In 2010, Mr. Connaughton (plaintiff) sold his business concept of ramen cuisine to Chipotle Mexican Grill, Inc (defendant). The majority shareholder, CEO, and founder of Chipotle employed the plaintiff as an employee who could be trusted with the implementation of the ramen cuisine concept. The employment contract stated that the plaintiff would be compensated as an employee whereby the base salary would be provided. After three years of work, the petitioner would be entitled to certain equity in the company. Since the plaintiff was an employee of the defendant, he could not engage in any other outside projects concerning the development of ramen cuisine. The plaintiff worked for one and a half years of employment, and the plaintiff realized that the defendant had engaged in a confidential agreement with David Chang to develop a ramen restaurant concept.
The legal issues in the case are that the defendant allowed the plaintiff to develop the ramen concept without being informed of the prior non-confidential agreement signed by the defendant and Chang. The defendant argues that his contract with the complainant got terminated due to loss of confidence in the ramen concept, as well as the claim that the complainant engaged in external work. The plaintiff argues that the defendant should be charged with fraudulent inducement and unjust enrichment. In particular, the defendant introduced the plaintiff through fraudulent means to work without informing of the non-disclosure agreement signed by Chang. Any information revealed would have enabled the plaintiff to avoid becoming an employee of Chipotle.
In the paper, I argue that there was no intention of the defendant to defraud or mislead the plaintiff into signing the employment agreement. Besides, the plaintiff cannot present any evidence that they have suffered damages in the process of implementing the ramen concept at Chipotle.
Majority vs. Dissenting opinions
The dissenting opinion is based on the notion that the court did not properly dismiss the claim. The dissenting opinion builds on the assumption that the defendant failed to disclose information regarding the contract with Mr. Chang. The information withheld would have assisted the plaintiff in making the right decision on whether to continue with the ramen project. In particular, the implementation of the ramen concept was affected by the non-disclosure agreement between the defendant and Mr. Chang. Despite the failure to disclose full information, the court is right to dismiss the claim that the defendant engaged in the fraudulent inducement.
Since the plaintiff is an employee of Chipotle, they are not liable to any litigation initiated by Mr. Chang. Furthermore, there was no allegation that the plaintiff has stolen the Momofuku Ramen, as well as any damage to professional reputation. Under the terms of employment, the plaintiff does not present any claim that the contract agreement was not met.
An employment contract is signed at will. Under the employment contracts, there are no valid accounts for damages arising from the defendant’s actions. Any profits to Chipotle would not be a benefit to the plaintiff since the agreement is based on the contract as an employee but not on the profits generated from the ramen concept. The court argued that the plaintiff does not qualify for the stock since the employment agreement stated that the plaintiff must work for three years.
Even when there would be no fraud, the plaintiff has no legal jurisdiction to seek a share of alleged profits. In the case of Caruso v. Hirsch, 2007 (par 4), the wife’s proposed amended counterclaim demonstrated that she suffered damages and losses attributed to malpractice of the Caruso law firm. Caruso failed to protect the interest of the wife before the husband filed a bankruptcy case by the husband in the matrimonial property case. However, in the case of (Mr. Connaughton), there is no indication that damages exist. Mr. Connaughton presents allegations that future profits could have been lost. The judge cannot calculate the alleged profits.
In the case of Lama v. Smith Barney (par 11), in most fraud cases, the measure of the damage is based on the loss sustained directly from the wrong. The plaintiff in the case was required to present the evidence that he had lost something of value. CBS had duped the petitioner to accept something of a much lower value. The court, when calculating damages arising from fraud cases, looks at what the plaintiff has lost, and not on what might be gained in the future. The plaintiff (Mr. Connaughton) cannot rely on alleged profits without presenting evidence on losses incurred.
The dissenting opinion argues that the defendant engaged in fraud. Fraud, according to dissenting opinion relates to the loss sustained as a result of wrongful dismissal. Damages arising from fraud should be calculated based on what the plaintiff lost but not on alleged profits. Damages to the plaintiff should be viewed in terms of the gains on the ramen concept, had the plaintiff avoided the Chipotle offer. The judge does rely on the argument on what might have been gained. The plaintiffs should present evidence on when they lost but not what might have been gained inside or outside Chipotle.
Societal and business implications
The majority opinion that the plaintiff shows the evidence of loss or damages as a result of wrong implies society and business. Employers can use such arguments to terminate employment contracts signed with employees. In particular, the employee has no damage or loss when the contract is terminated wrongfully. Employers have the right to dismiss the employee unfairly without any reason. A society that does not consider the wishes of the employee is bound to fail. Compensation for damages incurred by employees should not be viewed in terms of money. Within society, employees take care of children and other family members.
Damage should be considered concerning society members affected as a result of wrongful termination of the contract. Termination of an employment contract is celebrated in the society when the plaintiff is denied the right to damages incurred.
The dissenting opinion that damages can be reasonably inferred implies that businesses have no authority to dismiss employees at any time. The notion that employees are at the will of the employer is eliminated since employees have other responsibilities in the society. Businesses should be ethical in how they dismiss the employee despite the employee being ‘at will’ to the employer. When reasonable damages are inferred, businesses will have to consider any decision regarding the termination of the employment contract.
Evaluation of dissent opinion conclusion
According to Black v. Chittenden, 1986 (par 1), when the defendant knowingly withholds important information that can assist the plaintiff to make decisions, it is clear that the plaintiff is deceived and damaged. The claim that the plaintiff was not informed about the existence of another agreement is sufficient to plead for the defendant’s knowledge of false information when employing the plaintiff. The judge argues that the plaintiff failed to present any evidence on financial injury arising from the fraud. The judge cannot substantiate that the plaintiff will not suffer any losses from wrongful dismissal. Any wrongful dismissal has consequences, whether financial, social, or emotional to the plaintiffs
The judge is right that alleged profits cannot be substantiated. However, any dismissed employee needs to be compensated because they have devoted time, emotions, and other resources to meet the employment contract specifications. The judge must consider loss or damages incurred by the plaintiff based on the employment position at Chipotle and damage to a professional reputation built for several years.
Conclusion
The plaintiff could have received equity (at the end of three years) even when the ramen concept failed to generate profits at Chipotle. The defendant had the obligation to respect the contract even when the ramen concept could not lead to profitability. The judge is right to dismiss the claim for damages based on alleged profits in the future. However, the judge must consider damages concerning information withheld when signing the contract (the defendant and Mr. Chang).
The information would have assisted the plaintiff to avoid signing the contract. The plaintiff suffered damages concerning the loss of employment as well as time devoted to the completion and implementation of the ramen cuisine concept. In the future, employers will have the authority (impunity) to dismiss employees without considering damages caused to the employee. Damages should not be viewed in terms of profits alone.
Works Cited
Caruso, Caruso & Branda, P.C. v. Hirsch. 04769 [41 AD3d 407]. The Supreme Court Kings County. 2007.
