Chipotle Case Study

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.  

Tiffany Case Audit

SWOT Analysis

  

A. Problem Issues:

Profit Margin Growth Slowing Down

Due to the cost of brick-and-mortar store increasing, the profit margin dropped in physical stores. It is hard to keep high-profit margin in brick-and-mortar store even in wealthy areas.

Counterfeit Goods

The counterfeit goods are a big issue that hurts Tiffany’s fine jewelry sale. Although in the Tiffany vs. eBay case judge and juries believed that counterfeit goods sold on eBay would not dilute the Tiffany’s brand name, the cheap counterfeit goods sale steals the company’s sale and market share.  

High quality jewelries sale in wholesale or warehouse

The jewelry industry is in the mature stage that has low entry barrier. The competitors can make similar products with low price that sells in low-cost retail stores. All these wholesale and warehouse one-stop shopping center can provide large discount that Tiffany could not provide.

Consumer brand loyalty decreased in jewelry purchasing

As the knowledge of jewelry spreading through the Internet, consumer found that there is no difference in quality between brand name jewelry and wholesale jewelry. Consumers can buy very similar design of jewelry with 30% off price if they forget the brand name.   

B. Alternative

Store expansion

Although the cost of brick-and-mortar operation is high, Tiffany still needs to expand its stores making customers easy to access in person that increasing the sales. The global stores can be seen only in very few cities outside the U.S. today. The new stores opened globally could expand Tiffany’s geographic reach.

Brand alliance

By alliance with another luxury brand which could expand Tiffany’s product lines and  attract more visiting counts. The largest jewelry sales are engagement ring that can only attract small portion of customers to visit and make a purchase. 

Products for men 

In recent year, the sales of men’s accessories and fragrances have spectacular growth. The sales in men’s product categories are becoming an important segment. Paying more attention in men’s accessory segment could keep the company growing in the mature jewelry industry.

Online sales

Thanks for the Internet and mobile devices price drop, time-saving online shopping become popular. More and more people purchase jewelry online after comparing the style, size, and price.

C. Decision Statement

The jewelry market is a mature industry that there is no single one company can dominate the market.  For the further growth in sales and profit, Tiffany needs more presence on the market. That is; more stores appeal in the market and more product categories provided to the market, especially the Asia market. 

D. Team Evaluation Form

More store expansion could help the company to increase sales and brand name presenting. In addition, more stores present on the market can help the company to fight the counterfeit goods market. Although, new store expansion will cut down profit margin in the short term but, it will increase the sales and margin for the long term.

Google Case Audit

SWOT Analysis

  

A Problem Issues:

One income source

Although Google has hundreds product online, 99% of then are free of charge. The sales of Ads is the major source of income. If competitors make a bloody price cut, Google will face huge revenue impact.

Weak in social networking products

Google has to try to compete with Facebook, Twitter, Tumblr…Etc,  but it does not make change till today. Google complete loss the social networking market.

Unprofitable products

During the initial IPO fast growing period, Google invested in too much lab projects and released a product without profitable consideration. All those products and services are the saddle for Google to carry-on.

Strong competition with Apple and Microsoft

Google has high product similarity with Microsoft and Apple. More importantly,  both of them are larger than Google. Google has to be more innovative to provide better products and service to compete with these two giant company.

B. Alternatives

Acquire more patents and technologies

Google has huge cash in hand that could help them acquiring high potential patents and technologies for developing and emerging new idea. These are important for a company keeps innovating and competitive.

Improving cloud computing service

Today, Internet/WiFi are more accessible and more and more devices are Internet/WiFi connectable for everyone. Using cloud computing becomes desirable and possible for users. Keep improving cloud services to stick users stay on Google’s pages to generate more revenue.

Improving mobile search result and efficiency

Smartphone and tablet have become popular devices to surf the Internet and online shopping. Improving searches efficiency and placing appropriate Ads become important revenue generator.

C. Decision Statement

Although Google is the top searching service provider, it rely on Ads’ income to support the service. It is important to maintain users to stay on Google’s page through innovative and great products. The goal of making great products is to keep company innovative and creative by investing in technology development.

