Chipotle Mexican Grill
Instructions:
Using the information from class readings and discussions, analyze the situation described in Case 10 “Chipotle Mexican Grill in 2014: Will its strategy become the model for reinventing the fast-food industry?” In APA format, write a brief analysis of Chipotle Mexican Grill (CMG) using the SWOT method and by reviewing the company’s financial situation. Based off findings of your analysis, make recommendations consistent to the company’s documented values and business model. A maximum of 3 pages is required for introduction, analysis, recommendations and conclusion. Your financial analysis should be completed on the 4th and consecutive pages.
The assignment should be consistent with the following format:
• Introduction (1/4 page)
• SWOT (1 to 1 ½ page)
• Recommendations (3/4 page to 1 page)
• Conclusion (1/4 page)
• Financial Analysis (4th + page space)
• References (located on a separate final page)
Assignment Format:
You should utilize the information provided in the case for the SWOT analysis and research should be conducted for the years of the case (for example, you should set your research parameters for no later than 2014). You should compare the financials from the book to those of the industry in the year that they were recorded by completing a ratio analysis utilizing the sheet distributed in class and on Moodle. Financial analysis should be documented for the years presented for the company and its industry (Hint: make sure that you are preparing the company’s financials from the Balance and Income statements). Financial analysis includes the ratios performed and a written explanation of findings. Key ratios should be documented in the SWOT analysis. Recommendations may be based off conclusions from your analysis and should be documented or at minimum, referenced in the SWOT analysis section of your paper. Business terminology and strategic tools should be utilized to enhance your analysis. Your paper should be 3 pages, double spaced, 12 point, Times New Roman font for your introduction, SWOT, recommendations, and conclusion. You may use a 4th page and subsequent pages to complete your financial analysis write up and a final page for your references. Ratios must be presented in a chart above your text. You are encouraged to utilize references to enhance your recommendations
Solution
Chipotle Mexican Grill
Introduction
In 1993, Steve Ells founded Chipotle Mexican Grill in Denver, Colorado. His main goal was to diverge from the usual fast food industry into his segment of fast casual food. Ells has managed to achieve this mission by giving his customers better service, using healthy and organic, ingredients, creating environmental awareness, and serving a limited menu. This food chain started as just one store in Denver, but it has expanded to have about 1595 stores across 43 states in the US, London, Frankfurt, Paris, Canada (Barkley and Barkley, 2014). The company has a customized menu and the concentration of having health-conscious customers gave Chipotle an opportunity of rapid growth hence causing a large increase in stock. For instance, by March of 2014, the stock price of this food chain restaurant was at 611 dollars. In 2013, the restaurant’s revenue was 3.2 billion dollars and the net income was 327.4 million dollars. Between 2011 and 2013, customers who spend in Chipotle stores managed to achieve a high 8 to 9 dollars.
SWOT Analysis
SWOT Analysis is a framework used to analyze the internal as well as the external environments within an organization. Internally, the framework addresses the strengths and weaknesses of an organization on key aspects such as human resource, financial resources and performance, product quality and availability, market share, and customer perception. To assess the external environment, the framework organizes information on that market based on the external opportunities and threats such as technology, social trend, regulations, and economic condition (Ferrell and Hartline, 2012).
Strengths
The major strength this company has is their rapid growth, which has seen the restaurant, grow so fast since the time it went public. For instance, in 2006, the restaurant had 510 branches, but until today, the branches have increased immensely. Consequently, this has come along with a good annual revenue and earnings every year as the advancement through the years have shown a strong gain. Chipotle also has a good financial strength with no debt and the restaurant has an intact cash flow. The company has quality food, which comes from the quality of its natural ingredients, and this serves as the pillar of these food chains (Grant, 2016).
Weakness
The major weakness facing Chipotle is the fact that it has not expanded globally like its major competitors such as McDonald’s which has over 30,000 chain restaurants globally (Grant, 2016). As a result, this has made the restaurant to depend on the US market hence making the company rely on customers’ voluntary spending, and this will make the results too sensitive to macroeconomic state. In the case when the US economy will slow down, the restaurant will suffer considering their average food costs about 9 dollars, which is excessively high when compared to other competitors. Therefore, the restaurant’s food pricing is another weakness that poses a threat to the restaurant in case or economy slows.
Opportunity
The major opportunity that is in the hands of this restaurant is that they have more room for global expansion so that they can tap their international market except for the few branches in Canada and Europe. This is a big opportunity because both Canada and Europe offer a platform that is not exploited and has a high number of consumers who have high expendable income. The restaurant can also expand to Asia where there are few Mexican dining. Also, with the consideration of the success of other restaurants such as KFC and McDonald have achieved in Asian market then Chipotle has a good chance of success as well. Another opportunity beckoning on this restaurant’s doors is that they have the opportunity to invest on healthy meals considering that they base their delicacies from natural ingredients. With the demand for healthier and low-calorie foods, Chipotle can have health-conscious consumers among their customer base.
