Presented by:Sundeep Bhatti, Poonam Kaur Billing, Jason Macwan, Arjun Pisharody, Neha Randhawa, Charlene Tcheong

About Chipotle

About Chipotle

About Chipotle

About Chipotle• Business concept (business-level strategy)

• Vision/Mission: • “… change the way people think about and eat fast food”

• High quality ingredients, classic cooking methods, affordable prices, distinctive interior design, friendly employees

• Food with integrity

• 1595+ store locations across US, Canada, France,

UK and Germany

• 2013 Revenues of $3.21B

• 17.7% increase over 2012

• Pursuing a differentiation strategy… providing unique and superior value to customers, for which they are willing to pay a premium… given acceptable level of cost

• Credited with creating the “fast-casual” dining experience

• Dimensions of differentiation:

✓ BRAND: Brand image

✓ PRODUCT QUALITY: Organic, sustainable, healthy food

✓ SERVICE: Exceptional customer service

Chipotle Pursues Differentiation Strategy

✓ Chipotle has a competitive advantage!

Industry Fast Facts• Industry definition: Fast-casual food business in North America

• Fast-casual is positioned as fast food (convenience) but with focus on food quality & service

• Trend to move away from fast-food consumption to fast-casual

• Consumers becoming increasingly health conscious (reduced sugar, sodium)

• Seeking sustainable options, Millennials love ethnic options (Mexican)

Profitability Chipotle Taco Bell Qdoba Industry

Net Profit Margin 0.104 0.083 0.034 0.078

ROE 0.240 0.489 0.108 0.255

ROA 0.186 0.125 0.038 0.086

ROIC 0.240 0.217 0.074 0.130

General/Macro Environment• Demographic: Aging population.

• Sociocultural: Trend towards healthy, sustainable food (avoidance of sugar, sodium, trans fats).

• Technological: Increased social marketing campaigns via social media (good health, good earth).

• Political/legal: Increased food safety regulations in North America. Changing government regulations when considering foreign operations.

• Macroeconomic: Increasing labour costs.

• Global environment: Sustainable development, natural resource and energy conservation, carbon footprint reduction.

× High threats are sources of competition that destroy profitability

× Low potential for profit… unattractive industry

Porter’s 5 Forces… Fast-casual food in N.A.

Power of Buyers

Moderate

Threat of New Entrants

HighThreat from

RivalryHigh

• Brand loyalty increases switching costs

• Differentiated taste and quality

• Low relative concentration of organic suppliers (differentiated)

• Relative low capital req’ts

• Low barriers to entry

• No expected retaliation

• Many other products with similar price /performance trade-offs

• Similar function limits prices

• Numerous competitors• Competition based on

price, quality, service

Power of Suppliers

High

Threat of Substitutes

High

Strengths Weaknesses

• High quality food made with ingredients from sustainable sources

• Marketing programs• Fast growth (revenue, expansion)

• High food costs• Limited menu items• Upward pressure on labour

costs

Chipotle SWOT

Opportunities Threats

• International expansion• Growing foodservice market

• Intense competition• Increasing labour costs• Increase food safety regulations

Value Chain

SUPERIOR

SUPERIOR SUPERIOR

Sustainable Competitive Advantage - VRIOValue Chain

Activity

Core Competence / Activity

Superior value (premium) or low

cost?

Valuable? Rare? Costly to imitate?

Organized to be exploited?

Primary Inbound logistics YES YES YES YES

Primary Operations YES YES YES YES

Primary Sales & Marketing YES YES YES YES

Secondary Procurement YES YES YES YES

Secondary Human Resource Management

YES YES YES YES

premium

cost

Effective Leadership● Steve Ells, Chairman and co-CEO

○ Ells is founder of Chipotle○ Classically trained chef who once held aspirations of

opening a fine-dining restaurant○ Well-known face among Chipotle employees due to

store visits conducted

● Montgomery F. Moran, co-CEO

○ High school friend of Ells

○ Previously worked as a lawyer before joining Chipotle as COO and then co-CEO

○ Instrumental in establishing the Restaurateur program

● Montgomery F. Moran established the 13

characteristics essential to Chipotle’s career

advancement:

○ conscientious

○ respectful

○ hospitable

○ high energy

○ infectiously enthusiastic

○ happy

● The career path can seem like many steps, but

qualified candidates can excel through in a rapid

manner

○ presentable

○ smart

○ polite

○ motivated

○ ambitious

○ curious

○ honest

Common Career Path

Behavioural Control Mechanisms• RULES

o Chipotle’s only steadfast rule is to work hard to try to change the way people think about and eat fast food

• REWARDS

o Employees are encouraged with financial incentives in the form of cash bonuses and stock options to progress through the ranks to reach the significant goal of Restaurateur, with 98% of new roles being filled with internal promotions

• CULTURE

o Employees wholeheartedly embrace the concept of “Food with Integrity”, internalizing the values associated with the company and operating to the high standards set forth by management

Recommendations

• Be prepared to tackle food ingredients price volatility:

o Purchase options & futures in addition to forward price contracts to ensure

pricing over time

o Hedge against food price fluctuations to mitigate this risk

● Be prepared to address upward pressures of labour costs by strengthening reward

mechanisms to compensate for lower wage levels

○ enforce culture throughout the firm - appoint a “Chief Culture Officer”

○ Celebrate a “Chipotle Culture Day” to reinforce group identity and pride

Thank you!Any questions?