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TEACHING NOTE
CASE 14
Chipotle Mexican Grill in 2016
Overview
and profits in the first six months of 2015 were at record-setting levels, and expectations were that
In August, a salmonella outbreak in Minnesota sickened 64 people who had eaten at a Chipotle Mexican
Grill. The state’s Department of Health later linked the illness to contaminated tomatoes served at the
restaurant.
In August, 80 customers and 18 employees at a Chipotle Mexican Grill in Southern California reported
gastrointestinal symptoms of nausea, vomiting, and diarrhea that medical authorities and county health
officials attributed to “norovirus.” Norovirus is highly contagious bug spread by contaminated food,
improper hygiene, and contact with contaminated surfaces; the virus causes inflammation of the stomach
In October, 55 people became ill from food poisoning after eating at 11 Chipotle locations in the Portland, Oregon
and Seattle, Washington areas. Medical authorities attributed the illnesses to a strain of E. coli bacteria typically
associated with contaminated food. Most ill people had eaten many of the same food items, but subsequent
testing of the ingredients at the 11 Chipotle restaurants did not reveal any E. coli contamination. (When a
restaurant serves foods with several ingredients that are mixed or cooked together and then used in multiple
Can the Company Recover from Its E. Coli
Disaster and Grow Customer Trac Again?
:
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Drug Administration) throughout their investigation of the incident and also launched a massive internal effort
review of the company’s food preparation and food safety procedures. These internal actions included:
1. Confirming that more than 2,500 tests of Chipotle’s food, restaurant surfaces, and equipment all showed
no E. coli.
5. Working closely with federal, state, and local government agencies to further ensure that robust food
safety standards were in place.
6. Replacing all ingredients in the closed restaurants.
Meanwhile, the Federal Drug Administration sought to discover the sources of multiple widely-distributed
ingredients in an effort to identify a cause for the outbreak. The distribution path did not lead to an ingredient
of interest. The FDA also conducted investigations of some suppliers, but did not find any evidence that those
After health officials concluded it was safe to do so, all 43 restaurants in the Portland and Seattle markets
reopened in late November 2015, roughly 6 weeks after the incident occurred.
Extensive reports of the last three incidents in the national media took a toll on customer traffic at most all
Chipotle locations. Revenues at Chipotle restaurants dropped about 6.8 percent in the fourth quarter of 2015
compared to the fourth quarter of 2014; net income in the fourth quarter declined 44 percent compared to the
same period a year earlier. The average decline in sales at Chipotle locations open at least twelve months was a
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In announcing Chipotle’s financial results for the fourth quarter of 2015 and full-year 2015 in February 2016,
Steve Ells, founder, Chairman, and co-CEO of Chipotle Mexican Grill, laid out the measures Chipotle was taking
to regain the confidence of customers and restore the appeal of dining at one of Chipotle’s 2,000+ locations. Ells
said:1
The fourth quarter of 2015 was the most challenging period in Chipotle’s history, but the
Centers for Disease Control and Prevention has now concluded its investigation into the recent
as we have become a leader in our quest for the very best ingredients we can find.