Threats
The major threat facing Chipotle is the rise in food prices, which over the years has been on the rise due to harsh weather conditions. Since the organization uses natural ingredients, it will be expensive for them to buy the raw materials necessary for their cooking. Food safety issue such as the food-borne illnesses can be another threat that this organization can face, and this will be an uphill task to regain their customers’ trust (Strom, 2016).
Recommendations
Chipotle has a mission, which states Food with Integrity, and this has served them positively when it comes to brand loyalty. Nevertheless, this has being proven hard to keep it up more so on a long-term basis. For the management to indemnify the rising in the cost of their products, the restaurant’s management should start maximizing the utilization of its prospective suppliers and come up with much cheaper yet healthy alternatives for the purely organic foods. Secondly, Chipotle only serves four types of foods on their menu, that is, taco, burrito bowl, salad, and burrito. This small menu can hurt them when compared to their competitors who have a wide range of menu that gives their customers more options. To add more food choices, which have more options to the menu will manage to give Chipotle an upper hand against its competitors hence having a sustainable competitive advantage. Lastly, Chipotle should help themselves in the end by trying to separate themselves from the traditional fast food. Despite the being grouped as a fast casual restaurant, Chipotle has the resemblance, which other conventional fast food places execute such as choice of food, affordable prices, and delivery speed (James, 2014). Therefore, to have more focus on the restaurant’s dining experience and to sell themselves as if they are not fast food will help in separating their restaurant from other fast food vendors.
Conclusion
The industry of fast casual food came up and acted as an option for the traditional fast food restaurants. Since the founding of Chipotle back in 1993, there has been a steady increase in this industry. Fast casual food chains have had a progressive increase in their sales as well as the number of branches and chains that sell these foods. Therefore, the growth in this industry mainly depends on the trends and expectations of the customer. With the restaurant’s focus on much healthier food than the conventional fast food, companies have the chance and space to be unique from one another through the creation of a brand loyalty that is within its customers’ preference. Chipotle has also proven to succeed with a simple food service area, but it can also be customized thus giving customers the opportunity to captivate themselves in the delivery process of the food as well as changing the fast food industry. Therefore, this growth can be justified due to the innovative services that managed satisfied their customers’ needs.
Financial Analysis
Based on the financial chart, Chipotle grew rapidly from 2007 to 2013, and this is surprising because this restaurant was not only new, but it was at the time of financial crisis. During this economic depression, Chipotle was among the companies that had good profit margins hence thriving through the recession. In addition, it is because of the strong operating and financial performance that makes Chipotle a leading company in the food industry. Since 2007, Chipotle has shown growth trends as well as operational data that are excellent with average growth rate of about 20.2%. The net income is also on the rise with its compound rate settling at about 32.1%. Between 2007 and 2011, they made growth in average sales by 928,000 dollars. Additionally, in 2006, the restaurant went public with shares going for about 22 dollars per share, but by 2012, the restaurant’s stock went for 380 to 385 dollars per share.
The financial
power of Chipotle became more evident as the years progressed. For instance, in
2011 fiscal year, their operating profit margin was 15.45%, and this has been
increasing by 5.49% since 2007. These financial gains come from increased
market share and operating efficiently. Additionally, the restaurant serves
800,000 customers every day with an average customer tab being 8 to 9 dollars.
Since 2007, the company has had consistent expenses by increasing its
operations, but in general, the revenue has surpassed the expenses hence having
a net income of about 20%. The revenue growth of this company is based on two
constituents. First is the growth of revenue from the opening of new stores and
the other component is the revenue growth from the sales of these stores. From
2006 to 2013, the restaurant increased their branches from 581 to 1594, and
this equates to 175% increase. Consequently, in this same period, the company’s
revenue went up by 291%. For individual stores, the revenue generated increased
by 42% over this same period hence to prove that the revenue growth was also
because of an increment in the sale of unit per same-store. Averagely, the
year-to-year total in percentage change of the revenue growth in these years
was approximately 23% per year. In this total, 15% was coming from the opening
of new stores whereas 8% was from the increment in the same-store sale.
References
Barkley, A., and Barkley, P. (2014). Depolarizing Food and Agriculture: An Economic Approach. Routledge.
Ferrell, O., and Hartline, M. (2013). Marketing Strategy, Text and Cases. Cengage Learning.
Grant, R. M. (2016). Contemporary strategy analysis: Text and cases. Chichester, West Sussex, United Kingdom: John Wiley & Sons Inc.
James, D. (2014). Chipotle Strategic Analysis: Competitive Position, Analysis, and Recommendation. Retrieved from https://www.slideshare.net/DavidJames31/chipotle-strategic-analysis
Strom, S. (2016). Chipotle Food-Safety Issues Drag Down Profits. The New York Times. Retrieved from https://www.nytimes.com/2016/02/03/business/chipotle-food-safety-illness-investigation-earnings.html?_r=0