Chipotle Mexican Grill (CMG) is a leading restaurant in the fast-casual or limited-service sector restaurant industry. Limited-service restaurants are a place where customers have the option of eating inside the restaurant, purchasing food through the drive-thru, or just ordering to go. These customers pay for their meals before they eat them. Limited-service restaurants fall into the fast food industry along with cafeterias and buffets. Business models for these restaurants are not very complicated, they typically either own their restaurants or they franchise them out. Some companies own several different types of restaurants that serve different varieties of food. There are three main economic factors that contribute to the success or failure of this style of restaurant (Friedman & Roeder, 2012, p.5).
Consumer spending is the first factor that contributes to the success or failure of these restaurants. When the economy is not performing well people have less disposable income. This is income that is not designated to specific bills and is used on a discretionary basis. People either spend this money on entertainment, eating out, or on the purchase of desired items. As the economy rebounds, limited-service restaurants will do better because they offer cheaper meals that are easily accessible (Friedman & Roeder, 2012, p.5).
The second factor is consumer preferences. In recent years consumers have begun searching for healthier choices that give them more variety. By eating foods from different ethnic cuisines they are meeting this need. Fast-casual restaurants are beginning to focus more on where their products come from and how they are preparing them. The third factor is food commodity prices. These restaurants rely heavily on dependable suppliers with reasonable prices. When the prices of their food ingredients go up their profit margins go down (Friedman & Roeder, 2012, p.6). These three factors determine how well a restaurant does in the industry. CMG has set itself above the competition through its foundational philosophy of “Food with Integrity” (Friedman & Roeder, 2012, p.3).
Kline (2015) says that CMG has succeeded in three categories: a) people think the food quality is superior to other places, b) the service exceeds normal standards, and c) the clientele is inclined to have more money (Kline, 2015, p.1). Most fast-food or limited-service restaurants have an average check of $5, where CMG’s average check is $10. Customers believe they are getting better quality food and are therefore more loyal to the restaurant. This gives the CMG brand more pricing power (Kline, 2015, p.2). The food is sourced from businesses that use sustainable farming practices including purchasing meat products that have no hormones or antibiotics and only buying from facilities that use humane practices to raise their animals (James, 2014, p.6). Quality adds to CMG’s value and the company operates with a few very direct business strategies.
Corporate strategy for CMG has several components: a) it has a strong business model which concentrates on growth tactics, and an extraordinary brand image, b) it has ventured into other ethnic food industries using the same business model, and c) the “Food with Integrity” philosophy appeals to more customers because good ingredients are used, there are healthy food choices, and the company uses environmentally sustainable products (Friedman & Roeder, 2012, p.1). CMG has an advantage over its competitors according to Google Finance. It has higher market capitalization, it has more income and revenue than its competitors and it carries no debt. This alone gives it a financial advantage because it is not paying interest on borrow monies (James, 2014, p.7). CMG has simple straight forward growth tactics in place.
Revenue is driven by getting repeat customers and by building new restaurants in well selected locations. CMG distinguishes its restaurants into two separate categories new and comparable. When a restaurant has been established for 13 months it is then considered a comparable restaurant. The company analyzes its performance and anticipates its future growth based on the monies brought in by the two types of restaurants. Increasing income in the comparable restaurants is important because that is where most of the funds come from (Friedman & Roeder, 2012, p.2). This model creates a very sound internal structure. Once a restaurant is established it makes sense to continue great business practices and then expand into opening new businesses. Some companies try to move ahead too fast and collapse internally before they even get started. The other major successful practice CMG holds is that it has no debt. That is almost unheard of in today’s world but CMG manages a tight ship. It has ventured into additional ethnic restaurants using the same business model as its original restaurants.
ShopHouse is a southeastern Asian restaurant chain. CMG opened ShopHouse in 2011. The business model used consisted of: a) finding great quality ingredients, b) using classic methods to prepare and cook food in front of the customers, and c) serving its customers in a cooperative way using great employees (Freidman & Roeder, 2012, p.2). The company has many restaurants in the US and Canada. In 2012 the plan was to open two restaurants in Great Britain and one in Paris, France. CMG is continuing to work toward expanding into other countries in the upcoming years (Friedman & Roeder, 2012, p.4). The food sourced as CMG is top of the line. There is a limited menu with great flexibility for the customer.
In 1998, McDonalds made its first investment in CMG. By 2001 it was its biggest investor. This funded CMG is allowing it to increase from its original 16 restaurants to over 500 restaurants by 2005. McDonalds pulled out in 2006 to focus on its own main business. In 2006 CMG went public and began being bought and sold on the NYSE. This capital granted CMG the ability to continue in its growth. The company practices exceptional business strategies not just on the corporate level but all the way down the line.
CMG works hard to hire the right people for the right positions, promoting from within, and encouraging employees to excel in their jobs and move up in the company. Over 97% of salaried employees and 98% of hourly management have been promoted internally. The top restaurant managers are promoted to “Restaurateur.” Restaurateurs can earn bonuses for helping other employees. They are also given more responsibility over additional restaurants. There is ample opportunity for moving up within the company (Friedman & Roeder, 2012, p.3).Promoting from within is the best possible way to keep up employee morale. If a person knows that if he or she works hard, he or she will be noticed and subsequently given more responsibility. A raise it will inspire him or her performing at peak levels even when working in the lowest starting positions. CMG has had great success in the past. What can it do to improve its market position and continue to grow?
James (2014) suggests that CMG concentrate on a few areas to advance its competitive position in the marketplace: a) continue to work on and improve the relationships it has already established with current suppliers, b) find new suppliers for its ethnic products and establish quality relationships with those suppliers and in turn squeeze out the competition, c) make efforts to go greener by recycling and using more recycled paper products while promoting that idea to the public, d) use the “Food With Integrity” motto to move into other food industries and e) consider branching out into the home delivery industry through Amazon (James, 2014, p.8). All of the above ideas will appeal to the new trending market idea of making supplies more sustainable, saving the earth, and will in turn provide healthier food at a low cost for a larger number of people. The food CMG provides is simple food but good food. CMG has done a fantastic job of using a basic but clear business model to become a successful player in the restaurant industry.
References
Friedman, J., & Roeder, J. (2012) Chipotle Mexican Grill, University of Oregon Investment Group: Consumer Goods. Retrieved from http://uoinvestmentgroup.org/wp-content/uploads/2012/04/CMG-Update.pdf
James, D. (2014). Chipotle Strategic Analysis: Competitive Position, Analysis, and Recommendations. In SlideShare. Retrieved from http://www.slideshare.net/DavidJames31/chipotle-strategic-analysis
Kline, D.B. (2015). The Best Business Model for Restaurants. The Motley Fool. Retrieved from http://www.fool.com/investing/general/2015/05/19/the-best-business-model-for-restaurants.aspx
