Effect of Chipotle’s new strategies
Effect of Chipotle’s new strategies
Introduction -
Chipotle has so far secured the industry leader position by positioning itself as a food chain that sources fresh products and natural ingredients. The recent E.coli outbreak that made 55 people sick led to drop in sales of the organisation. The company is now taking steps to strengthen its market position and survive competition (Newman & Jargon, 2016).
Porter’s Five Force Model Analysis of Chipotle
Threat of new entrants - (High) - In the fast casual food industry the threat of new entrant is very high as there are less entry barriers and a food business requires low start-up costs. The Mexican Restaurant business runs with the franchise component which lowers the operational costs to a great extent thus increasing the threat of new entrants (Hu, Ma, Saleem, Sun, & Zhang, 2013). Chipotle however, with the use of fresh products has differentiated it from the new entrants. This force lowers the power to compete for profits as with many entrants in the market the revenues are not concentrated.
Bargaining power of suppliers - (High) - the firm depends on its suppliers for its labours, raw materials etc. Chipotle’s suppliers have high bargaining as it sources high quality meat that is sustainable and free from microbes and bacteria’s. The suppliers of Chipotle have to comply with the California Transparency in Supply Chains Act 2010 and need to undergo routine auditing, certification and internal accountability (Chipotle , 2016). These specific requirements of Chipotle make the bargaining power of supplier strong unlike any other food chain that can access many meat vendors. The suppliers have the power to demand high prices (Burke, Harris, Hooks, McCanless, & Vaughan, 2015). With limited number of suppliers the firm has high dependency on its suppliers decreasing the power to compete for profits.
Bargaining power of buyers - (Moderate) - With high bargaining power, buyers can play a role in setting the prices. In the past Chipotle has kept the bargaining power of customers moderate (Burke, Harris, Hooks, McCanless, & Vaughan, 2015) with sustainable methods of cooking (Papafloratos, 2009) and compliance with food and safety guidelines (Hartmann, 2011). With a rise in immigration the demand of Mexican food is increasing. By controlling this Porter’s force Chipotle has managed profits even during the economic downturn in the year 2008-2009. But the outbreak of E.Coli contamination has recently increased the bargaining power of Chipotle’s customers and is a set back to its image of being a responsible firm with sales declining there can be possible reduction in prices due to increase in the buyer’s power. After the recent outbreak this power is reducing the power to compete for profits.
Threat of substitute products or services - (Moderate)- Although the threat of substitute products in the fast food industry is quite high, Chipotle has limited this threat by delivering unique products that are sourced sustainably, tested to comply with food safety guidelines and free from disease and contamination (Newman & Jargon, 2016).
Rivalry among existing competitors - (Moderate) - Apart from price based competition there is also competition on the basis of quality of food, presentation, ambience etc. Chipotle manages to limit the rivalry from existing completion by providing best quality food that is tested by modern DNA based methods and prevents pathogenic diseases that are meat borne. Thus the rivalry amongst competing firm is moderate (Newman & Jargon, 2016). Chipotle has been marketing itself as “food with integrity” and criticised their competitors for the use of artificial products.
Effect on strategy
This strategy seems to be a smart move of the firm as it has stopped playing defensive after the disease outbreaks of E. coli contamination and started acting responsible. These new testing and sourcing methods are sure to revamp Chipotle to earn profits and win customers. The company has been quick to take strategic decision to minimise its losses and inform the stakeholders about the preventive measures the organisation is taking to minimise the risk of any future disease outbreaks. These strategies could mean that the firm can keep the buying power of the customers and the threat of competition and threat of new entrants in control.
References
Burke, C., Harris, M., Hooks, S., McCanless, J., & Vaughan, W. (2015, April). Chipotle Mexican Grill - A complete strategic analysis of the Chipotle restaurant chain from its founding in 1993 . Retrieved from Wordpress: https://carolinemburke.files.wordpress.com/2015/04/chipotlecasefinal.pdf
Chipotle . (2016, March 29). CHIPOTLE MEXICAN GRILL’S DISCLOSURE UNDER THE CALIFORNIA TRANSPARENCY IN SUPPLY CHAINS ACT OF 2010. Retrieved from Chipotle Inc.: https://www.chipotle.com/transparency
Hartmann, M. (2011). Corporate Social Responsibility in the food sector. European Agricultural Economics, 297-324.
Hu, X., Ma, H., Saleem, N., Sun, J., & Zhang, M. (2013). Chipotle Mexican Grill. New York: CMG NYSE.
Newman, J., & Jargon, J. (2016, February 2). Fresh Ingredients Came Back to Haunt Chiptole - After E. coli outbreak, CEO Steve Ells revamps food-safety practices; source remains a mystery. Retrieved from Wall Street Journal: http://www.wsj.com/articles/fresh-ingredients-came-back-to-haunt-chipotle-
Papafloratos, T. (2009). Do Corporate Social Responsibility initiatives influence the Consumer. Retrieved from European Institute: http://www.lse.ac.uk/europeanInstitute/research/hellenicObservatory/pdf/4t