Claire S. Black et al v. Ralph Chittenden. 69 N.Y.2d 665. Court of Appeals of the State of New York. 1986.
Kyle Connaughton v. Chipotle Mexican Grill, Inc. NY Slip OP 00273. Appellate Division of the Supreme Court of New York, First Department. 2016. (Dissenting opinion).
Kyle Connaughton v. Chipotle Mexican Grill, Inc. NY Slip OP 00273. Appellate Division of the Supreme Court of New York, First Department. 2016. (Majority opinion).
Lama Holding Co v. Smith Barney. 88 N.Y.2d 413. The Supreme Court of New York. 1996.
It is possible to discuss the code of conduct adopted by such a company as Chipotle Mexican Grill. There are several areas that are essential for the work of this organization. In particular, one should consider the rules that explicitly prohibit various forms of discrimination, harassment, and bullying (Chipotle Mexican Grill, 2010). According to them, it is the duty of managers to eliminate such behaviors as soon as possible. They are also obliged to document such cases (Chipotle Mexican Grill, 2010). These provisions can minimize potential conflicts in the workplace. They can also ensure that every employee feels protected by the company.
This precaution enables managers to retain workers in a more efficient way. Secondly, much attention should be paid to the sections of the code requiring workers to treat the property in a responsible way. These norms are vital to the prevention of damage and theft. Finally, one should consider the standards related to the reporting of financial transactions. These rules increase the transparency of reporting and help the company avoid various forms of embezzlement. Moreover, they assist this organization in abiding by the financial regulations adopted by the government. Overall, this code plays an instrumental role in improving the work of this restaurant.
The management can take several steps to ensure that every worker complies with this code of conduct. At first, they can construct case studies or situations highlighting the need for following such rules. For instance, business administrators can demonstrate the legal problems that can originate from inaccurate financial reporting. Thus, they can warn employees against potential pitfalls. Additionally, they can offer training sessions for workers who need to know how to act in challenging situations. For example, one can mention the cases when employees are offered a bribe or a payoff (Chipotle Mexican Grill, 2010).
Finally, business administrators should show that every case of non-compliance will be penalized. For instance, they need to demonstrate that the management will not tolerate any form of discrimination in the workplace. This zero-tolerance policy has been adopted by many organizations, and this approach has been rather efficient (Landy, 2005, p. 246). These steps will attain several goals. In particular, they can prepare workers for possible challenges. Additionally, the workers will be more motivated to act in an ethical way because they will see that the management does not accept any violations of ethical rules.
Overall, this restaurant can take part in various activities that will underscore their corporate social responsibility. At first, this organization can encourage customers to eat healthy meals made of vegetables. Apart from that, they can display posters emphasizing the benefits of the proper diet. In this way, the management can attract a greater number of clients; for instance, one can mention those people who prefer the vegetarian diet. Furthermore, this organization can cooperate with those farms that rely on the organic methods of agriculture.
In particular, the managers of this restaurant should select those farms that are located in this neighborhood. Finally, on some occasions, this organization can launch charitable programs that can support individuals with an extremely low level of income. Admittedly, this approach will not immediately increase the profitability of this restaurant (Paetzold, 2010). Nevertheless, such activities can illustrate that Chipotle Mexican Grill tries to promote the welfare of the community (Paetzold, 2010). So, the management should consider some of these initiatives.
Reference List
Chipotle Mexican Grill. (2010). Code of Conduct. Web.
Landy, F. (2005). Employment Discrimination Litigation: Behavioral, Quantitative, and Legal Perspectives. New York, NY: John Wiley & Sons.
Paetzold, K. (2010). Corporate Social Responsibility: An International Marketing Approach. New York, NY: Verlag.
The company is a United States casual restaurant with about 85,0000 employees and enjoys a mass flow of loyal customers. Its menu includes burritos, tacos, quesadillas, bowls, and salads. The firm’s primary products are typically nutrition and food sourcing, with a focus on responsible sourcing, freshly cooked, and wholesome ingredients. The chain is famous for giving supplementary simple food deprived of artificial additives and a huge range of totally customizable lenient tacos, burritos, bowls, salads, chips, and queso (Chipotle, 2020).
In terms of marketing, Chipotle is a corporation that uses non-traditional advertising, considering marketing strategies that generate positive feedback from customers and word of mouth reputation. The company reportedly spends only 2% of its revenue on advertising and relies on a unique social media presence or public promotions to attract consumers. Chipotle has established itself as a “leader in culture” remaining a popular spot for youth to either hang out or order delivery as a representation of their millennial ‘healthy’ status (WARC, 2020).
The perfect target market for Chipotle is the younger millennial professionals and college students aged from 18 to 28 (Lock, 2020). As a result of their busy schedules, they require a healthy alternative to preparing a meal and have to eat out; hence they turn out to fast-casual restaurants such as Chipotle. The company promotes its products by satisfying customers with fair prices. Their customizable food is sold through two channels: assembly lines in the leading stores and their mobile application (Lock, 2020).
In terms of prices, Chipotle is known for having a fair price. In comparison to other fast-food restaurants, they have almost the same prices. A higher interest rate in the company is a result of increased financial leverage. The company reports the lowermost margins compared to other companies but can record the highest net income rate, which is why it has more potential compared to other companies (Walker & Merkley, 2017).
Chipotle Mexican Grill has a Debt to Equity of 2.033, according to the 2019 annual report. The ratio was determined by dividing total liabilities of $3.4 billion by total shareholders’ equity of $1.7 billion (Chipotle, 2019). The rate is 98.45% lower than that of the restaurant industry and the Consumer Cyclical sector (Lock, 2020). The Company’s Debt to Equity Ratio is projected to increase depending on the last several reporting years. Moreover, the company reports a leading net income growth, which implies that it can perform better, resulting in further potential benefits. Additionally, the income statements generally show an increase in the net income and the comprehensive income. The company’s financial statements are based on its fillings with U.S Securities and Exchange Commission.
In 2019, Chipotle’s annual revenue was $5.586 billion, which was a 14.8% growth from the previous year (Chipotle, 2019). The augmented revenue was a result of a significant upsurge in comparable sales of the restaurants. Moreover, the revenue rose due to new restaurant openings and loyalty referrals. Chipotle’s market share demand, aptitude to produce reliable repeat sales, and substantial brand equity contribute to its increased revenue. Furthermore, in the same year, the company earned a net income of approximately $ 350.16 million. The establishment has an annualized return on assets of about 13.01% and assets of 17.01 % for five years (Lock, 2020). While the business has been successful, its margins have lagged rivals and is a vital area of emphasis for an analyst in the industry. Chipotle is also a top stock performer, which makes it successful. I now acknowledge that the firm’s competent management team has significantly contributed to its financial success. The company has positioned itself strongly in the casual dining sector by delivering ‘food with integrity,’ an aspect it seeks to maintain through the management and brand repositioning (Assenza & Lewis, 2019).
