1. Do you think CMG is a successful company?
The Chipotle mission statement:
“Food with integrity is our commitment to finding the very best ingredients raised with respect for the animals, the environment and the farmers. It means serving the very best sustainable raised food possible with an eye to great taste, great nutrition and great value.” This is the context which Chipotle uses to determine their success. Chipotle has made a mission a corporate passion. Not only have they lead the food industry in sustainable food sourcing, they have expanded their philosophy to striving for LEED certification in their buildings. They pride themselves on providing the highest quality food at reasonable prices. Does moral success translate to financial success? Steve Ellis started a taco shop in Denver, CO with the intent of reinventing Mexican food. He didn’t want fast food, he wanted real food. Despite his nay-sayers stating no one would want to pay $5 for a burrito, no one wants to see an open kitchen and certainly no one will stand in line to have something assemble before them, by 1998 he had opened 16 restaurants and McDonald’s decided to back his endeavors.
With McDonald’s investment, the company grew to 500 stores by 2005. By January 26, 2006, Chipotle made its IPO and in October 2006, McDonald’s divested for $1.5 billion dollars. Financially speaking, net cash flows remain strong and positive. Their stock prices have rebounded very well since the financial crash in 2009, where the price was $47.76 to today where it is currently $608.67. They are operating approximately 1800 restaurants including ChopHouse Southeast Asian Kitchen. In comparison to its competitors, CMG spends less in labor and building costs. Where it consistently spends more is in food and packaging, which supports the mission of the company. The table below reflects costs as a percent of revenue:
In 2014, CMG increased its food and packaging to 34.6% while decreasing its labor to 22% of revenue which is consistent with their core mission of providing quality food at a great value. 2. How does CMG compete?
CMG takes a very different approach to competition and marketing and advertising: “Our marketing strategy has always been based on the belief that the best and most recognizable brands aren’t built through advertising or promotional campaigns alone, but rather through all of the ways people experience the brand. Out main method of promotion is word-of-mouth publicity.” CMG has taken conscious actions to decrease traditional marketing methods by decreasing the advertising budget from an all-time high of $7.9 million in 2009, to $5.8 million in 2011. CMG markets through print, outdoor and radio ads plus on-line advertising. Their goal is to target likeminded individuals and organizations who believe in the “Food with Integrity” mission. They also generate media coverage with their restaurant reviews about the quality of their food and their strong culture of doing the right thing in every aspect of their business.
3. How do CMG’s resources support the company’s competitive position? One area of resources is CMG’s suppliers. In 2008, CMG launched a program to increase local sourcing of its food items. This program cut down on fossil fuels used in transportation, gave local farms work and improved the taste of the food by using ingredients during their peak season. This local farm supply network provided lettuce, green peppers, jalapeno peppers, red onions and oregano. This program also resulted in 5 million pounds of produce in 2009 and 10 million pounds in 2012, which is a huge boost in the local economy for the farms used in the program. In addition to the locally-grown vegetables, CMG used ‘naturally raised’ meat, which is open-range, antibiotic free and vegetarian fed. One hundred percent of the port, 80 per cent of chicken and 50 per cent of beef used are in this classification. Additionally, all of the sour cream and chees came from cows that were not given the rBGH (human growth) hormones. While CMG would like to use all-organic ingredients, the cost is still too high, so they are doing what they can to continue to keep the prices reasonable and to turn profits. CMG is one of two Mexican fast-food chains that can say they use 100% fresh ingredients.
There are no microwaves, freezers, or can openers in a CMG restaurant. This is a huge advantage for target consumer groups such as the Millenials who are looking for good, healthy “fast food” options by companies who practice corporate social responsibility. CMG is providing jobs to local farms, therefore helping improve the local economy in the majority of CMG locations. CMG is responding to growing health concerns in eating habits by providing fresh, organic ingredients and cutting down on the amount of food they serve with hormones, etc.
By using mostly organic ingredients, the food tastes better also. CMG also uses a vast majority of naturally raised meat which eliminates concerns of animal-rights groups. Finally, CMG is also looking into how to design and build restaurants which are more environmentally friendly and looking for systems to create more efficiency in daily operations. One way to do this is by using solar panels for energy. As of 2012, 3 of its restaurants in IL were LEED certified (Leadership in Energy and Environmental Design). This helps reduce energy consumption and the overall carbon footprint. 4a. What challenges does CMG face in late 2012?
From 2012 until present time CMG faces two major competitors in the Mexican Food market, Taco Bell as the fast food segment and Qdoba as the fast casual segment. Both competitors have updated their menus that tend to resemble CMG’s but at lower costs. CMG handles their business in a way that is not as easy to copy but a competitor could try to imitate a product and possibly sell it for less. With CMG’s stand on food that is raised with respect for the animal their products are more costly but have a better taste and greater nutritional value. This process has caused CMG to look into their pricing since food costs continue to rise. CMG does not want to deter customers to their competitors by raising prices too quickly.
In this economy CMG is facing many challenges in the fact with the depressed economy people are looking for quick service and or fast casual restaurants over full service due to cheaper prices and saving time. CMG’s competitor Taco Bell is also pushing a higher margin with a more aggressive menu and increased advertising. There also continues to be an overall increase in food prices that will eventually affect CMG and their margins with food products with their standards compared to their competitors. CMG has walked away from the conventional restaurant practice and spends more on food and they own their restaurants instead of franchising, and they don’t advertise like their competitors. With these ideals CMG has structured themselves to be a strong restaurant chain and continue to be a formidable competitor.
4b. How should Steve Elis and Montgomery Moran position CMG to respond to these challenges?
CMG needs to continue to stay competitive by ensuring stability in input costs by engaging in forward pricing. CMG needs to watch the economy and their competitors Taco Bell and Qdoba before making any decisions on major pricing changes. They will need to continue to focus on investments and general overhead costs. Steve Elis and Montgomery Moran need to continue on the path of organic agriculture and the humane treatment of the animals they use as food. People will continue to respect and want to eat “Food with Integrity”. CMG will also need to continue to find new and innovative ways to advertise making sure they solidify their reputation and push the freshness of their product. Health conscious individuals will see CMG as a healthier fare than other Mexican style restaurants.
5. What would you recommend the company do?
CMG should continue to focus on solidifying its reputation for freshness and offering a healthier menu than most competitors by continuing to use mostly organic ingredients and local farmers. They also need to continue to focus on using suppliers that support the humane treatment of animals. CMG can also continue to build the connection with millennials because generations after the millennials will likely follow suit. Furthermore, CMG can continue with moving away from non-traditional media and using more technology-based options. Finally, CMG should work on getting more restaurants LEED certified and share best practices amongst all locations on how to improve operational efficiency in order to keep costs as low as possible to offset the higher prices for organic ingredients. They need to be very intentional about not rising prices too much higher than the competition otherwise they will price themselves out of the “fast food” industry.