Chipotle
Diagnosis
Since 1993, the first Chipotle store opened in Denver that had grown to 1,230 stores in 41 states at the end of 2011. The founder and CEO of Chipotle, Steve Ells’ vision and strategy keep the company growing but the increasing sales and profitability highly depends on company’s ability to open new stores, which is affected by many unpredictable factors.
The whole sales and profit growth may adversely impact by the not profitable new open store. Research and careful survey of new potential restaurant site can reduce the chance opening an unprofitable store.
Chipotle has very high percentage of the manager ( 98%) was promoted within the company. As the fast store expansion condition going on, Chipotle would face a lack of manager and well-trained employees could work in a new open store.
The Chipotle’s CEO, Steve Ells, keeps their menu simple for the efficiency on food preparing. The strategy is doing well on shrinking customer waiting time, but it largely limited the menu options, even the beverage selection is limited.
Because of the commitment “food with integrity,” Chipotle only uses the nature grown crop and meat that increases the price for their high-quality food. The higher price burritos may scare some customers to visit. To persist in this core philosophy using high-quality materials puts company in competition risk.
Because the high-quality food and taste gives customers very good dining experience in Chipotle, customers share their experience to friends creates strong brand awareness. By providing a great experience to customers, keeps “word of mouth” continuing spread out that helps Chipotle can keep advertisement relatively low.
Focal Points For Action
Higher-price for higher-quality food
“Food with integrity” is Chipotle’s belief serving great food to customers. This belief guided Chipotle executives and top managers to find the highest quality ingredients that are grown or raised with respect to the environment and animals. Indeed, the higher quality of food cost higher price that might reject by some consumers. Although people might accept the concept of higher-price for higher-quality food, but Chipotle has to pursue customer that higher price is worth to the value they received. If Chipotle could not convince people it is worth to pay a higher price for a higher quality food, It would affect Chipotle’s sales in the future.
High dependency on word-of-mouth
Since the first store opened in 1993, Chipotle’s co-CEO and chairman Steve Ells’s vision and strategy is to serve the highest quality of food to people who love Mexican grill. Chipotle belief that people who love their food would become a loyal customer and bring in more friends to visit again and spread to more people. Chipotle spends very small amount of revenue with only 2 percent on marketing and advertising. There is only one TV commercial that Chipotle Mexican Grill first-ever ran in 2011 during the broadcast of the Grammy Awards.
Penetration into new or existing market
Although Chipotle Mexican Grill is a fast growing restaurant, it is still problems on opening new store in new or existing market. For instance, almost 98 percent of managers were promoted from positions as crew members within Chipotle. The lack of high quality well trained employees for operating new stores in new geographic location would affect the speed of market expansion. Moreover, negotiating with new suppliers in new locations who can provide nature grown food is the obstacle for the market penetration.
Limited menu
While Chipotle has limited menu options for customers that they guarantee the high-quality food but, Chipotle’s competitors could serve more variety menu for customers with similar quality. Although the strategy to keep the menu simple can improve the efficiency of preparing food and cut cost, the strategy only targets on its menu lovers who do not like to try other dishes. Limited menu attracts limited customers that hinder the possibility of growth in sales.
Develop Alternatives
Higher-price for higher-quality food
Chipotle could analyst the respond from customers about the actual feeling about higher price for higher quality food. It is important to do the research before taking any action. The second action would be increasing marketing and advertising activities. To create or modify current advertisement message convincing or creating awareness of high-quality worth higher price to more people inspire them to visit Chipotle Grill. Based on Chipotle’s current marketing and advertising strategy, using new advertising message would be the feasible and success method.
High dependency on word-of-mouth
Trying to increase more budget on marketing and advertising could increase the speed of “word-of-mouth” spreading out. By adding more advertisement to local flyer and radio around the store, creates more awareness of the brand. Chipotle could also invest on nationwide TV commercials to lure customers searching for nearest store around them. Increase marketing and advertising plus its “word-of-mouth” strategy are the good combination practice to attract more customers. Although the TV commercials can rapidly create brand awareness, the continuous flyers and radio commercials can repeatedly remind customers the brand name.
Penetration into new or existing market
First, Chipotle could hire more marketing researcher to analysis and evaluate the best new locations for store expansion. The second, increase benefits for managers who have the tendency to work in new location stores. Third, start hiring managers from outside market who want to work with Chipotle. It is not practical to open a store only considering the location profitability, the supply of well-trained employees is also a problem. Higher benefit for well-trained employees to operate a new store is feasible.
Limited menu
Chipotle could do some market research in most popular Mexican food figuring out what are the most popular Mexican foods that are not on Chipotle’s menu. Adding few more options to the menu would not affect too much in food preparing efficiency. Provide more customizable menu for customers. Increasing customizable menu might slow down the pace of food preparing process. Few more options adding into the menu seems feasible for the problem.
Decision and Recommendation
Decision:
Chipotle has been growing so fast from the first opening store in 1993 to 1,230 stores in 2011. Higher-price for higher-quality food seems not to be a big problem slowing down the growth. Because of the quality and the commitment of “ food with integrity” have been created a good image of the brand name, the effect of “word-of-mouth” still working well today. The problem of the limited menu is a problem, but it does not face direct large sales loss yet. The store expansion is an important strategy for Chipotle to keep sales growing since it 1993. Market penetration program would be the top priority action for Chipotle to take.
Recommendation
I would recommend the Chipotle more carefully selecting restaurant site when doing site selection process. Although the high store expansion speed gives Chipotle a glory revenue growth in the past ten years, picking a wrong spot would cut back company’s total revenue growth. To explore new geographic region would maintain the company’s expansion speed and keep further revenue growth in high level.
Implementation
Goal: Store expansion to new or existing market
Participants: Manager, General Manager, Team Manager, Marketing staff, Crew
Steps:
Hire researchers to survey potential areas
Purchasing newest surrounding area marketing data
Identify market competitors
Searching supply chain
Research feasibility of supplier distributor’s ability to maintain fresh product
Increase brand marketing awareness in new domestic/international areas
Hire additional staff
Prepare and document research suggestions to be presented to senior executives
Hiring researchers to survey potential areas is the first step drawing out locations that can do more detail study. Using the newest marketing data to determine the projective profit in the short and long term. If the location could project high enough profit, sending marketing and operating staff to the area doing competitors identification and searching for adequate supply chains and distributors. During the construction period, company starts brand marketing awareness in that area. Before the completion of preparing documents for store opening, the store needs to hiring additional staff and going on pre-open training program.
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