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TEACHING NOTE
CASE 10
Chipotle Mexican Grill in 2014
Overview
In early 2014, it was obvious that founder, co-CEO, and Chairman Steve Ells’s vision and strategy for Chipotle
Mexican Grill had resulted in a home run. Ells’s vision for Chipotle (pronounced chi-POAT-lay) was “to
change the way people think about and eat fast food.” Taking his inspiration from features commonly found
in many fine-dining restaurants, Ells’s strategy for Chipotle was predicated on six elements:
nServing a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla), and salads.
nUsing high-quality, fresh ingredients and classic cooking methods to create great tasting, reasonably priced
dishes that were ready to be served one to two minutes after they were ordered.
nEnabling customers to select the ingredients they wanted in each dish by speaking directly to the employees
assembling the dish on the serving line.
nCreating an operationally efficient restaurant with an aesthetically pleasing and distinctive interior setting.
nHaving friendly people take care of each customer.
nDoing all of this with increasing awareness and respect for the environment, the use of organically grown
fresh produce, and meats raised in a humane manner without hormones and antibiotics.
Since 1993, the company had grown from a 1-unit operation in Denver into a 1,595-unit operation serving
nearly 1 million customers a day in 43 states, the District of Columbia, Canada, London, Paris, and Frankfurt,
as of February 2014. In 2013, Chipotle reported revenues of $3.2 billion, net income of $327.4 million, and
diluted earnings per share of $10.47. When the company went public in January 2006, the stock doubled on its
first day of trading, jumping from the initial offering price of $22 per share to close at $44 per share. In April
2012, Chipotle Mexican Grill’s stock price reached a record high of $440, then took a sharp dive to $243 six
months later on fears of slowing growth and increased competition from Taco Bell’s recently-introduced upscale
menu offerings. But the fears were short-lived. Over the next 28 months, Chipotle’s stock price trended steadily
upward, reaching an all-time high of $568 in early February 2014.
But Steve Ells was not content to capitalize on the growing demand for healthier, more wholesome fast foods and
continue on a path of opening several hundred new domestic and international Chipotle Mexican Grill locations
annually, perhaps eventually mounting a challenge to McDonald’s, the solidly-entrenched global leader of the
fast-food industry and the company that had invented the fast-food concept in the 1950s—McDonald’s currently
had 35,000 company-owned and franchised restaurant locations serving about 70 million customers in 119
countries daily. Beginning in 2011, Ells launched a In 2011–2012, strategic initiative to begin testing and refining
a second restaurant concept, Shophouse Southeast Asian Kitchen, predicated on the same strategic principles
as Chipotle Mexican Grill but with a different menu. Ells believed that the Chipotle model of a limited menu/
fresh ingredients/classic cooking methods/customer customization of the dishes ordered could work well with a
variety of different cuisines. The first Shophouse restaurant in Washington, D.C. opened in the summer of 2011
and, by year-end 2013, there were six Shophouse locations.
Will Its Strategy Become the Model for
Reinventing the Fast-Food Industry?
:
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Then in December 2013, Chipotle announced it was partnering with two Colorado restaurateurs to launch a fast-
causal pizza restaurant concept called Pizzeria Locale that incorporated the Chipotle model. Seven months earlier,
Chipotle and the two restaurateurs had partnered to open the first Pizzeria Locale in Denver; it featured a focused
menu with a selection of classic pizzas and customer-created pizzas using high-quality ingredients. The pizzas
were then fired in a special Chipotle-designed, high-temperature pizza oven that baked the pizzas in less than
two minutes and delivered results like an Italian wood-burning oven. The menu also included salads, meatballs,
sliced-to-order prosciutto, a caramel chocolate pudding, and red and white Italian wines. Plans called for opening
second and third Pizzeria Locale locations in Denver in 2014. Co-CEO Steve Ells said the following about the
speed with which the company could open larger numbers of Shophouse and Pizzeria Locale restaurants, once
he was satisfied that the Shophouse and Pizzeria Locale concepts had been “perfected”:1
When we are ready to expand at a faster rate, we certainly have the infrastructure in place … [W]e have
so much information on 1,600 specific sites now in the U.S. with Chipotles, and so we know exactly what
regions, what markets, what intersections we would want to go to with these new concepts.
Part of Chipotle’s lofty stock price in 2014 was predicated on investors’ belief that the potential was there
not only to open hundreds more Chipotle restaurants but also to open 1,500 or more domestic locations of
both Shophouse and Pizzeria Locale restaurants—as well as hundreds of international restaurants for all three
concepts, in which case Chipotle was likely to hit a second home run with Shophouse and a third home run with
Pizzeria Locale, a rare and unusual feat for a relatively young company still rounding the bases on its first home
run. However, over the past two years, at least 6 other food enterprises—all very small compared to Chipotle—
had opened locations featuring the build-your-own pizza concept; the menus consisted of artisan and gourmet
pizzas with a variety of crust options and premium toppings that were baked in high temperature ovens and ready
to serve in around 3 minutes. Some restaurant industry analysts speculated that “better pizza” might become the
next fast-casual restaurant category. In 2014, a number of Wall Street analysts believed that Chipotle was on
track to be the second most successful fast-food chain—trailing only McDonald’s.
The Chipotle case contains detailed information about the components of the company’s strategy, Chipotle’s
financial and operating performance, and brief profiles of Chipotle’s three closest rivals in the Mexican fast-food
segment of the restaurant industry—Taco Bell, Qdoba Mexican Grill, and Moe’s Southwest Grill.
Suggestions for Using the Case
The Chipotle case was written to be a good vehicle for having students identify a company’s strategy and evaluate
its pros and cons. Pinpointing Chipotle’s core competencies, doing a SWOT analysis, identifying the primary
components of CMG’s value chain, evaluating Chipotle’s financial performance, and sizing up the competition
from Chipotle’s three closest rivals are additional aspects that students should be expected to analyze. You’ll find
this case to be a good drill for class members in applying the material in Chapters 4 and 5.
The case is a relatively modest 17 pages in length, and students will easily grasp the nature of Chipotle’s business.
Because many class members are certain to have eaten at Chipotle and/or one or more of its rivals, they will
likely have some strong opinions about their experiences—which always adds interest and liveliness to the class
discussion.
The Chipotle case works quite well when assigned immediately after the class has covered Chapters 1–5. The
straightforward nature of the analysis that students are called upon to do makes it ideal for use in the first half of
your module on business strategy.
The assignment questions and teaching outline presented below reflect our thinking and suggestions about
how to conduct the class discussion and what aspects to emphasize.
Making Use of Assignment Questions It is really very difficult to have an insightful and constructive class
discussion of an assigned case unless students have not only read the case but also conscientiously worked their
way through a set of well-conceived assignment or study questions before they come to class. In our classes, we
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expect students to bring their notes to assigned study questions to use/refer to in responding to the questions that
we pose. Moreover, students often find having a set of assignment or study questions useful in helping prepare
oral team presentations and written case assignments—in addition to whatever directive questions you supply
for these assignments.
To facilitate assigning study questions and making them available to students, there is file of suggested
study questions for the Chipotle Mexican Grill case that is posted on the instructor resources section of
the Connect Library.
Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that immediately follows Case 31 in the text. The content of this
Videos for Use with the Chipotle Mexican Grill Case. There are two accompanying videos for use with
the CMG case:
nA 6:25-minute August 14, 2014 YouTube video entitled “How Gourmet Burgers and Burritos Are Disrupting
Either or both are perhaps best shown at the beginning of the class period or, if you prefer, you can have students
watch the videos on their own.