The analysis of Chipotle Mexican Grill, Inc., and financial statements provide a solid basis for planning for the company. According to Blokhin (2020), Chipotle operates restaurants predominantly in the US and at international locations. The company’s hallmark is an alternative menu with organic products and customizing them to consumers’ tastes. Chipotle is notable with its high growth rates, unusual for many other large restaurant businesses. Despite the COVID-19 pandemic, the company reports the earnings to exceed expectations (Johnston, 2020). This paper aims to summarize the importance of the five steps of financial recommendations for Chipotle Mexican Grill, Inc. and explain how the steps contribute to the company’s growing success.
A summary of the importance of financial recommendations is provided in this paragraph. The projected income statement and projected balance sheet, indicated in the first step, are essential as they enable Chipotle to assess the feasibility of various strategies and compare scenarios in different years (David & David, 2017). The EPS/EBIT Analysis allows for determining an appropriate combination of debt and equity for the company and highlights the need to avoid the debt share from exceeding the stock share. Next, cash value and the method average are significant as they indicate that Chipotle is still in the negative. The current ratio’s importance lies in the company’s ability to assess whether it can meet its short-term cash obligations (David & David, 2017). The debt-to-equity ratio estimates whether Chipotle can cover its liabilities in case of financial declines, keeping the company from getting into financial distress. In the final step, retained earnings of Chipotle Mexican Grill are indicated, crucial for the company to calculate net income after dividend payments and decide on how to distribute it (Kenton, 2020). Overall, the financial recommendations and analysis evaluate Chipotle’s budget and help with determining strategies.
The five steps analyzed in this paper contribute to the Chipotle Company success going forward. As Page (2019) reports, one of the company’s key success factors is the ability to maintain immediate control over all the operations. In particular, the projected income statement and balance sheet enable the company to calculate the total liabilities and equity and make a projection of its future growth. The EPS/EBIT Analysis allows for obtaining the needed capital for Chipotle. The method average implemented for the cash value shows how the income from the company should be projected and allows for choosing a better option to avoid negative values. The current ratio of 1.76 helps the company suggest that it currently generates enough revenue to cover the liabilities, while the debt-to-equity ratio of -0.30 shows a strong ability to invest (David & David, 2017). Finally, Chipotle’s retained earnings account for $64,340 and leave much space for applying them for re-investment, the company’s growth, or payments for shareholders. Thus, Chipotle’s success can be explained by the ability to control key indicators, make projections, and take corrective measures to improve the rates if needed.
To sum up, a summarized analysis of the importance of the financial recommendations for the Chipotle Company are discussed in this paper. Besides, an explanation of the steps’ contribution to the company’s success and growing revenue is provided. Overall, the attention to financial recommendations and careful planning benefit Chipotle’s ability to control its budget and investment. It can be concluded that sustainable strategies can be chosen for business based on financial statements and detailed analysis.
References
Blokhin, A. (2020). Understanding Chipotle’s financials (CMG). Investopedia. Web.
David, F. R., & David, F. R. (2017). Strategic management: Concepts and cases: A competitive advantage approach (16th ed.). Pearson.
Johnston, M. (2020). Chipotle earnings: What happened. Investopedia. Web.
Kenton, W. (2020). Retained Earnings. Investopedia. Web.
Page, V. (2019). Why is Chipotle so successful & popular? (CMG, MCD). Investopedia. Web.
The main problem that the management of Chipotle Mexican Grill faces is the stiff competition from emerging and existing companies. To deal with the stiff competition, the company has strategically made high-quality fast food with fresh ingredients. These products are offered at relatively low prices. The management believes much in the advertisement as its strategic marketing option. Even though the approach has earned the company a huge market share in the fast-food industry, it has also increased the costs of operations.
The use of fresh ingredients and the objective of eliminating unhealthy contents to produce affordable high-quality fast food have helped the Chipotle Mexican Grill to gain huge market share nationally and internationally. The management is reluctant to change the founder’s philosophy. The emergence of other creative companies with new strategies could cause the downfall of the company.
Strategic Analysis
Five Forces model
In terms of rivalry in the market, the competition is based on pricing. To counter this strategy, Chipotle uses food quality, location, stylish presentation, and provision of quick services. The barriers to new entries in the industry are very low and this increases the number of competitors. Chipotle competes with firms that produce food to meet the specific demands of customers. In terms of buyers’ power, the number of consumers coming to Chipotle increases.
Strategic Group Map
In terms of the strategic group map, the company has almost a similar business model with MacDonald’s and other big players in the industry.
PESTEL Analysis
There is nothing much about political factors influencing the operations of Chipotle apart from the FDA regulations in the food industry. The company upholds integrity by adhering to these regulations. Economic changes have significant effects on the fast-food industry in terms of profitability. The company makes food that meets local socio-cultural demands. Chipotle does not rely on technology since it provides face-to-face customer services. The company is environmentally friendly. FDA regulations might control its supply of food.
VRIN Framework
The VRIN framework assesses the valuableness, rarity, imitability, and non-substitutability of resources used. The value of ingredients used by Chipotle is of high- quality. The rarity of the ingredients makes their food special. The manner in which Chipotle makes their food and provide customer services is difficult to imitate by competitors. Their food products do not have direct substitutes.
Mission, Vision and Core Values
The mission, vision, and core values of Chipotle are based on the provision of food with high standards of integrity as a way of changing the perception of people about fast food. The company’s core values and principles include the idea of sticking to a simple menu and using skilled employees who can easily interact with customers.
SWOT Analysis
The strength of Chipotle relies on its rapid growth, financial strength, high-quality ingredients, and dependence on the U.S. market. The main weakness is the lack of modern technology applications. The company’s opportunities rely on the expansion of the store and the new category of the ingredients. Possible threats include additional food safety regulations and stiff competition in major markets.
Generic Strategy
The company strives to make high-quality and affordable fast food with the aim of providing quick services.
Financial Analysis
Financial Statement Analysis
Total revenues for the company have been steadily improving. Costs such as labor, occupancy, operations, and other costs have been reducing at a smaller margin. On the other hand, depreciation and amortization have been increasing.
Ratio Analysis
Financial ratios as at December 2015 are as follows
Gross margin = 18.58
Operating margin = 8.22
EBT Margin = 8.37
Return on equity = 11.34
Figures
Fig. 1. The figure showing the illustration of Chipotle balance sheet.Fig. 2. A figure showing a cash flow analysis of Chipotle.
Recommendations
Chipotle can increase its market share and customer service strategies by adopting modern technologies in its business operations. New technology will attract more customers online.
