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Case 14 Teaching Note Chipotle Mexican Grill in 2016
11
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 most important parts of SWOT analysis is drawing conclusions from the SWOT listings about the
company’s overall situation.
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:
The company seems to have adequate market opportunities to continue expanding the number of
Chipotle locations in the U.S. and internationally for some number of years—if it can get past the
overhang of its food poisoning incidents in late 2015.
The biggest near-term threat not related to Chipotle diminished reputation relates to the potential for the
prices of the natural and organic ingredients that Chipotle uses in its recipe to rise and force either menu
price increases or narrower profit margins.
On the whole, most class members have ample reason to conclude that CMG’s overall situation is
“significantly weaker than it used to be” and that its future prospects are “uncertain.” The company had a
good strategy until its reputation and dining appeal was hit hard by the food poisoning events. Until Fall
2015, it had been successful in favorably differentiating itself from other Mexican-style fast-food restaurant
4. What are the primary and secondary components of Chipotle’s value chain?
Chipotle’s value chain has 5 primary value chain components that students should identify:
Marketing and brand name building
Case 14 Teaching Note Chipotle Mexican Grill in 2016
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The secondary components of CMG’s value chain include the following:
Hiring and training employees for the company’s restaurants
Developing capable managers to run Chipotle’s growing numbers of restaurants
5. What are the chief components of Chipotle’s strategy?
If you have not done so in a previously-assigned case, then it makes sense to spend 5-10 minutes of class
time making sure that students have become adept at identifying the key elements of a company’s strategy.
The Chief Elements of Chipotle Mexican Grill’s Strategy
Serve a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads
Use high-quality raw ingredients and classic cooking methods to create great tasting, reasonably-priced
dishes that were ready to be served to customers minutes after they were ordered.
• Serving orders quickly was/is a core strategy element
Do all of the above 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
• Top management had a very strong commitment to “Food with Integrity”
Continue to experiment with and test extending the Chipotle-model and strategy to Asian food and
custom made pizza
• If either or both appear to be viable and profitable, then move quickly to open more such restaurants
at as fast a pace as seems practical
Case 14 Teaching Note Chipotle Mexican Grill in 2016
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• Chipotle management worked with these suppliers on an ongoing basis to establish and implement a
set of forward, fixed and formula pricing protocols for determining the prices that suppliers charged
Chipotle for various items.
• Instead of making purchases directly from approved suppliers, Chipotle utilized the services of 24
independently owned and operated regional distribution centers to purchase and deliver ingredients
and other supplies to Chipotle restaurants. These distribution centers were required to make all
purchases from Chipotle’s list of approved suppliers in accordance with the agreed-upon pricing
guidelines and protocols.
• Chipotle’s training and risk management departments developed and implemented operating
standards for food quality, preparation, cleanliness, and safety in company restaurants
• The food safety programs for suppliers and restaurants were designed to ensure compliance with
applicable federal, state, and local food safety regulations
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?
Clearly, differentiation is a core element of Chipotle’s competitive strategy. Because of the company’s
Mexican-themed menu, class members might argue that Chipotle’s competitive strategy most closely
resembles that of focused differentiation (since the company’s menu appeals chiey to those who like
But there is room for a third strategy possibility—that of best-cost provider; this is because of Chipotle’s
strong emphasis on low-cost operating efficiency and competitively attractive meal prices. In a very real
Case 14 Teaching Note Chipotle Mexican Grill in 2016
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7. What chief difference(s) do you see between Chipotle’s strategy and the strategy being
employed at Moe’s Southwest Grill?
The biggest and most glaring difference is that Chipotle only has company-owned restaurants whereas
Moe’s Southwest grill only has franchised restaurants.
A second big difference is Chipotle’s stronger emphasis on quality, fresh, mostly organic ingredients and
classic cooking methods.
8. What is your appraisal of Chipotle Mexican Grill’s financial performance based on the data
contained in case Exhibit 1? How well is the company doing financially? 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:
It is beneficial to push class members to be a regular user of the financial ratios in Table 4.1 of Chapter 4 in
doing the number-crunching needed to arrive at an analysis-based answer to their assessment of Chipotle’s
recent financial performance and to prod them to calculate compound average growth rates.
If your students do a creditable job of poring through the data in case Exhibit 1 and crunching some CAGR
values, they should come up with the following:
From the end of 2011 through the end of 2015, Chipotle’s total revenues increased at a CAGR of 18.7%.
