Chipotle: Mexican Grill, Inc., Food with Integrity

Case Study 8: Chipotle: Mexican Grill, Inc., Food with Integrity

Barbara L. Tucker

CalSouthern University

IB 87516-10: Global Business Strategic Management

June 12, 2016

Gyongyi Konyu-Fogel

Case Study 8: Chipotle: Mexican Grill, Inc., Food with Integrity

Introduction

Chipotle Mexican Grill, Inc. has built a reputation of uniqueness while maintaining sustainability.  The restaurant is competing in the “fast casual” segment, offering convenient portable food that focuses on customizable, fresh, and healthy offerings (Hitt, Ireland, & Hoskisson, 2015).

The analysis will concentrate on expanding Chipotle's target market segment internationally.  The case study will include a SWOT analysis, a discussion of Porter’s Five Forces, and shall focus on the benefits of having an international strategy, while discussing the cooperative strategies utilized in the expansion process, along with the importance of corporate governance.

Analysis

Chipotle Mexican Grill’s business level strategy is succinctly summarized by its mission statement, “Food with Integrity” (Irving, 2014). The mission statement/motto sets the tone for its differentiation strategy.  A differentiation strategy is built on actions that produce goods which customers perceive as valuable and are unique than other similar products (Hitt, Ireland, & Hoskisson, 2015).

Central to Chipotle’s success is their core competencies;

• Limited focused menu,
• Use of high-quality ingredients,

• Organic cultivation, naturally produced and raise meat.

• Speed and effectiveness of multi-skilled crew members.  

 Chipotle’s target demographics market is the millennial generation (roughly 15 to 30 year-olds). Millennials typically view marketing as “less authentic and less easy to connect with” (Schoultz, 2012). The target market has now reportedly surpassed the Baby Boomer population  (Fry, 2016).

This non-traditional audience is how Chipotle was able to employ a successful online marketing campaign, through Twitter and Facebook and driven by a loyal customer program (Hitt, Ireland, & Hoskisson, 2015). Only 2% of revenue was spent on advertising, and the company decided to channel its marketing efforts by word-of-mouth (Tan, 2016).  Cooperative marketing was also part of the strategy by sponsoring, with other firms various festivals that drew over 300,000 millennials.  In this case, cooperative marketing utilized economies of scale was an enormous benefit to all business, all while competing for the same dollar (Glover, n.d.).

An analysis of Chipotle’s strengths, weaknesses, opportunities, and threats are needed to determine a successful solution.

A brief review of Porter’s Five Forces affects Chipotle’s success. Competition among rivals’ is moderate to low due to Chipotle’s differentiation strategy. The threat of new entrants is low due to brand loyalty developed over time. The threat of substitutes is moderate as the product is differentiated; however, consumers are faced with low switching costs. Power among buyers is low as there are few buyers and increasing consumer demand.  Power among suppliers is high because few suppliers offer organic, natural ingredients (Irving, 2014).

Solution        

        Considering the SWOT analysis of Chipotle, along with Porter’s Five Forces, it is easy to see why Chipotle’s differentiation strategy of utilizing unique ingredients, meals and a unique dining experience is proving successful.

        To expand and obtain funding,  Chipotle became a subsidiary of McDonalds, who also shared distribution networks with the restaurant.  The subsidiary created was a way to use operational relatedness to increase diversity while utilizing resource similarities.  A resource similarity is the extent to which the firm’s resources are comparable to a competitor. (Hitt, Ireland, & Hoskisson, 2015)  By sharing distribution networks, supply chain systems, and other comparable resources, Chipotle was able to expand successfully from 14 locations to nearly 500 within seven years (Peterson 2015).

In 2005, McDonald's had a 90% stake in Chipotle's business; however, citing differences, in culture, food, and experience McDonald’s decided to redirect resources toward their initial focus and divested its stake in Chipotle.  Divesting is a firm is also known as downscoping, which is eliminating businesses unrelated to a company’s core focus (Hitt, Ireland, & Hoskisson, 2015). Divesting is a way to increase performance by refocusing on the core focus.  

Using the target market and core competencies, Chipotle decided to expand into the international market. The expansion allowed Chipotle to increase the market size, by taking advantage of the increasing trend of consuming natural organic foods.  Estimates are that the growing trends in healthier lifestyles, along with organic ingredients will propel the market to $50 billion (Unknown 2010).

        Another benefit of international expansion is Chipotle was able to use resource and knowledge sharing that created synergy with others to develop economies of scale.  Chipotle utilized its processes for producing, distributing, selling, Etc., to continually look for ways to be more efficient (Hitt, Ireland, & Hoskisson, 2015).

        Expanding internationally also allowed Chipotle to take advantage of certain location advantages that include, reduce costs in labor and access to additional natural organic suppliers.  Chipotle has been able to create strong partnerships with reliable food suppliers.  Chipotle currently has twenty-two distribution centers placed strategically through the United States and Canada Unknown (2010).