportunity to more accurately forecast a low yielding crop or any threats to production costs.
Associated Wholesale Grocers (AWG) came into being more than eight decades ago when several independent retailers decided that the power of a cooperative far outweighed the influence of any one individual retail grocer. AWG provides distributor services to independent grocers in over 30 states with nine distribution centers throughout the South and Southeast regions of the country. In addition to their wholesale foods department, AWG offers a myriad of services from new store design, construction, marketing, product placement and “world class” logistical consultation (cite 11). AWG faces many of the same logistical challenges that other similar wholesalers face to include rising fuel costs, inclement weather, stringent timelines and an ever evolving need for stringent quality. One method to exploit a business’s positive and negative attributes is through the use of a Strength-Weakness-Opportunity-Threat analysis, or SWOT analysis (Cite 11). If used correctly, the analysis results can give insight into potential market areas of expansion and expose vulnerabilities to senior leadership so that they can be mitigated. AWG looks at its Supply Chain Management (SCM) as an integral part of its core business offering multiple services such as logistics to new co-op members. The team members of AWG are positioning themselves for sustainable success, now and in the future.
The company is driven by a strong set of values, even if some of those decisions increase its costs internally. This is especially the case with the sourcing of its ingredients and meats. In fact, the high-quality ingredients and advanced cooking methods used by Chipotle are second to no other fast-food chain. Among recent developments, the leader in fast-casual dining concepts plans to become absolutely GMO-free by the end of 2014. Although the aim is not new, it shows Chipotle’s commitment to bring fresh ingredients to the table. Besides offering high-quality meals to its customers, the portions are generously sized and the value is unmatched. There are very few places that can fill you up for less that $10 with quality food, and not junk. The triad of fresh, pure ingredients, cutting-edge cooking methods, and tremendous portions gives Chipotle a mouthwatering appeal.
1.1 Brief History Chipotle Mexican Grill was founded in Denver, Colorado in 1993. In 1998, McDonald’s became the majority shareholder; however, in 2006, McDonald’s divested its controlling interest. Chipotle became a public company listed on the New York Stock Exchange in 2006. It currently has 1,083 locations across the United States and Canada. In May 2010, Chipotle expanded into Europe, opening their first restaurant in the United Kingdom.
In recent years, it is not even necessary to turn on the news to hear about the bad reputation farming has been getting in recent years. With the media focusing on things like drugs in animals and Pink Slime, or Lean Finely Textured Beef, it is a wonder that people are eating “non-organic” foods. However, many pro-farming organizations have been trying to fight back against these slanders. Still, the battle is not without heavy competition, and a good portion of it comes from Chipotle, a fast food Mexican restaurant that claims to only use completely organic ingredients in their food. Chipotle is constantly introducing advertisements claiming to have the natural ingredients, while slandering the names of farmers everywhere.
Chipotle is my favorite place to eat. As I am sure it is for other people. Chipotle is a fast food Mexican grill. They are most known for how big they make your burritos. Now it is fast food but it isn’t actually fast, they’re like a restaurant but without the wait. They serve all naturally raised meat and organic beans. So there food is pretty healthy and worth eating. The employees are always nice and it just a great place to eat over all. Chipotle is a great choice for a quick fast food stop because it gives great service, atmosphere, food and value. My experience there is always a good one.
Chipotle’s Chief Executive Officer, Steve Ells has been reputed for having started the restaurant chain in a unique way which has contributed to its apparent success over its main competitors. Chipotle business has grown exponentially from when it was first formed with most of this growth attributed to the founder’s control process in the business. When Steve Ells first got into the industry, he acknowledged the need for promoting innovation and
Chipotle competitive advantage or Strengths has come from the ingredients that come from sustainable sources. According to the MarketLine article about Chipotle Mexican Grill SWOT analysis "Chipotle serves food using naturally raised meat (pork, beef and chicken) and dairy cattle... in 2014 the company served over 155 million pounds of naturally raised meat." Chipotle cares for their customers because they are not giving us food that has hormones and addictive substances. Their competitive advantage has changed the company culture and mission Statement nowadays they called it now food with integrity, the idea that their food is made with the respect for the animals and the
In doing so, the industry has effectively implanted an industrialized system which is, in part, a reason for its ability to offer ‘abundance, accessibility, and affordability’; the industry has been equally prosperous in cultivating and maintaining such a system. America’s agriculture has grown in scale, fully utilized biotechnology, and mechanized, which leads to questions for the consumer as well as demands for the industry leaders. This is due to the symbiotic relationship Walmart has with its consumers, they are able to offer lower prices in more locations and consumers desire affordability and proximity. Despite the obvious dominance of the economy by Walmart, less conventional producers and consumers are present and on the rise.
When Chipotle first opened in 1993, the goal was to serve quality food fast, but not be considered “fast food.” To avoid falling under the fast food stigma, Chipotle strives to find the best ingredients with respect to animals, farmers, and the environment. In order to achieve these goals, Chipotle has created a matrix organizational structure that is divisional by location and functional by authority. Chipotle recently expanded internationally to the United Kingdom, Germany, and France, each following strict guidelines assigned by corporate employees from their headquarters in Denver, Colorado. Similarly, each location is functionally organized according to authority: regional manager, district manager, store manager, assistant manager, and
Our current system of corporate-dominated, industrial-style farming might not resemble the old-fashioned farms of yore, but the modern method of raising food has been a surprisingly long time in the making. That's one of the astonishing revelations found in Christopher D. Cook's "Diet for a Dead Planet: Big Business and the Coming Food Crisis" (2004, 2006, The New Press), which explores in great detail the often unappealing, yet largely unseen, underbelly of today's food production and processing machine. While some of the material will be familiar to those who've read Michael Pollan's "The Omnivore's Dilemma" or Eric Schlosser's "Fast-Food Nation," Cook's work provides many new insights for anyone who's concerned about how and what we eat,
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Abstract This paper explores the business strategies Chipotle is using for operations. Analyzing financial and operations data to discuss areas of concern as well as areas where Chipotle Mexican Grill is doing well. Discussions will include the importance of Chipotle’s menu preparation strategy and menu integrity. The marketing strategies
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