The percentages of total revenue for the various types of operating expenses at Chipotle’s restaurants (all
shown in Exhibit 1) indicate that shareholders should be pleased with the overall operating efficiency
improvements at the company’s restaurants from 2011 through 2014. However, the food poising incident
in the 4th quarter of 2015 adversely impacted the percentages for 2015; moreover, there is some reason
Net income rose to $475.6 million in 2015 from $214.9 million in 2011, a CAGR of 22.0%.
Case 14 Teaching Note Chipotle Mexican Grill in 2016
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Chipotle’s net profit margin was 10.6% in 2015 versus 10.8% in 2014, 10.2% in 2013, 10.2% in 2012,
and 9.5% in 2011.
EPS rose to $15.10 per diluted share in 2015 from $6.76 per diluted share in 2011, a CAGR of 22.3%.
Comparable restaurant sales increases of 16.6 % in 2014, 5.6% in 2013, 7.1% in 2012, and 11.2% in
2011 were quite acceptable; the falloff to 0.2% in 2015 was attributable to the sharp sales decline in Q4
of 2015.
Conclusions: Overall, from the end of 2011 through 3 quarters of 2015, Chipotle posted relatively strong
financial and operating results in a ho-hum economic environment. We would give Chipotle at an A˗ for its
9. How is Chipotle Mexican Grill’s competitive strength likely to compare in 2017 against that
of Taco Bell, Qdoba Mexican Grill, and Moe’s Southwest Grill, assuming that customer trac
by year-end 2016 has rebounded to levels just prior to the food safety incidents in Q4 2015?
Do a weighted competitive strength assessment using the methodology presented in Table
4.4 in Chapter 4 to support your answer. Based on your assessment and calculations, does
Chipotle have a net competitive advantage over some or all of these rivals? Which rival—
Chipotle Mexican Grill or Moe’s Southwest Grill or Qdoba Mexican Grill—seems likely to have
the strongest set of resource strengths and competitive capabilities in 2017 and positioned
to achieve the best financial performance? Does Chipotle have a good enough strategy and
adequate resource strengths and competitive capabilities to compete effectively against
Taco Bell assuming customer trac at Chipotle restaurants rebounds by year-end 2016?
There is ample information in the Chipotle case for students to do a competitive strength assessment of
Chipotle vs. Qdoba vs. Moe’s vs. Taco Bell (just prior to the Q$ food safety incidents or as of early 2017,
assuming customer traffic rebounds by year-end 2016. The important thing here is for students to practice
using the methodology presented in Table 4.4 in Chapter 4. We urge spending about 10-15 minutes of class
time drilling students on proper use of this tool.
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TABLE 1. Competitive Strength Assessments of Chipotle, Qdoba, Moe’s, and Taco Bell
(Rating scale for each strength measure: 1 = very weak; 5 = average; 10 = very strong)
All ratings for Chipotle assume that it is able by 2017 to recover the ground lost to the late 2015 food safety issues.
Competitive Strength
Measures
Importance
Weight
Chipotle Qdoba Moe’s Taco Bell
Strength
Rating
Weighted
Score
Strength
Rating
Weighted
Score
Strength
Rating
Weighted
Score
Strength
Rating
Weighted
Score
Menu selection and
appeal (especially
as concerns dish
customization) 0.15 91.35 91.35 91.35 71.05
Food quality and taste 0.25 10 2.50 82.00 92.25 61.50
Financial strength 0.10 70.70 50.50 30.30 90.90
Sum of weights 1.00
Total Rating/Score 57 8.35 49 7.30 48 8.60 57 7.95
The competitive strength ratings in Table 1 indicate that Chipotle is likely to be in a competitively strong
position when it heads into m2017. We have rated it a bit stronger than Taco Bell because of its once-
popular menu appeal, food quality and taste, and marginally better dining ambience—there is reason to
doubtful if its franchisees have anywhere near the financial resources of the other three rivals.
Student competitive strength ratings will, of course, differ from those in the table above because there is
room for different judgments both as to the importance weights and the strength ratings. However, we
think that the total rating/score should nonetheless be highest for Chipotle and Taco Bell (some students
10. What action recommendations would you make to CMG’s top executives to strengthen the
company’s growth and profitability?
