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Chipotle Mexican Grill’s Strategy in 2018
Overview
Headed into August 2015, Chipotle (pronounced chi-POAT-lay) Mexican Grill’s future looked rosy. Sales
and profits in the first six months of 2015 were at record-setting levels, and expectations were that
2015 would be the company’s best year ever, given the opening of over 200 new restaurants, ongoing
enthusiasm for its menu offerings containing health-conscious and freshly-prepared ingredients, and growing
customer traffic at Chipotle’s existing restaurant locations. But over the next five months, a series of events
occurred that caught customers and Chipotle top executives by surprise.
• 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
or intestines, leading to stomach pain, nausea, diarrhea, and vomiting. After the reported food poisoning,
the restaurant voluntarily closed, threw out all remaining food products, and sent home the affected
:
case 12 teaching note
Will the New CEO Be Able to Rebuild
Customer Trust and Revive Sales Growth?
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were at fault. Chipotle management worked in close consultation and collaboration with state and
1. Confirming that more than 2,500 tests of Chipotle’s food, restaurant surfaces, and equipment all
showed no E. coli.
2. Confirming that no employees in the affected restaurants were sickened from the incident.
3. Expanding the testing of fresh produce, raw meat, and dairy items prior to restocking 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 suppliers were the source of the outbreak. Ultimately, no food item was
identified as causing the outbreak and no food item was ruled out as a cause, although fresh produce was
suspected as the likely cause.
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.
• Later, it was confirmed that at least 13 people in nine other states became infected with the same strain
of E. coli linked to the Chipotle restaurants in Oregon and Washington states.
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In January 2016, the CDC announced that the prior food contamination and food safety issues at Chipotle were
“over.” Chipotle management followed up by finalizing plans to install comprehensive food safety procedures
at all Chipotle restaurants and establish Chipotle as an industry leader in food safety. 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. Recognizing that the task of rejuvenating customer traffic at its restaurants would not be easy,
Chipotle management launched a series of marketing efforts and incentives to entice former and new customers
to dine at Chipotle restaurants.
At the end of November 2017, Chipotle Mexican Grill announced that Steve Ells, chairman and CEO—and the
founder of the company in 1993—would relinquish the title of CEO and become executive chairman following
the completion of a search to identify a new CEO. A three-person search committee that included Steve Ells and
two directors was formed to identify a new leader with demonstrated turnaround expertise to help address the
challenges facing the company, improve execution, build customer trust, and drive sales.
During 2017, there were two more incidents of food poisoning at Chipotle restaurants that were widely
publicized. In July, a crowd-sourced website, Iwaspoisoned.com, indicated that 133 persons reported becoming
ill after eating at a Chipotle restaurant in Sterling, Virginia, a Washington suburb. Chipotle promptly closed the
restaurant for a “thorough sanitization” and reopened it two days later. In December, there were reports of sick
employees and customers at a Chipotle restaurant in Los Angeles. Chipotle alerted local health officials, held the
In announcing Chipotle’s 2017 financial results in February 2018, Steve Ells commented on the company’s
ongoing efforts to regain the confidence of customers and restore the appeal of dining at one of Chipotle’s 2,400
locations:
Ells further indicated that management expected sales increases in 2018 at restaurant locations open at least 13
months would be in the low single digits.
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In mid-February 2018, Chipotle announced the appointment of Brian Nicol as chief executive officer and member
of the Board of Directors, effective March 5. At the time, Nicol was CEO of Taco Bell; he had been at Taco
In announcing the Chipotle’s performance for the first quarter of 2018, Nicol said:
Chipotle is a purpose driven brand with loyal customers, passionate employees, industry-leading economic
potential, along with incredible brand equity, and craveable food with integrity, all built over the last 25
On May 23, 2018, a little over 10 weeks after taking over as CEO, Nicol announced that Chipotle would close
both its Denver headquarters and a New York office and relocate all functions to either an existing Chipotle office
in Columbus, Ohio, or to a new corporate headquarters to be located in Newport Beach, California. The move
would affect some 400 employees. In making the announcement, Nicol said:
We have a tremendous opportunity at Chipotle to shape the future of our organization and drive growth
In July 2018, Chipotle once again had a food safety lapse; this foodborne illness outbreak sickened over 600
customers at a restaurant just outside of Columbus, Ohio. Health officials attributed the problem to bacteria
that formed when certain food items were left out at unsafe temperatures. Upon learning the cause, Chipotle
top management immediately announced it would launch retraining of all its restaurant workers nationwide the
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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
turnaround strategy, its responses to the food poisoning outbreaks in several of its restaurants, and make action
recommendations to the newly-appointed CEO. 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 assignment questions and teaching outline presented below reflect our thinking and suggestions about
how to conduct the class discussion and what aspects to emphasize.
