sample
Haven't found the Essay You Want?
GET YOUR CUSTOM ESSAY SAMPLE
For Only $12.90/page

Devils Advocate: Chipotle Essay

Chipotle has come a long way since the 1993 introduction of it’s 1-unit operation in Denver; now spanning into a 1,458-unit operation serving more than 900,000 customers per day in over 43 states. [Gamble] However, they haven’t been the only fast-casual restaurants to be successful. In 2012, 8 of the 10 fastest growing restaurant chains were classified as fast-casual restaurants—Moe’s Southwest Grill, Qdoba Mexican Grill, and Chipotle all among these leaders. A strength that is unique to Chipotle is their commitment to “Food with Integrity”. The transition to using organically grown local produce and naturally raised meats has proven profitable in today’s health craze, which has consumers looking for healthier, MSG-free products. This benefit helps distinguish themselves from their competition. Chipotle faces competition from every direction when it comes to quick serve restaurants. Two restaurants in particular, Five Guys Burgers and Fries and Jimmy John’s, are opening new locations faster than Chipotle. [Shaw] A threat of new entry comes into play with Noodles and Company, who have become an immediate hit by adding pasta to the array of fast casual options, taking the burgers and sandwiches industries by surprise.

While none of these companies have quite lived up to the potential that Chipotle has created for themselves, they are quickly carving out chunks of market share; something that Chipotle should keep a close eye on. Chipotle’s recently introduced catering program is also an exciting growth opportunity. Panera’s current catering service is estimated to generate up to 8% of their sales. Although in it’s first quarter it comprised of less than 1% of total sales for Chipotle, management is expecting to generate as much, if not more, profit as the competition as customer awareness continues to increase. Taco Bell, one of Chipotles closest competitors, has introduced a Cantina Bell menu that consists of upgraded products wish fresher ingredients that is set just below the price of similar Chipotle products.

This, combined with their introduction of the Doritos-based product Doritos Locos Tacos, has allowed Taco Bell to regain ground previously lost, proving they are once again a significant threat of substitution to Chipotle. Unfortunately, Chipotle is heavily dependent on local farmers for the organic supplies required for their product. Because the supplier power is so high, some Chipotle restaurants in a few markets reverted to the use of conventionally raised beef in early 2012. Due to these rising market prices, Chipotle’s costs for food, beverages, and packing rose from 30.6% of revenues in 2010 to 32.6% in 2012.

[Gamble] Chipotle’s Return on Equity is well above the average of 12-15%, sitting at 20.6% in 2011 and 22.3% in 2012. There has also been an increase of .08% between the two years, which proves stockholders investments are continuing to grow. Their Return on Assets measures the return on total monetary investment in the enterprise, with a higher number and upward trend signifying growth. In 2011 it was 42.9% and grew to 50.9% in 2012, showing a .19% increase. The operating profit margin (or ROS) shows the percentage of revenues available to cover operating expenses and yield a profit. Just like the ROA, higher is better and trend should be upward. In 2011 Chipotle sat at 15.4%, and grew to 16.7% in 2012. When looking at liquidity ratio’s, the current ratio show’s the firms ability to pay current liabilities using assets that can be converted to cash in the near term. Ratio’s should definitely be higher than 1.0. Chipotle has done great in this aspect, reaching 3.183 in 2011. Unfortunately they fell to 2.925 in 2012, which is still well above the average, but is a decrease from 2011. A higher working capital is beneficial so that the company has more internal funds available. In 2011, Chipotle had $343,739, which increased .05% to $359, 749 in 2012. These ratios are an important financial aspect to look at because it determines the ability to invest in market expansion activities, research and development activities, and improvements on features and performance of Chipotle’s products.

One key strategic issue that Chipotle faces is their lack of presence internationally. There are a significant amount of expansion opportunities for them to consider. With just 14 locations in the four countries they currently reside in, there is plenty of room to introduce their product worldwide. Yum! Brands, which includes one of Chipotle’s closest competitors (Taco Bell), have 39,000 locations located outside the United States. [Shaw] Needless to say, opening a handful of test locations internationally could provide a plethora of new locations for Chipotle to introduce their product. Another surprising key strategic issue that they face is global climate change. They identified global weather patterns as business risks in its annual filing last month. If prices of their raw ingredients increase, there is talk that they might temporarily suspend some menu items such as guacamole and some of their salsas. Although Chris Arnold, spokesperson for Chipotle, stated the information was “nothing more than a routine ‘risk factor’ disclosure” [Vasel], it is nonetheless something Chipotle will have to come up with a creative solution for. Lastly, Chipotles recent partnership with Slow Food USA in support of school gardens across the U.S. could prove extremely beneficial to Chipotle in the future.

Not only does this further promote Chipotle’s dedication to sustainability, there is also a marketing angle to the partnership. The more the children know about where food comes from and how it’s prepared, the more health conscious they become. With this knowledge in mind, where do you think they will go for fast food? Chipotle. This is an all around great marketing move on behalf of Chipotle. In conclusion, it would seem beneficial for Chipotle to take a closer look at introducing current, as well as unique and innovative products to new markets. There are plenty of expansion opportunities worldwide for them to build upon the 14 they currently have in business. This would also be an opportunity to capture market share away from Taco Bell and other rivals who have already expanded internationally.

It would also be beneficial to create new product lines to compensate for the global climate change challenges they may face in the near future. By creating new foods and dishes to serve different markets, they will be able to acquire suppliers in the local area, and possibly bring some of these innovative ideas back stateside. Their partnership with Slow Food USA could also open doors for them to do similar partnerships internationally; creating a great way for younger generation’s to grow accustomed to Chipotle’s practices.

Questions

Sources say they have had success on college campuses in the past—do you think Winona would provide an appropriate demographic/geographic presence for success? Haven’t expanded internationally quite yet, if they did where do you think they would have the most success? Sources also say that their guacamole and some salsas are at risk to global climate change and might be dropped from the menu, how would you recommend combating this? Considering their partnership with Slow Food USA, do you think applying similar practices will help introduce their product internationally?

Citations

“Chipotle and Slow Food USA Launch New Partnership Supporting School Gardens.” – MarketWatch. N.p., 8 Oct. 2014. Web. 08 Oct. 2014. Gamble, John, and Arthur A. Thompson. Essentials of Strategic Management: The Quest for Competitive Advantage. Boston: McGraw-Hill Irwin, 2009. Print. Shaw, Brian. “4 Ways for Chipotle to Continue Its Strong Growth.” (CMG). N.p., 12 Jan. 2012. Web. 04 Oct. 2014. Vasel, Kathryn B. “Chipotle: Guacamole at Risk From Global Climate Change.” Fox Business. N.p., 5 Mar. 2014. Web. 03 Oct. 2014.


Essay Topics:


Sorry, but copying text is forbidden on this website. If you need this or any other sample, we can send it to you via email. Please, specify your valid email address

We can't stand spam as much as you do No, thanks. I prefer suffering on my own