D. Team Evaluation Form

When developing and improving, products may face some technology inadequate that could not be fix in the short term, seeking and acquiring sufficient patents or technologies would be a good way to solve the problem. Google is on a good path keep innovative and competitive.

Coach Case

1. What are the defining characteristics of the luxury goods industry? What is the industry like?

There are some characteristics of the luxury goods industry include creative designs, high quality, and brand reputation to attract customers. The luxury goods market can divide to three categories: haute-couture, traditional luxury, and accessible luxury. The haute-couture offers extremely wealthy customers for high end “custom” products. Most tradition luxury goods companies also diffusion their lines in the accessible luxury. Luxury goods demand increase as the income increase. The luxury goods market is driven by the economic and wealth status.

Due to the economic crisis in 2007-2009, the global luxury goods market growth slowdown. Sales in US, Europe and Japan was declined during the economic crisis. However, sales in emerging market including China and India became a key growth driver for the luxury goods industry. It is expectable to have 7.8 percent annual growth through 2015 to reach $350 billion world sales. And, “Italian companies commanded 27 percent of industry sales, while French companies held a 22 percent share, Swiss companies possessed a 19 percent share, and U.S. companies accounted for 14 percent of industry sales.”

2. What is competition like in the luxury goods industry? What competitive forces seem to have the greatest effect on industry attractiveness? What are the competitive weapons that rivals are using to try to outmaneuver one another in the marketplace? Is the pace of rivalry quickening and becoming more intense? Why or why not?

To develop a new luxury goods brand in the market is difficult and has strong competition. Most luxury goods brands on the market have decades’ customer royalty, reputation image and their fashion styles. These would be the strongest forces. Building customer relationship and public reputation image in luxury goods market take several times of repurchasing activities and service experience that isn’t easy for a new develop brand.

The power of bargaining with materials suppliers and manufacturing units would also affect the final product’s competition. By using flexible sourcing from different suppliers and manufactures that help Coach to lower its costs and boost its profit margin.

The competitive weapons that rivals can use include: higher materials and final product quality, fast response for the taste of the customer desires products and precise advertisement for the products and brand image. The competition becomes intense. The growing speed in emerging markets is much faster than in the US, Europe and Japan market that intense the competition.

3. How is the market for luxury handbags and leather accessories changing? What are the underlying drivers of change and how might those driving forces change the industry?

For the change of luxury handbags and leather accessories, China had become the world third largest luxury market in 2010. As the income growth in China, luxury accessory good demand growth. China and India markets were expected to provide the major boost of luxury goods sales because of wealth level rapidly growing. In 2012, there are 2.7 million millionaires and 63,500 individuals had net worth more than 15million in China. Because the great growing demand of luxury that lead the luxury brand such as Chanel, Prada, and Dolce & Gabbana expanding more stores in China. And also, counterfeit luxury goods were estimated sold for 300-600 billion. According to Global congress on combating counterfeiting, it estimated 9 percent of all goods sold worldwide were counterfeit.

4. What key factors determine the success of makers of fine ladies handbags and leather accessories?

1.     High-quality products and manufacturing ability to satisfy customer’s expectation.

2.     Create a fashionable and distinctive design styles products

3.     A clear and cleaver eye-catching advertisement

4.     Designing an aesthetic attractiveness and ambiance store

5.     The multiple retail distribution abilities

6.     The well trained customer service

5. What is Coach’s strategy to compete in the ladies handbag and leather accessories industry? Has the company’s competitive strategy yielded a sustainable competitive advantage? If so, has that advantage translated into superior financial and market performance?

Coach was initially focused on introducing a new design of aesthetic attractiveness stores and customer service training program that rebuild the customer relationship. By using mass consumer survey, Coach was able to design more consumer desire handbag such as edgier styling, softer leathers, and leather-trimmed fabric handbags. Frankfort’s strategy of outsourcing its production to 40 suppliers from 15 countries that gave Coach a huge ability to lower its price beating rivals by 50 percent or more.