Videos for Use with the Chipotle Mexican Grill Case. There are three accompanying videos for use
with the CMG case:
A 5:12-minute 2015 video on “The Secret Recipe of Chipotle’s Success” that can be accessed at https://
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).
The Chipotle exercise will take students about 50-60 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 responded to the food poisoning incidents in
some of its restaurants?
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2. Do you agree with Steve Ells’s decision to relinquish his position as CEO? Do you approve of the choice
of Brian Nicol to become Chipotle’s new CEO? Are you surprised by the choice of Brian Nicol?
3. Does Chipotle Mexican Grill have any core competencies and, if so, what are they?
4. What does a SWOT analysis reveal about the attractiveness of Chipotle Mexican Grill’s situation and
future prospects as of mid-2018? Are the company’s future prospects greatly diminished as compared to
what they were before the food poisoning incidents?
5. What are the primary and secondary components of Chipotle’s value chain?
6. 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?
7. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates
the competitive approach that Chipotle Mexican Grill is employing?
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 22nd 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.
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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 quickly gets back on track to sustained growth and profitability. Please prepare
a report to the company’s new CEO Brian Nicol that includes
• an identification of the key elements of the company’s current strategy to rejuvenate the company’s
financial and strategic performance,
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? Can the company get its growth and profitability back on track or will it likely continue to
struggle for several more years despite Brian Nicol’s effort to rejuvenate the company (or maybe never
ever really recover)?
3. (Short written case assignment) What does a SWOT analysis reveal about Chipotle Mexican Grill’s
overall situation as its heads into mid-2018?
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Assignment Questions
1. What is your assessment of the ways in which Chipotle responded to the food poisoning incidents in some
of its restaurants?
2. Do you agree with Steve Ells’s decision to relinquish his position as CEO? Do you approve of the choice of
Brian Nicol to become Chipotle’s new CEO? Are you surprised by the choice of Brian Nicol?
3. Does Chipotle Mexican Grill have any core competencies and, if so, what are they?
4. What does a SWOT analysis reveal about the attractiveness of Chipotle Mexican Grill’s situation and future
prospects, as of mid-2018?
10. How does Chipotle Mexican Grill’s competitive strength compare against that of Taco Bell, Qdoba Mexican
Eats, and Moe’s Southwest Grill as of mid-2018? 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—
11. What action recommendations would you make to CMG’s new CEO, Brian Nicol, to help rejuvenate the
company’s growth and profitability in the remainder of 2018 and on into 2019?
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Teaching Outline and Analysis
1. What is your assessment of the ways in which Chipotle responded to the food poisoning
incidents in some of its restaurants?
We suspect most students will agree that Chipotle management went to considerable lengths to try to correct
the causes of the food poisoning problems at several of its restaurants and to institute more rigorous food
safety practices across its entire restaurant operations. There’s no convincing evidence the incidents were
taken lightly by top-level executives—rather, we suspect they were mortified and terribly embarrassed. The
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:
1. Confirming that more than 2,500 tests of Chipotle’s food, restaurant surfaces, and equipment all showed
no E. coli.
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2. Do you agree with Steve Ells’s decision to relinquish his position as CEO? Do you approve
of the choice of Brian Nicol to become Chipotle’s new CEO? Are you surprised by the choice
of Brian Nicol?
Class members will likely agree that Ells made the right move to step down as CEO.