This paper gives insight into the strategic measures undertaken by Chipotle Mexican Grill in the aftermath of the E. coli outbreak that affected its competitiveness and subsequent performance in the American market. It aims to identify the strategies used by the company after the 2015 disaster and evaluate the effectiveness of those strategies. The paper begins by giving a brief introduction of strategic management concepts appropriate to the case. In the proceeding sections, the essay analyzes Chipotle’s key profitability factors and its customer retention strategy. An analysis of how the company can grow its consumer base will be provided as well. The company’s SWOT analysis and profitability approach, ethical and sustainability issues, and the best practices in the sector will be discussed in the essay. Finally, the paper makes concluding remarks about the discussion made.
Introduction
Organizations in all sectors of the global economy aim for sustainable success. Often, this calls for the formulation of effective strategies in the company or organizational operations. In their famous strategic management book, Thompson, Peteraf, Gamble, and Strickland (2014) define strategy as the measures employed by an organization to tame the competition posed by its rivals while at the same time ensuring it attains optimum profitability. According to Thompson et al. (2014), the strategy adopted by an organization determines both its short- and long-term performance. Towards this end, strategic management can be defined as a wide aspect of organizational leadership that deals with the attraction of customers, positioning in the marketplace, competition, and response to economic and market transformations, among others (Thompson et al., 2014).
The implication suggested is that strategic management encompasses all aspects of a company’s operations from the time it enters a particular market. Therefore, using the economic insights provided by Thompson et al. (2014), it is possible to analyze the performance sustainability of any company in any industry. It can be argued that sustainability goes hand in hand with client/consumer retention. Chipotle has tried to increase its consumer base after the E. coli outbreak using various strategies. One strategy that has worked well for Chipotle is the constant communication of actions they took to avoid such an outbreak in the future. This paper evaluates the management strategies employed by Chipotle Mexican Grill (referred to in the essay as Chipotle) in the aftermath of E. coli outbreak that affected its operations in several states.
Overview of Chipotle Mexican Grill
Chipotle Mexican Grill, Inc. is an American multinational casual fast-food restaurant headquartered in Newport Beach, California. Other countries of operation include Canada, the United Kingdom, France, and Germany. By 2018, Chipotle had a total of 2,500 outlets located in different countries and annual revenue of $4.8 billion (Appendix A). Additionally, the company operates as CMG in the New York Stock Exchange. Owing to its reputation as a leader in the restaurant sector, Chipotle’s activities are of great interest to the general public and institutions that regulate the food industry ̶̶̶̶̶ such as the FDA. Hence, the outbreak of E. coli bacteria affected the company’s strategic position in the sector. The following sections of this paper draw insights from Thompson et al. (2014) to explain the effectiveness of the company’s strategy after the unfortunate occurrence.
Key Success Factors and Customer Retention Strategy
Chipotle is undoubtedly one of the household names in America’s restaurant sector. It competes with giants like McDonald’s. Moreover, there has been a steady increase in the company’s stock prices – from $42 (in 1993) to around $650 (in 2019) (Chipotle, 2019). This implies that the company is a viable investment opportunity. Therefore, this section examines the success factors that have made Chipotle successful and the strategies it put in place to retain its customer base even after the outbreak of E. coli in its outlets in 11 states.
Corporate Ownership
Part of Chipotle Mexican Grill’s success can be attributed to the fact that the company is corporately owned and has no franchises (Appendix C). Corporate ownership is integral to defining an organization’s management strategy. According to Thompson et al. (2014), an organization’s strategy provides a roadmap on what the company should do and not do to leverage competitive advantage. Therefore, at the heart of every strategy are the values held by the company’s owners and the projected vision for its sustainable performance. When Steve Ills started Chipotle in 1993, his goal was to transform the restaurant sector by offering fresh products with fresh ingredients (Chipotle, 2019). Therefore, Chipotle is a corporate-owned company because Ills wanted to retain control over its leadership, supplies, and organizational culture. Strategically, Chipotle owns all its stores in all the countries it operates. This ensures that the company has control over the design and operations of all its outlets.
Chipotle Sells Food with Integrity
Branding is an important marketing strategy as it dictates the perception of the target audience about a given good or service. Customers are often attracted by the company’s slogan, other than the name and logo, as they depict the inherent organizational culture (Chipotle, 2019). Unlike Chipotle’s competitors in the industry, Chipotle ensures that it uses fresh, non-GMO, and organically produced ingredients to make healthy food for its customers (Chipotle, 2019). The assertion is that the company is banking on its market differentiation strategies to leverage competitive advantage in the sector.
As per the mentioned slogan, Chipotle employees are trained to retain the quality of food produced in the company’s restaurants in and outside the United States. Notably, Chipotle is implementing Thompson et al.’s (2014) position that business strategy is all about being different from the rest. The authors contend that organizations that emulate other successful companies are likely to fail due to the lack of a specialist approach that relates and attracts customers. In the contemporary world that is characterized by organizational homogeneity, especially in the production sector, the emergence of specialist organizations is almost inevitable. Hence, Chipotle used the same approach to grow its customer base. Moreover, it is worth noting that a majority of people in the United States are now embracing healthy eating to avoid common lifestyle diseases like high blood pressure. Therefore, Chipotle’s management crafted a strategy that stresses the use of healthy ingredients to promote healthy living.
Going by the above, it is apparent that Chipotle’s success momentum and up-surging financial performance was shaken by the outbreak of E. coli bacteria that sent shockwaves and panic in most parts of the United States. Hence, the strategic measures employed by the company’s leadership were to determine the company’s profitability and competitive positioning in their external market. Although the incident damaged the company’s reputation, Chipotle was relieved when the relevant regulatory institutions assessed the situation and concluded that the company would go on with its operations as usual. According to Thompson et al. (2014), the strategic management choices made at such a point of an organization’s existence determine its future survival.
The Company Has a Small Menu with an Array of Choices
The third success factor for Chipotle is the fact that the company has a small menu that enables it to stock the right ingredients. As a result, the company does not allow spoilt ingredients to be used in the production process. This approach also helps the company avoid the losses caused by wastage. Based on the E. coli incident, one might argue that this strict policy was violated by some of the company’s stores, and this compelled the management to debate on the relevance of a policy change to ensure the company’s profitability after the health care.
Another merit of small menus in restaurant settings is that they are easily distributed through various customer information channels. Indeed, customers are aware of what the company has to offer when they visit as they can easily get their menus on different platforms. As a result, Chipotle does not have to spend a lot of money on the advertisement for new meals as it is known for its classic culinary packages. Although this approach may seem redundant in terms of organizational growth, the company has flourished under this strategy. A diversion in policy is probable in the future, but this will depend on the values of the leaders in charge and the existing organizational culture at the time of change. Nevertheless, the E. coli outbreak could serve as the precedent upon which the right policy is implemented. This suggests that future leaders must prevent a repeat of the incident by all means – even if it means retaining the small menu.
Customer Retention Strategy
Attracting consumers is not as difficult as ensuring customer loyalty. Customer retention is a complex process that requires organizations to develop the right strategies that can be used to convince clients to keep buying their products. According to Thompson et al. (2014), one of the business approaches that define a company’s strategy involves actions that can offer goods and services at the lowest prices and at the lowest possible costs. Chipotle Mexican Grill’s customer retention strategy is to maintain the quality of its products. This is arguably the practice of most companies in the restaurant sector. Thus, although Chipotle might not be able to offer lower prices for its products, the company has succeeded in maintaining a market share consisting of royal customers due to their quality. Again, the incident of food poisoning has negatively affected the company’s future success in the market, as it also affected standards of quality. There are several ways in which such a reputation can be built back. However, it is important to note that the way the company handled the situation ensured that a majority of its loyal customers remained committed to the brand.
Chipotle’s SWOT Analysis and Profitability Strategy
SWOT Analysis of Chipotle Mexican Grill
Customer retention is a strenuous process that requires organizations to develop the right strategies that can be used to convince clients to keep buying their products. According to Thompson et al. (2014), one of the business approaches that define a company’s strategy involves actions that can provide the lowest prices at the lowest possible costs.
Strengths
The first area of strength is the company’s financial standing. Chipotle is debt-free and has a healthy cash flow that could see the business progress well in the coming years. As of 2016, for example, just one decade since its IPO, the company had over $1 billion in cash and investments. Even so, the E. coli outbreak reduced the price of the company’s shares.
Secondly, Chipotle has witnessed accelerated growth since 2006. In 2006, for instance, the company had just above 500 restaurants in the United States. This number has grown five times, and the company now boasts of more than 2,500 outlets around the world. Nevertheless, the company’s performance in the aftermath of the E. coli outbreaks reduced by approximately 36% (Taylor, 2019). Even so, the market returned to normalcy, and customers who had developed some reservations about the company’s products returned. The strategy employed by the company’s leadership at the time stresses the importance of patience in crisis communication as it gave the relevant agencies time to investigate the matter and come up with accurate findings for appropriate action.
Weaknesses
The foremost weakness of Chipotle lies in the sensitive quality of its ingredients. Since the company has differentiated itself in terms of the freshness of its ingredients, hence, products, any hitches can adversely affect its viability in the market. The outbreak of E. coli, for example, resulted in the stalling of the company’s normal operations. It is important to note that Chipotle operates in a sensitive industry that is prone to constant regulation by the relevant authorities. However, the most important thing to the management is to regain the lost reputation and convince customers to continue buying their products. As such, policies must be put in place to ensure that the strategies adopted to curb this weakness close such problems that may occur in the future. Secondly, Chipotle overly relies on the US market. Although it is a multinational company, 99% of the company’s operations are based in the United States (Taylor, 2019). This is a dangerous precedent as the demand for its products depends largely on discretionary spending. With the current uncertain global economy, the vitality of the business in the US could be subject to the country’s macro-economic factors, and the company must implement a strategy to counter this impact.
Opportunities
The restaurant industry is booming in the United States and other parts of the world. This is an opportunity for Chipotle to expand its operations by opening new stores that offer fresh, healthy products to the public. For instance, an international expansion strategy should be embraced by the company to tap into the vast markets in Europe where people have high disposable income that can match the cost of its products.
Moreover, the company’s competitors, such as McDonald’s, have successfully ventured into emerging markets in Asia and Africa. As highlighted earlier, the objective of any organization should not be to emulate rivals and their strategies but to develop differentiation strategies that distinguish them from other players in the industry. Therefore, Chipotle can make use of the unlimited global market while still sticking to its quality and health standards that are necessary for customer retention.
Threats
The casual fast food industry is increasingly becoming competitive in the United States and around the world. There are hundreds of restaurants like Chipotle in the US and abroad that concentrate on healthy foods with low carbohydrate and fat contents. Moreover, other organizations are pursuing the lower-cost strategy that is yet to be considered by Chipotle. This implies that the competitive environment is likely to impact the company’s profitability in the industry as there are already incumbent giants with a high market presence. Secondly, more food safety issues could make the situation worse for Chipotle. Already, the company has suffered from the E. coli outbreak, and should any other case be reported, its reputation and initial customer confidence will be at stake. This compels the company to undertake regular training of its staff in all its stores around the world. Hence, this strategy must be part of the company and implemented by all future managers.
Profitability Strategy
Due to the 2015 E. coli disaster, Chipotle’s performance deteriorated in 2016. Last year, Steve Ills, the founder of the company, appointed Brian Niccol as the new CEO to drive the company’s strategy to the next level. This shift in leadership saw the appointment of Brian Niccol in March last year. In her article published in the business insider, Taylor (2019) attributes Chipotle’s 9.9% growth in sales to the strategies employed by the former Taco Bell CEO. For example, part of Niccol’s reawakening strategies involved the introduction of new menus using similar ingredients; the incorporation of mobile app shopping that is coupled with free delivery; and enhanced marketing campaigns.
This move is in tandem with Thompson et al.’s (2014) argument that sometimes organizations must become aggressive and employ strategies that will enhance their market position. Of the four strategies, the emergence of a mobile app where customers can order their favorite recipes from the restaurant and get free delivery services are the most prominent strategies that have helped the company stabilize since the outbreak. As Taylor (2019) points out, free delivery services enhanced the shopping convenience of customers who got their orders delivered with a mere click of a button. In the modern world that is defined by enhanced digital technology, the majority of people in the United States have access to smartphones. Arguably, Niccol employed this strategy to maximize the unexplored market.
The introduction of new menus is, by all means, an innovation strategy that Niccol integrated into the company’s organizational culture. When Ills was at the helm of the company, the company did not focus on the development of new products as customers knew what they would get from the restaurant. Niccol’s explorative approach was successful because the chain’s loyal customers and new came on board despite the addition of new recipes using the same ingredients Chipotle has used over the decades. As shown in Appendix B, one can conclude that Chipotle’s profitability strategy is embedded in the company’s revamping efforts spearheaded by the company’s current CEO, Brian Niccol.
Chipotle’s Ethical Standards, Social Responsibility, and Sustainability Approach
Apart from making profit and offering value to customers and returns to shareholders, business organizations are also obligated to fair competition, living up to the ethical standards of the societies in which they operate, and giving back part of their resources for the betterment of society (Thompson et al., 2014). This section gives insight into the concepts of business ethics, social responsibility, and sustainability from the perspective of Chipotle Mexican Grill.
Chipotle’s Ethical Standards
Thompson et al. (2014) define business ethics as “the application of ethical principles and standards to the actions and decisions of business organizations and the conduct of their personnel” (p. 255). According to the authors, it is impossible to distinguish ethical issues in business from the conceptions of right and wrong in the wider society. Indeed, an organization must develop an ethical culture that does not deviate from the universal norms held by the societies in which the organization operates. For example, it would be deemed dishonest for Chipotle to use ingredients that have been frozen for weeks and claim to offer fresh, healthy products to its customers.
