Chipotle Case Study Anaylsis

Clarence Chang

Chipotle Case Study

October 21, 2014

Chipotle Case Study Analysis

I. Situation

Chipotle Mexican Grill’s success is tied to certain key elements of Steve Ells’, founder of Chipotle’s, strategy for the company. Ells’s vision for Chipotle is “to change the way people think about and eat fast food.” In order to achieve his vision, there are five elements of Ells’s strategy for Chipotle: serving a focused menu, using high-quality raw ingredients and classic cooking methods while remaining reasonably priced, creating a good dining atmosphere, friendly coworker interaction with customers, and at the same time to continuously increase awareness on sustainability issues and solutions.

There are five generic competitive strategies which deal with the specifics of management’s game plan for competing successfully. Chipotle’s competitive strategy most closely matches a best-cost provider strategy which is a hybrid strategy incorporating both elements of differentiation and low-cost strategies. The reason Chipotle has a best-cost provider strategy is because customers are given more value for their money by receiving healthier food options made from higher quality ingredients at a reasonable price made available by Chipotle’s efficiency methods while at the same time customers are also enjoying a “customer-pleasing experience: one burrito at a time Chipotle experience” which consists of customization of orders and direct interaction with employees that prepared the food. This strategy is contributing to the growth of Chipotle Mexican Grill by constantly increasing total revenue and maintaining roughly the same percentage of labor costs, occupancy costs, operating costs, and general and administrative expenses as a percent of total revenue. This means that Chipotle is operating as efficiently as the company expands with more restaurants being opened, and is continuously generating profit leading to an increasing net income as shown on its financial statements.

II. Analysis

A compound annual growth rate (CAGR%) can be used as an evaluation of Chipotle’s financial performance. The CAGR percentages calculated are within a 4 year period from 2007 to 2011. The CAGR% for total revenue is 20.24% per year and for net income is 32.11% per year. Since net income is growing at a higher rate than total revenue, Chipotle is operating extremely efficient as to keeping their operating costs low; labor costs are increasing 17.04% per year, occupancy costs are increasing 18.03% per year, other operating costs including marketing costs are increasing 17.56% per year, and general and administrative expenses are increasing 18.79% per year which are all increasing at a slower rate than both total