So far, there’s not much reason to criticize the choice of Brian Nicol. But a few students might have
reservations about the choice of Brian Nicol. One concern/criticism that may prove to be valid is whether
3. 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:
4. 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)
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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
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
other food service establishments a good opening to draw customers away from Chipotle (many former
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Both Moe’s and Qdoba continue to add more restaurant locations—perhaps more aggressively than in
recent years—which limits somewhat the opportunities for Chipotle to add more restaurant locations.
It is not advisable for Chipotle to add more restaurants in a locality where there are already Qdoba and/
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 and find ways to grow customer trac.
5. 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
Designing, locating, and opening new restaurants
6. 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 has been a core strategy element and is likely to continue to be
Create an operationally efficient restaurant with an aesthetically-pleasing and distinctive interior setting.
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Open and operate only company-owned restaurants—avoid franchising altogether
Pursue revenue growth by expanding the number of Chipotle restaurant locations, domestically and, to
a lesser extent, internationally
Maintain high levels of food quality by acquiring high-quality, fresh ingredients and other necessary
supplies that meet company specifications
7. 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 chiefly to those who like
Mexican-style food). Others might claim that the appeal of Mexican food is so “mainstream” or broad that
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8. What chief dierence(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.
9. 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:
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 2017, Chipotle’s total revenues increased from $2.27 billion to
$4.48 billion, equal to a Compound Average Growth Rate (CAGR) of 12.0%.
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 mostly pleased with the overall operating
efficiency improvements at the company’s restaurants from 2011 to yearend 2014; . However, the food
poising incident in the 4th quarter of 2015 adversely impacted the percentages for 2015-2017. There
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Net income rose to $475.6 million in 2015 from $214.9 million in 2011, a CAGR of 22.0%. The drop-
offs to $22.9 million in 2016 obviously was painful, the rebound to $176.3 million in 2017 was a clear
signal that things were turning around for the better—just not as fast as one would hope.
Conclusions: Overall, starting in 2011 through 3 quarters of 2015, Chipotle posted relatively strong
financial and operating results in a ho-hum economic environment. We would give Chipotle an A˗̶ for
its performance, especially in light of the sluggish, slow-growth economic environment in the U.S. in
10. How does Chipotle Mexican Grill’s competitive strength compare in 2018 against that of
Taco Bell, Qdoba Mexican Eats, and Moe’s Southwest Grill, assuming that customer trac
and the company’s financial performance continues to rebound? 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—Taco Bell or Moe’s
Southwest Grill or Qdoba Mexican Eats—seems likely to have the strongest set of resource
strengths and competitive capabilities in 2019 and positioned to achieve the best financial
performance?
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 as of mid-2018. 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.)
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 0.15 81.20 81.20 81.20 91.35
Food quality
and taste 0.25 10 2.50 82.00 92.25 71.75
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11. What action recommendations would you make to CMG’s new CEO, Brian Nicol, to help
rejuvenate the company’s growth and profitability in the remainder of 2018 and on into
2019?
Some actions that students might constructively propose include the following:
Pursue efforts to add new dishes to CMG menu offering. But endeavor to introduce items that are
consistent with the company’s long-standing commitment to using fresh natural ingredients and the
other aspects of its “Food with Integrity” commitment. Successfully rejuvenating CMG’s growth and
Epilogue
In March 2018, Jack in the Box Inc. completed the sale of Qdoba Restaurant Corporation to an affiliate of certain
funds managed by affiliates of Apollo Global Management, LLC for about $305 million in cash.
In late August 2018, Chipotle launched direct delivery powered through DoorDash. The launch of Chipotle
delivery made direct delivery available in all 70 markets that DoorDash currently served (these 70 markets
included over 1,800 Chipotle restaurants); DoorDash expected to gradually expand its delivery service to include
more markets where Chipotle restaurants were located. To spur usage of direct delivery, Chipotle customers got
free delivery on any order of $10 or more placed and fulfilled between August 27 and September 12, 2018.
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• Restaurant level operating margin was 18.7%, an increase from 16.1%.
For the first nine months, ending September 30, 2018, Chipotle’s revenues were $3.6 billion, an increase of 8.1%
over the first nine months of 2017. Other nine-month highlights included the following:
• Comparable restaurant sales increased 3.3%.
• Digital sales grew 34.4% and accounted for 10.2% of sales.
For full-year 2018, Chipotle management was anticipating the following: