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Company Analysis by Monica Burnett

Table of Contents
Company Overview and History Chipotles Success in the Restaurant Industry Chipotles Pricing Strategy Chipotles Marketing Strategy Chipotle in the News Competitors External Variables SWOT Looking toward the Future 4 8 12 13 16 17 18 19 21
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Company Overview
Chipotle is an incredibly successful quick service Mexican restaurant chain, with over 1,500 restaurants in operation. The menu is simple yet extensive: the customer is presented with his choice of burrito, burrito bowl, tacos, or salad and can choose to add various meats and toppings. Chipotle boasts that its menu offers over 65,000* different combinations. Food is prepared in a matter of minutes in front of the customer. Chipotle also offers delivery, pickup, online ordering and catering options. Chipotle differentiates itself from competition through its unique combination of affordable prices, fast service, and high quality food, with gourmet preparation and fresh, environmentally sustainable ingredients.
*According to Business Insider, How Many Combinations Can You Order at Chipotle 5

The Founders Vision

Steve Ellis, founder and CEO of Chipotle, opened the first Chipotle in 1993 in Denver, Colorado. He envisioned a quick service restaurant where quality would not be compromised for preparation speed and customers could receive fresh, delicious meals for affordable prices. With this dream, the gourmet burrito was born. While Ellis was primarily a chef, he also had a knack for business. Chipotle filled a new niche in restaurant industry: food that was higher quality than fast food competitors but less expensive than sit-down restaurants. This became economically feasible through Chipotles simpler menu; preparation was streamlined, so it was easy to serve fresh food quickly. As Ellis explains, We want to do a few things better than everyone else. We just do things we think are right*. Chipotle became a huge success. By 1996, seven additional restaurants were opened in the Denver area, and by 1999, Chipotle had expanded to other states. Later in 1999, Ellis learned about the terrible conditions in which pork was raised and decided to do things differently than other restaurant chains*
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Founder Steve Ellis posing in front of the Dolly Madison that would become the first Chipotle

*See Ode to A Burrito, by Arianne Cohen. *Chipotles complete history can be found on the company website: www.chipotle.com

FOOD WITH INTEGRITY

This is Chipotles mission statement, emphasizing Chipotles commitment to using organic ingredients and serving naturally raised meat.

All of Chipotles chicken, pork and steak is raised without the use of antibiotics. Pork is raised out of confinement and steak is raised without the use of added growth hormones. All dairy cows are raised without the use of hormone rBHG. Fresh is not enough anymore, explains Steve Ellis. Chipotle is at the frontier of environmentally sustainable food service and tries to increase consumer awareness on this topic. For more information, see Chipotles website:
www.chipotle.com
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Chipotles Financial Success

Chipotles stock chart according to Yahoo Finance: http://finance.yahoo.com/q?s=CMG

 Chipotle made $2,731.22M in Annual Revenue last year (2012), with a profit of $740.34M
Their sales grew 20.34% from 2011 to 2012 The average annual revenue of a Chipotle that has been open more than a year is over $1.7 million Chipotle has enjoyed rapid expansion over the past five years, and plans to open more than 165 new locations in 2013
First 3 bullet points according to Hoovers Overview of Chipotle. Last bullet according to Clay Dilllow, Chipotle Mexican Grill, by the numbers 9

The explanation for Chipotles success?

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A BRILLIANT BUSINESS MODEL

Chipotle carved out its own niche in the restaurant industry. When we opened, there wasn't an industry category to v describe what we were doing. Some 20 years and more than 1,500 restaurants later, we compete in a category of dining now called "fast-casual," the fastest growing segment of the restaurant industry*

*Quoted from Chipotles Corporate Profile (on their website)

SAVVY PRICING STRATEGY

According to Yahoo Finance, the average cost of a fast food lunch is $7.