The Connect-based Case Exercise for the Chipotle Mexican Grill Case. We developed a case
preparation exercise for the Chipotle case for inclusion in the publisher’s Connect™ Management web-based
assignment and assessment platform because
nThe case is very appropriate for use in the first half of the course (following coverage of Chapters 1, 2, 3, 4,
and 5).
nTwo chief purposes of the Connect-based case exercises are to drill students in (1) applying the concepts and
The Chipotle exercise will take students about 30 minutes to complete once they have read the case and digested
the information it contains. It requires class members to develop answers to the following questions:
1. Does Chipotle Mexican Grill have any core competencies and, if so, what are they?
2. What does a SWOT analysis reveal about the attractiveness of Chipotle Mexican Grill’s situation and future
prospects?
3. What are the primary and secondary components of Chipotle’s value chain?
4. What chief difference(s) do you see between Chipotle’s strategy and the strategy being employed at Moe’s
Southwest Grill?
5. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the
competitive approach that Chipotle Mexican Grill is employing?
6. What does an analysis of the data in case Exhibit 1 reveal about Chipotle’s financial and operating
performance?
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7. Which rival—Chipotle Mexican Grill or Moe’s Southwest Grill or Qdoba Mexican Grill—seems to have
the strongest set of resource strengths and competitive capabilities and is most likely to achieve the best
financial performance?
8. Does Chipotle have a good enough strategy and adequate resource strengths and competitive capabilities to
compete effectively against Taco Bell?
All aspects of the 8 questions in this exercise are automatically graded and entered in your electronic grade book
that is part of the Connect platform, which makes it easy for you to evaluate the caliber of each class member’s
work on the Chipotle case exercise. Generally, it makes sense to require all class members to complete the
exercise before coming to class on the day the case has been assigned for class discussion
What to Tell Students in Preparing the Chipotle Mexican Grill Case for Class. To give students
definitive guidance in what to do and think about in preparing the Chipotle case for class discussion, we strongly
recommend the following:
1. Have class members complete the Connect-based exercise for the Chipotle Mexican Grill case (in the
event you have opted to make the Connect supplement for the 20th Edition a part of the materials
required for your course).
OR
2. Provide class members with assignment questions (especially if you are not using the Connect-based
software in your class) and insist that they prepare good notes/answers to these questions before
coming to class—this is critical if you are not using the Connect-based software in your class.
Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis
You will find that the Chipotle Mexican Grill case is quite suitable for written assignments and/or oral team
presentations. Three good assignment questions are:
1. Top executives at Chipotle Mexican Grill, having heard of your growing prowess in strategic thinking
and strategic analysis, have employed you as a consultant and asked you to assess the company’s strategy,
competitive market position and overall situation, and recommend a set of actions to help ensure that the
• the pros and cons of the company’s strategy,
• an assessment of Chipotle’s strengths, weaknesses, opportunities, and threats,
• an evaluation of Chipotle’s financial performance (based on the data in case Exhibit 1),
2. (Short written case assignment) What are the pros and cons of Chipotle’s strategy? What evidence indicates
that the strategy is working well or not so well?
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3. (Short written case assignment) What does a SWOT analysis reveal about Chipotle Mexican Grill’s overall
situation?
4. (Short written case assignment) How does Chipotle Mexican Grill’s competitive strength compare against
that of Taco Bell, Qdoba Mexican Grill, and Moe’s Southwest Grill? Do a weighted competitive strength
assessment using the methodology presented in Table 4.4 in Chapter 4 to support your answer. Based on
your assessment and calculations, does Chipotle have a net competitive advantage over some or all of these
rivals?
Assignment Questions
1. Does Chipotle Mexican Grill have any core competencies and, if so, what are they?
2. What does a SWOT analysis reveal about the attractiveness of Chipotle Mexican Grill’s situation and future
prospects?
3. What are the primary and secondary components of Chipotle’s value chain?
4. What are the chief components of Chipotle’s strategy?
5. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the
competitive approach that Chipotle Mexican Grill is employing?
6. What chief difference(s) do you see between Chipotle’s strategy and the strategy being employed at Moe’s
Southwest Grill?
7. What does an analysis of the data in case Exhibit 1 reveal about Chipotle Mexican Grill’s financial and
operating performance? Use the financial ratios in Table 4.1 of Chapter 4 as a guide in doing the calculations
needed to arrive at an analysis-based answer to your assessment of Chipotle’s recent financial performance.