In the same announcement, Chipotle’s co-CEO Monty Moran said:
2016 will be a very difficult year relative to our past performance. But, by staying true to our
food culture and unique people culture, and layering on our rigorous food safety program,
In February 2016, Chipotle shut all of its restaurants for a period of four hours to conduct food safety training
for all store employees. That same day, in an effort to get customers back into its stores, Chipotle offered a free
burrito to anyone who signed up on its website during certain hours. In mid-March 2016, Chipotle reported that
January 2016 sales at Chipotle restaurants open at least twelve months fell by an average of 36.4 percent as
prepared in stores during the day. Previously, workers at Chipotle restaurants, wearing plastic gloves, transferred
arriving raw beef and chicken to bowls, hand-rubbed the beef/chicken with adobo spices, and placed the bowls
in refrigerators to let the meats marinate until they were cooked as needed for dishes being prepared on the
serving line. The unspoken reason for abandoning the precooking of beef and reverting to the former procedures
was thought to be complaints from customers that the pre-cooked beef did not taste as good as when it came
off the grill freshly-cooked. Chipotle’s principle points of differentiation from other restaurant chains had been
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Another procedural change being contemplated by Chipotle related to eliminating pathogen testing on certain
ingredients, particularly beef sourced from Australia; such testing was costly and was thought by some Chipotle
personnel to be an unnecessary food safety precaution. While Chipotle personnel investigating the Fall 2015
Then in April 2016, Steve Ells’s announcement of Chipotle’s Q1 2016 performance contained some alarming
numbers. Revenues of $834.5 million were 23.4 percent lower than the $1.09 billion reported in the first quarter
of 2015. The company had a net loss of $26.4 million versus a net profit of $122.6 million in the prior year’s
Suggestions for Using the Case
The Chipotle case was written to be a good vehicle for having students evaluate the pros and cons of
Chipotle’s strategy, its responses to the food poisoning outbreaks in several of its restaurants, and make action
recommendations to deal with the drop-off in customer traffic since the food poisoning incidents. Pinpointing
strong opinions about their experiences and about what the company has done (and perhaps not done) about
correcting its food safety issues—student familiarity about the central company in the case 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
Videos for Use with the Chipotle Mexican Grill Case. There are two accompanying videos for use with
the CMG case:
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The first video listed above works best when shown either at the beginning of the class period or just after
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:
The case is very appropriate for use in the first half of the course (following coverage of Chapters 1, 2,
3, 4, and 5).
Two chief purposes of the Connect-based case exercises are to drill students in (1) applying the concepts
and analytical tools discussed in the chapters to the circumstances posed in the cases and (2) doing some
needed crunching of the numbers in the financial exhibits.
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. What is your assessment of the ways in which Chipotle has responded to the food poisoning incidents
in some of its restaurants?
2. Does Chipotle Mexican Grill have any core competencies and, if so, what are they?
3. What does a SWOT analysis reveal about the attractiveness of Chipotle Mexican Grill’s situation and
future prospects as of early 2016? Are the company’s future prospects greatly diminished as compared
to what they were before the food poisoning incidents?
4. What are the primary and secondary components of Chipotle’s value chain?
5. What chief difference(s) do you see between Chipotle’s competitive strategy approach and the
competitive strategy approach being employed at Moe’s Southwest Grill?
6. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates
the competitive approach that Chipotle Mexican Grill is employing?
7. What does an analysis of the data in case Exhibit 1 reveal about Chipotle’s financial and operating
performance?
8. 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 in the years going forward? Your assessment should most definitely
take into account the extent to which Chipotle’s food poisoning problems have cut into its competitive
capabilities and performance prospects.
9. Does Chipotle have a good enough strategy and adequate resource strengths and competitive capabilities
to overcome its food poisoning incidents and compete effectively against Taco Bell in the next 2-5
years?
All aspects of the 9 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
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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
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
company speedily recovers from the trauma of its food poisoning incidents and quickly gets back on track to
sustained growth and profitability. Please prepare a report to the senior executives at Chipotle Mexican Grill
that includes
• an assessment of Chipotle’s ability to compete successfully against Taco Bell, Qdoba Mexican Grill,
and Moe’s Southwest Grill given all the fallout over its food poisoning incidents, and
• a set of action recommendations to get the company’s growth and profitability back on track.
Your report should be 5-6 pages, plus it should include an assortment of charts, tables, and exhibits to support
your analysis and recommendations.
2. (Short written case assignment) What is your assessment of the company’s response to the food poisoning
incidents? What more should it have done (or done differently) to rejuvenate customer traffic at its stores?
3. (Short written case assignment) What does a SWOT analysis reveal about Chipotle Mexican Grill’s overall
situation as its heads into mid-2016? Your assessment should most definitely take into account the extent to
which Chipotle’s food poisoning problems have cut into its competitive capabilities and performance prospects.
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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, in the aftermath of its food poisoning
incidents? How badly has the company been wounded? Do a weighted competitive strength assessment
Assignment Questions
1. What is your assessment of the ways in which Chipotle has responded to the food poisoning incidents in
some of its restaurants?
2. Does Chipotle Mexican Grill have any core competencies and, if so, what are they?
3. What does a SWOT analysis reveal about the attractiveness of Chipotle Mexican Grill’s situation and future
prospects? How badly has the company been wounded by the food poisoning incidents?