There are several ethical standards that are currently confronting Chipotle, as identified on the company’s website. The company’s code of conduct comprises of four sections which include a statement of integrity, Anti-Discrimination and sexual harassment policy; it is the law and Chipotle’s confidentiality. Through its integrity statement, Chipotle insists that it is a company based on integrity, honesty, and straightforwardness – committed to always doing the right things. This being the culture of the company, all employees, managers, and board of directors must work as per the set Chipotle standards (2019). For example, employees are prohibited from receiving gifts from competitors, suppliers, or customers. Moreover, staff of the company is allowed to undertake outside business that does not affect the company’s performance. Overall, the entire code of conduct focuses on the aspect of integrity and honesty, virtues that have differentiated the company from its rivals.
The 2015 E. coli outbreak triggered doubts about Chipotle’s commitment to ethical standards. Although the damage has already been done, it is indispensable for Chipotle to employ strategies that can help it regain lost glory. The only way the company can do this is by being consistent in the provision of high-quality products. This approach will not only indicate that the company has moved on, but it will also enhance customer loyalty and the company’s turnover.
Chipotle’s Social Responsibility
The discussed ethical standards can be applied to ensure social responsibility and sustainability. The concept of Corporate Social Responsibility (CSR) has become an acceptable aspect of the operations of most companies in major industries. It is based on the idea that organizations should take into account the interests of all its stakeholders, including the society in which it operates. Simply stated, an organization must be well-equipped to better the lives of the people living around its factories or facilities. According to Thompson et al. (2014), CSR is defined as “A company’s duty to operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and actively work to better the quality of life of the local communities where it operates and in society at large” (p. 268).
The above definition indicates that a company’s responsibility is not just limited to the immediate stakeholders that affect its operations, but it cuts across all segments of the wider society. Therefore, it is fit to look into the CSR issues related to Chipotle, a casual fast-food restaurant that is committed to the provision of healthy recipes to its customers. When Steve Ills founded the company in 1993, he had a vision of creating a healthy restaurant that is favorable to people’s health. This implies that the company was concerned about society at the time of its launch in 1993.
With the prevalence of cardiovascular diseases increasing in the United States and the continued reference of fast foods with unhealthy eating habits, Ills had to change his strategy to ensure the realization of his vision for Chipotle. Overall, Chipotle has not been proactive in regards to its CSR strategy. In a 2015 article in The Guardian, Marc Gunther argued that Chipotle is accused of constantly refusing to publish its CSR reports like other players in the industry, such as McDonald’s. In a rebuttal, officials from the company contend that it channels most of its resources to sustainability efforts (Gunther, 2015). The implication here is that Chipotle is not concerned about its corporate social responsibility. Arguably, this can affect its future market presence and performance sustainability.
Environmental Sustainability
Like CSR, business sustainability is another pertinent issue affecting many organizations. Before starting a business, it is incumbent of an entrepreneur to analyze its sustainability. Thus, any new business should be able to meet the market’s current needs without impeding on the ability to meet future needs. When looking into the concept of business sustainability, the aspect of environmental sustainability has to be considered. As described by Thompson et al. (2014), an organization’s environmental sustainability strategy “consists of its deliberate actions to protect the environment, provide for the longevity of natural resources, maintain ecological support systems for future generations, and guard against ultimate endangerment of the planet” (p. 275). Since Chipotle’s objective is to remain sustainable for the future, it is critical to note that the company’s sustainability efforts span across the people and the environment in which it operates. With the debate on climate change raging on, Chipotle is committed to being an advocate of environmental sustainability by developing production strategies that preserve the natural environment for the sake of future generations.
Best Practices and Customer Confidence
Thus far, it is apparent that Chipotle Mexican Grill’s reputation and market share were adversely affected by the E. coli outbreak in 2015. The company has been struggling to revamp its operations by implementing strategies geared towards regaining customer confidence. Although one can infer that the progress towards this end is positive, more needs to be done for Chipotle to compete effectively with its competitors. According to Thompson et al. (2014), the process of strategy execution is not a preserve of the management as the input of employees is also important for the process to succeed. This is so because gaining customer confidence after a high-profile disaster that gained a lot of public interest is difficult and calls for a combined effort from all the stakeholders. This section gives insight into the best practices for strategy execution after a crisis that negatively affected the organization’s performance and threatened its sustainability.
First, according to Thompson et al. (2014), the management must create a strategy-supportive organizational structure. This implies that the company has to prepare all its stakeholders for any future changes that can help the company manage the prevailing situation. For example, when Brian Niccol took over from Ills as the CEO of the company, he initiated several changes to the company’s operations that involved all members of the company. For example, he made changes in the menu after close consultation with the relevant stakeholders. This is what best practice requires of any organization that can find itself in Chipotle’s situation.
Secondly, Thompson et al. (2014) contend that adequate resources must be channeled towards the strategy execution process. When an organization is experiencing a downward trend in performance, the common practice provides that the company must adjust its operations by directing more time and resources to the issue at hand. Niccol has succeeded in reawakening Chipotle because he has the necessary resources at his disposal. Besides, changing the perception of customers about the company’s products could not have been easy if the CEO was not given the resources needed to undertake marketing campaigns. The implication here is that strategy execution is a costly affair. From the perspective of Chipotle’s crisis, this paper can conclude that the company, through its founder, availed all the resources needed by the CEO to revamp the company.
Thirdly, strategy execution involves integrating the right policies and procedures that can promote the readjustment process (Thompson et al., 2014). Ultimately, it is worth noting that the decision lies with the management of an organization. The CEO of Chipotle takes credit when the company succeeds. In equal measure, he or she must take the blame when the company’s performance is deteriorating. The E. coli outbreak took place when Ills was the company’s CEO. The company was heading in the wrong direction, and customer confidence was deteriorating. Most importantly, the company experienced a sharp decline in performance. One of the drastic measures the CEO took was to shut down all the company’s stores in the United States and conduct thorough training of its staff on food hygiene. When the FDA finally gave the company the license to reopen, Chipotle had gained some consumer confidence from the actions taken by the CEO. There is no doubt that the situation could have been worse if the management had not implemented some immediate policies to control the situation.
Additionally, managers are expected to exercise the internal leadership needed to effect the strategy implementation process (Thompson et al., 2014). Irrespective of the nature of the industry and the magnitude of the crisis, it imperative for an organization’s CEO to exercise great leadership skills, especially when the company is at the brink of collapse. Hence, best practices compel the managers to be at the forefront of finding a solution to the problem. The implication here is that managers and CEOs of organizations have no option but to step up to the occasion and bring about the needed change. There is no doubt that Chipotle’s leadership acted swiftly to resolve the problem that affected the country. Hence, this prompt action can be used to explain why the company has resurrected after three years of financial underperformance. Going into the future, one can project that the company will continue to experience growth in its financial performance and business portfolio. Most importantly, enhanced internal leadership will also help the company to create an organizational culture where individual and company goals are attained, which may lead to increased employee performance.