In addition to the ratios in Table 4.1, there are occasions when you will also need to calculate compound
average growth rates (CAGR) for certain financial measures. The formula for calculating CAGR (in
percentage terms) is as follows:
CAGR % = [ending value ÷ beginning value] 1/n – 1 x 100
(where n = the number of year-to-year or period-to-period changes)
8. How does Chipotle Mexican Grill’s competitive strength compare against that of Taco Bell, Qdoba Mexican
Grill, and Moe’s Southwest Grill? Do a weighted competitive strength assessment using the methodology
presented in Table 4.4 in Chapter 4 to support your answer. Based on your assessment and calculations,
does Chipotle have a net competitive advantage over some or all of these rivals? Which rival—Chipotle
Mexican Grill or Moe’s Southwest Grill or Qdoba Mexican Grill—seems to have the strongest set of
resource strengths and competitive capabilities and is most likely to achieve the best financial performance?
Does Chipotle have a good enough strategy and adequate resource strengths and competitive capabilities to
compete effectively against Taco Bell?
9. What action recommendations would you make to CMG’s top executives to strengthen the company’s
growth and profitability?
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Teaching Outline and Analysis
1. Does Chipotle Mexican Grill have any core competencies and, if so, what are they?
Based on what class members read in the case, we think they should conclude that Chipotle has core
competencies in the following areas:
nSkills and capabilities in creating a restaurant layout and serving line design that makes the food-
2. What does a SWOT analysis of Chipotle Mexican Grill reveal about the overall attrac-
tiveness of its situation?
Chipotle’s Resource Strengths and Competitive Assets
nA limited menu that can be prepared efficiently (thus helping keep labor costs down)
n Menu selections that enable customers to customize their dishes (thus resulting in menu variety despite
the limited number of menu selections)
n Growing brand name awareness and brand name reputation
nThe ability to transfer Chipotle’s resource strengths and capabilities to other types of menus (like
ShopHouse Southeast Asia Kitchen and Pizzeria Locale ) and thereby fuel sustained and rapid company
growth
nThe skills to manage rapid and profitable growth
Chipotle’s Resource Weaknesses and Competitive Liabilities
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Chipotle’s Market Opportunities
n Open more company-owned CMG restaurants in the U.S. and in growing numbers of foreign locations
nExtend the Chipotle business model to other types of cuisine (like Asian food and pizza) and potentially
External Threats to Chipotle’s Future Well-Being and Profitability
nThe sluggish slow-growth economic environment in the United States that puts a crimp on the frequency
nRising prices for the natural and organic ingredients that Chipotle uses in its recipes; such price increases
nTaco Bell’s newly-upgraded menu offerings catch on with fast-food customers who like Mexican food,
nBoth Moe’s and Qdoba continue to add more restaurant locations—perhaps more aggressively than in
recent years—which limits somewhat the expansion opportunities for Chipotle. It is not advisable for
Chipotle to add more restaurants in a geographic location where there are already Qdoba and/or Moe’s
locations as well as Taco bell locations close by, unless the locality is big enough to support multiple fast-
Conclusions Concerning the Attractiveness of Chipotle’s Overall Situation: It is nearly always
a good idea to impress upon students that SWOT analysis involves more than making four lists. One of
The above SWOT listings for Chipotle reveal that the company has some formidable resource strengths/
competitive assets and that its resource weaknesses/competitive liabilities are not hindering either its growth
or its profitability. As for the opportunities and threats, students ought to take note of the following:
nThe company seems to have adequate market opportunities to continue expanding the number of
nThe long-term growth opportunities that seemingly exist with the ShopHouse Southeast Asia Kitchen
nThe external threats to Chipotle’s business prospects are modest in the near term; it remains to be seen
nThe biggest near-term threat relates to the potential for the prices of the natural and organic ingredients
nHowever, Taco Bell could prove to be a potentially significant threat—what if the upgraded quality of