The average cost of a meal at Chipotle is $9. The cost of a sit-down restaurant varies, but is generally more expensive than Chipotles prices.
Chipotle uses a value-based pricing strategy. They realized customers are willing to pay a little bit more than fast food prices for higher quality food. Chipotles customers have a lower elasticity because of the unique nature of the product (very few restaurants offer similarly high quality food and a quick preparation) and are therefore able to post slightly higher prices. Chipotle may also be taking advantage of the price value effect (you get what you pay for) to promote its food. Chipotles higher cost fosters the customers perception that Chipotle is a notch above other fast-foods restaurants. While Chipotle does plan to raise prices due to food inflation, (see WSJ article) it is not in their best interest to drastically raise their price that Chipotle is cheaper than most sit-down restaurants is a big draw to customers.
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Chipotles Clever Marketing Mix

Chipotle has two main customer bases, and marketing strategies to appeal to both The Young and Hip v People in high school to their mid 20s The Activists/Health Conscious Individual Those concerned with animal rights, environmental sustainability and/or health

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Young and Hip

Restaurant Design- Most Chipotle restaurants feature a minimalist interior design to appeal to young adults. Targeted Advertising- Chipotle hires Chipotle Student Brand Managers in college and high school to utilize social media and their social ties to promote Chipotle across campus*. Chipotle uses media advertising that appeals to these groups. They recently released a free game called The Scarecrow, designed to appeal to this age group that attacks unsustainable, inhumane farming practices*.

*For more on Student Brand Managers, see http://www.chipotleoncampus.com . * The Scarecrow can be downloaded on ITunes

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The Activist/ Health Conscious Individual

Chipotle also appeals to individuals concerned with environmental sustainability and animal cruelty. Chipotle emphasizes its commitment to hormone and antibiotic free that is humanely raised through its mission statement Food with Integrity. The health conscious individual will also find this alluring. Wolf, an industry expert explains: "Restaurants at every level better hurry up and make sure there isn't poison in their food." He continues, "Chipotle makes great food and serves it. Genius! Chipotle also offers a unique repeat patronage program, called Farm team, an exclusive rewards program available only by invitation from restaurant managers. Members have access to a website where they can learn more about where Chipotles food comes from and win free food and t-shirts.
*Quoted from Ode to a Burrito by Arianne Cohen 15

Chipotle in the News

Chipotles new advertising campaign has received much recent attention by the press. Forbes discusses Chipotles new campaign in the article, Chipotle Scarecrow Makes Enemies to Win Customers. The article describes a viral Youtube video released by Chipotle called The Scarecrow, which portrays a dystopian world with cruel, unsustainable farming practices. Author and Professor David Vinjamuri believes the viral video campaign is incredibly clever: it communicates a powerful emotional message to the viewer while transmitting Chipotles brand values. The video is also promoting a new free game that Chipotle is releasing on iTunes, also called The Scarecrow.

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Chipotles Competition
Chipotle is classified as a Limited Service Restaurant through the NAICS. Its main competitors are in the fast-food and fast-service industry.

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External Variables
Food Inflation-- Chipotles profits are influenced by the cost of their ingredients and, according to the Wall Street Journal, food costs are increasing. Chipotle is considering increasing prices to offset this.* New Legislation A stricter set of legislative standards on the restaurants supply chain, which restaurants would have to comply with, might result in a loss of Chipotles activist customers to other, newly sustainable and humane restaurants. California recently passed the Transparency in Supply Chain Act, and other states may follow suit. ** Economic Downturn Like any restaurant, Chipotles bottom line is susceptible to the whims of the economy. During periods of recession, customers are less likely to spend money on dining out. Chipotle was not as strongly affected during the 2011 economic stall (perhaps due to its affordable pricing). In fact, Chipotle and other fast-casual chains were the highest performing part of the industry during this time period***. Sociocultural Trends- Chipotle will be positively influenced by any sociocultural trends toward animal rights activism, or organic, natural eating. Chipotle, an incredibly forward thinking company, has tried to foster these trends through targeted advertising that makes viewers more aware of these problems.
*Chipotle Warns of Food Inflation by Anne Gasparro ** The legislature can be accessed at http://www.state.gov/documents/organization/164934.pdf ***According to The New Normal? U.S. Food Expenditure Patterns and the Changing Structure of Food Retailing 18 by Beatty and Senauer