The concept of customer confidence is at the core of every organizational strategy because the perceptions customers have about a given product will determine their purchasing decisions. When considering a fast food store such as Chipotle, customer confidence is built by the pricing and quality strategies employed by the company. Common practice demands that organizations must follow the legal standards set by authorities in the areas in which they operate. Therefore, the outbreak of E. coli at Chipotle negatively affected consumers’ confidence in the company’s products. Even so, customer confidence has been increasing since 2016 (Appendix D). Although one can argue that the 2005 E. coli disaster made the company deviate from its original course, Chipotle’s strategy of offering fresh, fast food products with organically produced ingredients can be thought of as a game-changer in the fast-food industry. This was Ill’s founding vision and one that the company must continue to explore.
Generally, regaining customer confidence entails correcting the problem at hand and changing the way things are done within the organization to avoid the experienced problem in the future. This involves two aspects of strategic management. First, a strategic change of operations at the organization is important to show customers that the organization is working to solve the problem permanently. For example, when Niccol joined Chipotle, he changed a majority of the company’s operations – from production to customer service. His mission was to lead the company to the point of transforming negative customer perceptions into positive ones. Enhancing the reputation of the company will not only help the company achieve the needed development, but it will also help the management strategically adjust the company’s operations.
Secondly, transforming the image of an organization and reawakening its performance means leading from the frontline and ensuring that the company acclimates to the new strategy. For instance, ethical issues were raised after the E. coli outbreak. The company had to address these ethical issues diligently in order to restore favor with the public. One of the actions the company took was to trace the cause of the infection and change the process that led to the contamination.
Conclusion
The E. coli outbreak at some of Chipotle’s stores in the United States called for a strategic adjustment of operations at the company. Founded in 1993 by Steve Ills, Chipotle has emerged as one of the leading casual fast-food restaurants in the US and some parts of Europe. One of the reasons for the company’s rapid success in America’s restaurant industry is the fact that it is corporate-owned, thus, eliminating or reducing franchises. Additionally, the company’s small menu, its robust customer retention approach, and the high quality of food it sells to its customers have increased its consumer base over the years.
Even though Chipotle has enjoyed a favorable market presence in the US, the recent E. coli outbreak that affected outlets in 11 states tainted the company’s reputation. This incident overshadowed the company’s financial strength and position in the market and led to a sharp decline in sales, thus, affecting its profitability and competitiveness. Overall, Chipotle Mexican Grill seems to have survived the near disaster that would have followed the E. coli outbreak by developing effective strategies to regain customer confidence in the products offered by the chain. Like any other company in the same situation would do, Chipotle’s founder brought in a new CEO to spearhead the company’s strategy and availed all the necessary resources needed to return operations to normalcy.
Thompson, A., Peteraf, M., Gamble, J., & Strickland III. (2014). Crafting & executing strategy 19/e: The quest for competitive advantage: concepts and cases. New York, NY: McGraw-Hill Education.
Higher menu costs relative to competitors – Taco Bell
High production costs – naturally raised meat sources
Small-sized restaurants with no freezers or ovens
Concentrated only in the US and Canada
Narrow menu list – limited choices
Opportunities
Opening new restaurants in underserved regions globally
Expanding its menu list to offer customers more choices
Capitalizing on the growing demand for healthy natural food – health conscious customers
Franchise partnerships to expand its reach
Installation of solar panels to cut production costs
Threats
Stiff competition in the fast casual segment – Taco Bell, Qdoba
Volatile food commodity prices globally
Economic instability – curtails consumer spending
Raising food prices may drive away customers
Comparatively high production costs – reduce profit margins
Strengths
CMG’s mission of ‘Food with Integrity’ resonates well with the increasingly health conscious consumers. It underscores the restaurant’s commitment to selling the best Mexican dishes based on natural ingredients produced in a sustainable manner (Yahoo Finance, 18-1). The compelling mission is a major strength for CMG as it underlines the restaurant’s strong stance on quality food and service.
CMG comprises of a wide network of restaurants spread mainly across the US and Canada. It owns 1,316 restaurants that increase its market presence in the areas it serves. The restaurant has also opened branches in the UK and France to reach the European market. The chain of restaurants is a key strength for CMG because it enhances the restaurant’s market presence and reach.
The restaurant achieves operational efficiency through a lean workforce and use of solar energy. The installation of solar panels was meant to cut down CMG’s power consumption, and thus, reduce operational costs (Chipotle’s Unique Take, 18-6). CMG offers limited menu options in its ‘A model’ restaurants to reduce staff requirements and labor costs (Chipotle Plans Major, 18-7). Lean production contributes to CMG’s growing profit margins.
CMG has streamlined supply chains. The restaurant sources its raw materials, including pork, beef, and chicken, from local suppliers embracing concentrated animal feeding operations. The reliance on fresh supplies produced in a sustainable way resonates with its ‘Food with Integrity’ mantra. The streamlined supply chains help in inventory management, hence, a key strength for CMG.
The restaurant owns 1,316 branches mainly in the North America. It also has branches in key locations in Europe. The ownership of a wide restaurant network enhances CMG’s capital base and profitability, which could be affected by franchise agreements.
Weaknesses
The restaurant’s menu prices are comparatively higher than those of its rivals are. Chipotle’s focus on quality ingredients leads to high menu prices, which may force customers to switch to cheaper alternatives, hence, weakness.
The reliance on naturally produced meat sources contributes to high production costs. CMG sources its raw materials from certified CAFOs that are more expensive than other suppliers are. The high production costs increase menu prices, hence, a weakness for the restaurant.
Chipotle’s ‘A model’ restaurants are not well equipped to provide quality service. Besides having limited Mexican cuisines, they lack freezers and microwave ovens (Jim Collins, 18-7). Thus, the lack of equipment is a weakness as it affects the restaurant’s quality of service.
CMG is primarily concentrated in North America. Out of its 1,316 branches, 1,308 are in the US and four in Canada. Only four branches are located outside North America (Thomson Reuters, 18-6). CMG’s concentration in North America reduces its global reach and market presence, hence, a weakness.
Chipotle’s menu list is limited compared to that of Cantina Bell. Cantina Bell’s menu list has additional items besides CMG’s staples (burrito-based dishes). Besides burritos, Cantina Bell’s menu contains items like ‘black beans, cilantro rice, and corn salsa’. CMG’s narrow menu list is a weakness because it gives customers limited choices, which may force them to frequent rival restaurants, including Cantina Bell.
Opportunities
Chipotle can diversify into new untapped markets in Europe and Asia to compete effectively with its rivals. Opening up new branches in these markets will give CMG an opportunity to expand its market share. Diversifying into the European and Asian markets will help spread out the risks resulting from competition from direct competitors such as Taco Bell, and thus, give CMG a strategic advantage.