There are no big or threatening problems/issues that need fixing or correcting at Chipotle beyong that of
recovering and rebounding from the lingering effects of the incidents in Q4 of 2015 . There is certainly
no reason to overhaul or do major surgery on the company’s strategy beyond that of repairing/restoring
its reputation and brand image—Chipotle has the capability to deliver on all three criteria for a winning
strategy. But there are some actions that students might constructively propose:
As customer traffic rebounds at Chipotle locations, resume opening new Chipotle restaurants at a fairly
rapid pace. There is a first-mover advantage in securing prime retail locations in urban areas vis-à-vis
the other Mexican fast-food rivals, especially Moe’s and Qdoba—being the first to open new restaurants
Case 14 Teaching Note Chipotle Mexican Grill in 2016
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Successfully combating a rejuvenated and better-tasting Taco Bell menu may require some menu and
dish innovations at Chipotle. If so, these should be undertaken expeditiously rather than belatedly.
Continue with the strategy of opening only company-owned restaurants and avoid franchising.
Epilogue
In October 2016, Chipotle Mexican Grill reported revenues of $2.9 billion for the first nine months of 2016,
down 18.1% from the first nine months of 2015. Chipotle had 9-month net income of $7.0 million, a huge
decrease from the net income of $407.7 million earned in the first nine months of 2015. Diluted earnings per
share totaled only $0.23, a decrease from $12.92 for the first three quarters of 2015. Other results for the first
nine months of 2016 included:
A decrease in comparable restaurant transactions of 17.9%
A comparable restaurant sales decrease of 24.9%
Steve Ells, founder, chairman and co-CEO of Chipotle, said
our sales recovery during the third quarter. We are earning back our customers’ trust, and our
research demonstrates that people are feeling better about our brand, and the quality of our
food.
Case 14 Teaching Note Chipotle Mexican Grill in 2016
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customers to return as well as a way to increase sales. Any time we consider new menu items,
it’s important to us that they remain consistent with our food culture, both in terms of the
ingredients we use and how the new items are prepared.
The most important recently introduced menu item was a new meat selection—chorizo (a Mexican-style sausage).
Chorizo accounted for 7% of the entrée selections in Q3, prompting management to increase its marketing/
The chief marketing officer also reported on several other recent developments and activities:
By combining transactional information with other customer data, we are now able to identify
more than half of our customers and reach them with specific offers and tailored messages.
last six months. Additionally, we know how many of these customers returned to Chipotle for
additional visits and how many of them became regular customers.
…. In just a matter of days, we are launching a new online ordering experience that makes
ordering and paying for Chipotle from any mobile device easier and faster. This mobile-
optimized website works on any recent, web-enabled device and it requires no app download.
in maintenance and repair as a result of this new design. This new restaurant design is already
open in certain locations and under construction in several others. We expect that more than 50
new locations in 2017 will utilize this design and even more than that, will benefit from some
aspects of the new design.
Our new restaurants have been performing at approximately 73% of our comp restaurant volumes,
slightly lower than pre-crisis levels. But in areas where we have increased marketing of our new
Case 14 Teaching Note Chipotle Mexican Grill in 2016
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Most important, we view this reduction in new restaurant openings as temporary. Our long-
term development pipeline remains robust, and with our new lower cost restaurant design, we
Steve Ells also announced important changes regarding the company’s three other restaurant concepts—
ShopHouse, Pizzeria Locale, and Tasty Made burgers:
We opened the first ShopHouse in 2011. And currently operate 15 ShopHouse restaurants in
three separate markets. But after operating in three distinct markets, and opening in a variety
Although the exotic ShopHouse cuisine was not able to attract sufficient customer loyalty and
visit frequency to make it a viable growth strategy for us, we continue to believe that our
Chipotle’s first Tasty Made burger restaurant opened on October 27, 2017 in Lancaster Ohio. Similar to Five
Guys and In-N-Out Burger, burger patties at Tasty Made were cooked fresh. The menu at the first Tasty Made
included only burgers, fries, and milk shakes.
Also, in October 2016, management indicated that Chipotle was planning to expand into Europe. A Managing
Management’s Future Outlook for Chipotle
For full-year 2016, management expected the following:
Comparable restaurant sales declines in the low single-digits for the fourth quarter
For full-year 2017, management was targeting the following:
195 - 210 new restaurant openings
Comparable restaurant sales increases in the high single-digits
For the very latest information on developments at Chipotle Mexican Grill, we urge that you check the press
releases and the investor relations sections at www.chipotle.com.
