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The fast food industry, also known as the quick service restaurant industry (QSR), plays a major role in the U.S. food industry, boasting approximately 200,000 restaurants and generating $155 billion in sales. This sector is characterized by its competitiveness and diversity, with competition varying depending on region, market, and individual restaurant. Success in this field hinges on various factors such as taste, quality, speed of service, price point, value proposition, brand recognition, location convenience customer service excellence and overall ambiance (Hoovers, 2011; Chipotle, 2010).
According to the American Sociological Review (Offer & Schneider, 2011), the QSR industry is thriving due to society's increasing time constraints, with over half of American families having two working parents. This has created a need for efficiency through multitasking. The popularity of QSRs as a convenient solution has increased as both parents have less time for cooking meals. In 2011, the QSR industry outperformed the overall restaurant market, with the Bloomberg U.S. Quick-Service Restaurant Index rising by 13.5% while the full service restaurant index fell by 1% (Wolf, 2012).
Competitive Analysis: New Entrant Threat
Entry into the quick service industry is highly competitive and saturated due to low barriers.
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Only 40-50% of new entrants will survive their first year and see profits. In the QSR industry, approximately 300,000 players are franchises, but Chipotle stands out with all company-owned locations and low start-up costs. This unique approach allows Chipotle to achieve faster growth and profitability compared to new entrants in the same markets who may struggle with initial costs.
Rivalry
Chipotle competes with Qdoba, Moe’s Southwest Grill, Baja Fresh, Taco Bell, and El Pollo Loco within the quick service Mexican restaurant sub-category.
This sub-category accounts for $5 billion of the $20 billion market (Cambrian Group, 2011). By the end of 2010, Taco Bell led this market with a 52% market share and a total of 5,635 locations in the U.S. and 262 locations in 21 foreign countries (Yum! Brands, 2011), while Qdoba had a presence in 42 states with a total of 583 locations (Jack in the Box, 2011). Threat of Substitutions
Chipotle is being challenged by six major competitors in the market: McDonald’s, Yum! Brands, Wendy’s/Arby’s Group, Burger King, Jack in the Box (owner of Qdoba), and Doctor’s Associates Inc. (owner of Subway). According to Paiz et. al., 2011, p.6, these rivals collectively hold 35.5% of the market share. These Quick Service Restaurants (QSRs) provide dine-in, carry-out, and delivery options and have been operating in the industry longer than Chipotle (Chipotle, 2010). Moreover, they utilize a more extensive marketing approach that incorporates print, radio, and television advertisements - as opposed to Chipotle's emphasis on radio and billboards ("Burrito Buzz", 2007).
Chipotle's annual advertising budget is significantly smaller than McDonald's Corp spending in just two days, choosing instead to depend on word of mouth ("Burrito Buzz", 2007). Despite competitors expanding their menus to cater to consumer requests for low carb, low calorie, and low fat choices, with some even providing value meals, Chipotle has not taken the same approach (Chipotle, 2010). Power of Buyers
The quick service restaurant industry is highly price elastic because fast food is not a necessity for customers. It heavily depends on customer preferences and disposable income. Factors such as changes in customer preferences, economic conditions, discretionary spending priorities, demographic trends, traffic patterns, and competition from other restaurants have a moderate impact on the industry (Chipotle, 2010). For example, the rise of the "Whole Food-ism Movement" has led to a greater demand for organic, antibiotic-free, and non-processed foods (Mansolillo, 2007). Consumers now prioritize healthier options and a more health-conscious lifestyle.
Chipotle has thrived thanks to its "Food with Integrity" mission, setting it apart in the industry (Chipotle, 2010). In a challenging economy, consumers have greater influence in the market and seek budget-friendly choices such as McDonald's "Value Menu," despite increasing costs of goods (James, 2010). Quick-service restaurant patrons value both quality and affordability. While Chipotle lacks value meals, their emphasis on top-notch ingredients has drawn loyal customers willing to pay higher prices (Chipotle, 2010). Suppliers hold significant sway in this sector.
Chipotle's mission to use naturally raised, sustainable, local, and organic products sets the company apart in the industry, but it also creates a larger supplier power compared to other restaurants (Cambrian Group, 2011). The pool of suppliers available to Chipotle is smaller, limiting their ability to control prices. This regionalized purchasing approach may result in higher costs in certain areas and potential food shortages due to weather-related issues (Jennings, 2011). Power of other Stakeholders
Various stakeholders, such as customers, employees, and shareholders (Enz, 2010), along with government entities, communities, and special interest groups (Wheelen & Hunger, 2010), all have a significant impact on a company's profitability. Changes in regulations related to food safety guidelines, building codes, and labor laws can greatly affect the restaurant industry. Chipotle CEO Steve Ells has pushed for the removal of antibiotics in ranching to influence government regulations and potentially impact profits in the industry (Chipotle Story, n.d.).
Chipotle values the influence of its employees on the company's culture and reputation, prioritizing retention through training, empowerment, and education such as English language classes. They also endorse special interest groups like People Are People Too that promote humane animal treatment and eco-friendly practices.
Chipotle has effectively focused on a particular market that values nutritious and organic fast food, which has helped them build a loyal customer base and stand out from rivals. To continue attracting their dedicated followers, Chipotle needs to constantly come up with new ideas and set themselves apart by advocating for environmental sustainability, like the recent opening of their first Platinum LEED certified restaurant in Gurnee, IL (Sustainable Design, n.d.).
Chipotle has achieved success and customer loyalty thanks to its unique strategy in the fast-casual Mexican cuisine sector, centered around their "Food with Integrity" principle. Despite challenges like economic downturns, rising food costs, and tough competition, Chipotle has seen significant growth and financial gains. Additionally, Chipotle attracts customers seeking environmentally friendly companies and healthier lifestyle choices.
Chipotle's Success in the Quick Service Industry. (2016, Dec 25). Retrieved from https://studymoose.com/industry-analysis-chipotle-essay
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