4. What are the primary and secondary components of Chipotle’s value chain?
5. What were the chief components of Chipotle’s strategy prior to the food poisoning episodes? Are further
strategy adjustments needed now that Chipotle has (seemingly) gotten through the worst of the fallout of the
food poisoning incidents?
6. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the
competitive approach that Chipotle Mexican Grill is employing?
7. What chief difference(s) do you see between Chipotle’s strategy and the strategy being employed at Moe’s
Southwest Grill?
8. 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 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)
9. 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? Your assessment should most definitely take into account the extent
to which Chipotle’s food poisoning problems have cut into its competitive capabilities and performance
prospects.
10. What action recommendations would you make to CMG’s top executives to help rejuvenate the company’s
growth and profitability in 2016-2017?
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Teaching Outline and Analysis
1. What is your assessment of the ways in which Chipotle has responded to the food poisoning
incidents in some of its restaurants?
We suspect most students will agree that Chipotle management has gone to considerable lengths to try to
correct the causes of the food poisoning problems at several of its restaurants and to institute rigorous food
safety practices. There’s no convincing evidence the incidents were taken lightly by top-level executives—
But we know that Chipotle executives cooperated fully with state and federal health officials during their
investigations and, further, launched a massive internal effort review of the company’s food preparation and
food safety procedures that included:
• Confirming that more than 2,500 tests of Chipotle’s food, restaurant surfaces, and equipment all showed
no E. coli.
• Working closely with federal, state, and local government agencies to further ensure that robust food
safety standards were in place.
• Replacing all ingredients in the closed restaurants.
The case states that Chipotle proceeded to implement an enhanced food safety plan that aimed at establishing
Chipotle as an industry leader in food safety. Top management was said to be extremely focused on executing
this program, which included layers of redundancy and enhanced safety measures to reduce the food safety
risk to a level as near to zero as was possible.
However, these measures did not suffice to quickly draw customers back into Chipotle’s stores. In April
2016, Steve Ells’s announcement of Chipotle’s Q1 2016 performance contained some alarming numbers.
Revenues of $834.5 million were 23.4 percent lower than the $1.09 billion reported in the first quarter of
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Probably, class members will be hard pressed to come up with any earth-shattering suggestions that make
good economic sense (not be prohibitively expensive). Does this mean that Chipotle would be well advised
to be patient, wait things out a while, and hope the customers will slowly return? Should management help
2. 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:
Skills in designing and executing a quick-service menu that both appeals to customers and promotes
operational efficiency
3. What does a SWOT analysis of Chipotle Mexican Grill reveal about the overall attractiveness
of its situation?
Chipotle’s Resource Strengths and Competitive Assets
A limited menu that can be prepared efficiently (thus helping keep labor costs down)
Menu selections that enable customers to customize their dishes (thus resulting in menu variety despite
the limited number of menu selections)
The company’s supply chain management practices, approaches to quality assurance, and commitment
to “food with integrity”
Growing brand name awareness and brand name reputation—until the food safety incidents put a big
The skills to manage rapid and profitable growth—although management has now been sidetracked by
eorts to rejuvenate Chipotle’s growth and profitability in the aftermath of the food poisoning incidents
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The financial strength to fund the company’s growth and expansion without burdening the company’s
balance sheet unduly with debt (as mirrored by the amounts by which net cash provided by operating
Chipotle’s Resource Weaknesses and Competitive Liabilities
A less well-known (or well-established) brand name and fewer locations than Taco Bell
Chipotle’s Market Opportunities
Open more company-owned CMG restaurants in the U.S. and in growing numbers of foreign locations
Extend the Chipotle business model to other types of cuisine (like Asian food and pizza and perhaps
External Threats to Chipotle’s Future Well-Being and Profitability
Former Chipotle customers continue to have lingering concerns over eating at Chipotle restaurants,
such that customer traffic at Chipotle restaurants remains sluggish for an extended period, thus giving
Taco Bell’s newly-upgraded menu offerings catch on with fast-food customers who like Mexican food,
thus transforming Taco Bell into a far more formidable rival than has heretofore been the case
Both 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