CMG should also consider expanding its menu list. Providing more alternatives for customers will prevent them from switching to rival restaurants. Thus, a broader menu list will give CMG an opportunity to retain current customers and attract new ones.
The demand for healthy food is growing, hence, an opportunity for CMG to attract health-conscious customers. CMG can project itself as a restaurant of choice for consumers who desire healthy Mexican dishes to gain more clients.
Franchise agreements present an opportunity to CMG to expand its reach to underserved areas. CMG can open franchises with established restaurants such as McDonalds to reach more customers and reduce startup costs.
The use of solar panels to power the restaurants can reduce operational costs further boosting CMG’s profits. CMG should consistently use the installed solar panels to lower operational costs.
Threats
CMG faces stiff direct competition from rivals in the fast casual segment, especially Taco Bell and Qdoba. The restaurants offer lower prices and a broader menu list than CMG, hence, a threat to Chipotle’s profitability.
The volatility of food prices is also a threat to CMG’s business. Rising commodity prices may force the restaurant to charge higher prices for its dishes, which might turn away its regular customers.
Economic instability reduces individual incomes, which means that few people can afford expensive dishes. CMG provides quality dishes at marginally higher prices; hence, economic instability is a threat to its business growth.
Responding to higher commodity prices by increasing menu prices may drive away loyal customers. Therefore, raising menu prices may hurt CMG by reducing the number of visitors frequenting the restaurant.
Unlike its rivals, CMG relies on naturally produced supplies, which are expensive. The costly supplies eat into CMG’s profits, hence, a threat to its business success.
Resource-Based View
Chipotle has tangible resources that it can leverage on to develop a distinctive strategic advantage. It owns 1,316 branches (at a cost of $850,000 each) strategically located in North America and Europe (Jim Collins, 18-7). Its assets, including inventory, equipment, and property, as of 2011 December, stood at $1,425,308 (Chipotle, 18-11).
Chipotle’s intangible resources include brand recognition and an innovative assembly line. Each restaurant maintains a production line for food preparation to optimize operational efficiency. Chipotle is a recognized brand offering Mexican cuisines prepared using supplies sourced from certified local suppliers.
The restaurant’s organizational capabilities lie in the unique assembly line, a culture of performance, and streamlined supply chains. CMG runs excellent supply chains; certified suppliers (CAFOs) supply distribution centers with fresh inputs that are delivered to each restaurant, hence, helping in inventory management. They include various meats, vegetables, such as “lettuce, tomatoes, and cilantro, and dairy products, such as sour cream and cheese” (Chipotle 18-11). Secondly, the assembly line enables CMG to reduce order transaction duration, as customers, after receiving their orders, proceed to add their preferred flavors. In this way, CMG is able to reduce delays and staffing requirements, hence, a unique organizational capability that competitors cannot duplicate. CMG has also cultivated a performance-based culture characterized by staff training and development, creating an internal talent pool for the restaurant. For example, its long-serving Chief Operating Officer, Mr. F. Moran, was promoted to the position of Chief Executive Officer in 2009. because of his management experience in CMG. The firm did not hire the CEO from among external candidates but relied on its internal talent pool. Employees receive hands-on training that prepares them for career advancement within CMG and creates results-oriented teams. The COO was appointed a co-CEO to enhance continuity of the organization’s business strategy.
Value Chain Analysis
It focuses on two sets of activities, namely, primary and support activities.
Primary Activities
Operations – It has an assembly line system for preparing meals to enhance operational efficiency. Clients, after receiving their order, proceeded to add their preferred ingredients placed downstream the queue. This approach reduces labor requirements and increases the operational efficiency of the restaurant.
Inbound logistics – Chipotle sources fresh supplies from certified organic food suppliers. Each restaurant receives fresh supplies from a regional distribution center owned by Chipotle. The distribution centers procure vegetables and dairy products from certified local suppliers.
Marketing and sales – CMG runs the ‘Food with Integrity’ promotional campaign. The campaign projects CMG as a restaurant selling quality food prepared from sustainable sources. The aim is to attract healthy conscious customers and boost its sales.
Service – CMG serves Mexican cuisines prepared from fresh inputs. Its service model requires customers, upon receiving their orders, to move along the queue adding their preferred flavors to their dishes. This approach gives each customer an opportunity to select his or her preferred flavor and minimizes staffing requirements.
Support Activities
Human resources management – It has an elaborate staff training, development, and succession planning strategy. Moran, the company’s long-serving COO, was appointed CEO in 2009. He now serves with Steven Ells in the same capacity. CMG has a lean workforce of 2,570 full-time and 28,370 part-time employees (Thomson Reuters, 2012).
General administration – Run by two CEOs, namely, Steven Ells (also serves as the board chairperson) and F. Moran. Ells certifies the CFOs supplying inputs to CMG. The company also has a communication director, Chris Arnold, who communicates its strategy.
Procurement – Supplies are purchased from a list of certified organic food suppliers. Fresh inputs, including pork, chicken, and beef are sourced from certified CAFOs. Each restaurant obtains organic inputs (vegetables and dairy products) from certified suppliers through its regional center.
Ratios
Current Ratio
Current Ratio = Current Assets/Current Liabilities (Year 2010)
= $281,455/$123,054 = 2.29
To calculate the current ratio, we found the sum of the current assets and current liabilities for 2010 and divided the two. CMG has a good liquidity level, as the current assets are 2.29 times the current liabilities. The current ratio for 2011 is higher (2.83) than the one for 2010 (Chipotle, 18-11). Chipotle’s cash flow is growing, which shows that it is doing well in the industry.
Inventory Turnover
Inventory Turnover = Sales/Inventory
= $224,838/$7,098 = 31.7
To calculate inventory turnover, we divided sales (Cash and cash equivalents) with inventory for 2010. The ratio obtained shows that CMG’s inventory was replenished 32 times in 2010 and 45 times in 2011 (Chipotle, 18-11). Hence, CMG’s sales are growing, which is an indicator of improving performance in the industry.
Leverage Ratio
Leverage Ratio = Total Debt/Total Equity
= 310,732/1,121,605 = 0.28 = 0.27
To calculate CMG’s leverage ratio, we divided the total liabilities (debt) by the total assets (equity). The low leverage ratio of 0.28 remains relatively unchanged in 2011 at 0.27, indicating that loans have not financed Chipotle’s expansion (Chipotle, 18-11). Thus, Chipotle has an excellent performance in the industry.
References
Chipotle 2011 10-K. Chipotle Plans Major Solar Power Initiative, Business Wire, 2009. Web.
Chipotle’s Unique Take on Sustainable Sourcing, Web.
Jim Collins, Harper Business, New York, 2001.
Thomson Reuters, Chipotle Mexican Grill, Inc. Stock Report, Web.