STRENGTHS
*Quick and efficient food preparation *Through assembly line set-up customers are able to customize ingredients *High Quality food- Chipotle uses gourmet recipes and meals are always freshly cooked *Commitment to cruelty-free, sustainably grown and harvested ingredients

WEAKNESSES
*Menu has little variety- only offers salad, bowl, burrito or taco options *Chipotle is more expensive than fast food restaurants. *They use some genetically modified ingredients. * Not a franchise reduced ability to rapidly expand brand (with other peoples money)

OPPORTUNITIES
*New legislative transparency regarding restaurants supply chain will reveal how ahead of the curve Chipotle is. *Competitors becoming savvier will give Chipotle the opportunity to continue to emphasize what distinguishes it from its competitors. *Expanding internationally-*Shophouse East Asian Kitchen, a new brand Chipotle can continue to grow.

THREATS
*Food inflation (increasing cost of raw ingredients) *New supply chain related legislature make make Chipotle less unique in its Food with Integrity potential loss of customers *Competitors are becoming more savvy to consumers wants-- Burger King and Wendys recently began to explore humane-pork options. Taco Bell recently added the Cantina menu, featuring fresh, healthier options. 19

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Looking Toward The Future

Chipotles Growth Strategies Chipotle continues to grow and open new restaurants. From 2004-2007 they had a 72.6% store growth*, adding revenue not only through new restaurants, but through a (resulting) increase in brand recognition and increased popularity at older Chipotles. They have a clever marketing mix that targets and attracts specific groups (such as the student brand manager program) and they are trying to expand awareness about the food industry supply chain, which is beneficial to their brand and socially responsible. Next Steps- Chipotle is no longer a new company anymore. It is beginning to enter the middle of its life. To continue its positive trajectory, Chipotle should increase advertising to continue to stimulate buzz around the company. Chipotle should also continue to expand internationally. While Chipotle has a few restaurants in Canada and the U.K., those countries still have great untapped market potential, especially because Chipotles main competitors (Taco Bell and Qdoba) have a weak to non-existent presence in these countries. Chipotle should also continue to expand its new restaurant, Shophouse East Asian Kitchen (food featured above), which now only has six locations, under the Chipotle name, to continue to generate buzz for both brands.
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Bibliography
Hoover, Overview of Chipotle http://subscriber.hoovers.com/H/company360/companyPDFReport.pdf?companyId=106335000000000 Business Insider, How many at Combinations can You Order Chipotle http://www.businessinsider.com/how-many-combinationscan-you-order-at-chipotle-2013-7 Wall Street Journal, Chipotle Bean Counters Eye Prices by Julie Jargon http://online.wsj.com/news/articles/SB10001424127887323783704578248142259877304 Yahoo Finance, I Can Eat all Day for Less Than The Cost Of A Fast Food Lunch http://finance.yahoo.com/news/first-person-eatday-less-cost-fast-food-165900633.html

Wall Street Journal Chipotle Warns of Food Inflation,http://online.wsj.com/news/articles/SB10001424127887323468604578246201531551498 Oxford Journal, The New Normal? U.S. Food Expenditure Patterns and the Changing Structure of Food Retailing by Beatty and Senauer: http://ajae.oxfordjournals.org/content/95/2/318.full.pdf+html California Supply Chain Act: http://www.state.gov/documents/organization/164934.pdf Yahoo Finance, Chipotle Stock Market Data http://finance.yahoo.com/q?s=CMG Fast Company, ODE TO A BURRITO Cohen, Arianne. 10859241, Apr2008, Issue 124 Forbes, Chipotle Scarecrow Makes Enemies to Win Customershttp://www.forbes.com/sites/davidvinjamuri/2013/09/13/chipotle-scarecrow-makes-enemies-to-wincustomers/ Chipotle Website: www.chipotle.com
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