The Coach strategy of distribution includes flagship, core retail store, department store, and factory store. The flagship store carries the top price items newest fashion products. The core store offers the most Coach items. Coach’s department store provides the most popular handbags. The price oriented factory stores were increasing about 9 percent between 2007 and 2011. There are about 75 percent of factory items produced specifically for factory store, and 25 percent of the item was overstocked from other stores. According to Coach CEO Lew Frankfort, he believed 80 percent of women’s apparel was bought on sale or in the discount stores.  By increasing factory stores to target value oriented customer that allow the company to maintain profit margin from full price policy in full price stores.

Although the US’s wholesale market become less relevant, the international wholesale market have grown 7.8 percent per year to reach 230 million in 2007. Coach has become more global oriented company and expects to yield good growth rate in the following year.

6. What are the strengths and weaknesses of Coach Inc.? What competencies and capabilities does it have that its chief rivals don’t have? What new market opportunities does Coach have? What threats do you see to the company’s future well being?

Strengths:

·      Product designing is based on market research

·      Contract with high-quality leather suppliers to assure best material supply

·      Outsourcing production to low-cost countries

·      Monthly new products introducing

·      Strategic alliance to bring Coach brand to more additional luxury categories such as watch, footwear, glasses.

·      Worldwide distribution channels

Weaknesses:

·      Factory stores outperformances its full price stores

·      Coach men’s product area not enough

·      Coach does not open store in Europe

·      Outwear and other luxury categories accounts very less percentage of the sale

Opportunities:

·      Rapid growing emerging market such as China and India

·      Strategic alliance bringing more product categories

·      Open up stores in Europe, Latin America, and middle east

Threats:

·      As the increasing of factory store, the brand name might be diluted.

·      European brands’ competition

·      Counterfeit goods market

7. What recommendations would you make to Lew Frankfort to improve the company’s competitive position in the industry and its financial and market performance?

1.     I would recommend Coach to re-examine each store’s location, store’s type and sales performance. According to Coach retail store increased record, the growth of factory store segment was high but it does not reflect on its North America sales growth. By using geographic research data, to decide the store type best fit to the location could boost store performance.

2.     Coach should increase its expansion of stores in emerging market. Entry to a mature luxury market like Europe market is difficult, entering to an emerging market is compared easy. It is important for luxury brand to grow customer loyalty when the market begins the demand of luxury goods.

3.     Investment on market survey and designers for different cultures.

4.     Coach should increase men’s products and men’s shopping area in the store. The image of Coach is always the women’s luxury handbags brand that men do not want to walk into the store. This strategy could change the image and increases men’s product sales.

Kraft Foods Case

1. What is Kraft Foods Inc.’s corporate strategy? How has its corporate strategy evolved since its independence in 2007?

Kraft Foods’ corporate strategy as an independent company involved addressing weaknesses in its core businesses and building a globally dominant snacks business, leveraging its heritage foods brands, and creating a performance-driven corporate culture that would bring about profitable growth capable of generating attractive returns for shareholders.

Kraft Food had replaced 80 percent of its management in leadership positions by 2009. It also changed its organizational structure at the business level, and boosted advertising and promotions by 600 millions. The company also focuses on cost saving strategy via achieving synergies existing between its business units that integrate business operations.

2. What is your assessment of the long-term attractiveness of the industries represented in Kraft Foods’ business portfolio?

Kraft Foods has a clear core strategy, building globally dominant snacks business, which has been done a good job since 2007. The series of divestitures and acquisitions boosted profit earning and market share occupancy. Kraft Food North American grocery division spins off can also create large profitability potential to its shareholder. Since the Kraft Foods is the second largest food company in the North America, the spin-off transaction has long-term attractiveness to the shareholders.

3. What is your assessment of the competitive strength of Kraft Foods’ different business units?

For the three top business units, the market share and brand image reputation are the most important competitive strength for the North America business unit. For the Europe and developing market business units, the various product lines and new product development ability are powerful competitive strength to compete with its rivals. Kraft Foods North America unit has larger market share and supply chain relationship compare to Europe and Developing market countries that give them greater strength to gain higher profit margin and revenue growth.

4. What does a 9-cell industry attractiveness/business strength matrix displaying Kraft Foods’ business units look like?

	North America	Europe	Developing Market
Competitiveness Strength	6.75	5.05	5.25
Industry Attractiveness	6.75	5.85	6.55
Revenue	46.30%	24.60%	29.10%

	U.S. Beverage	U.S. Cheese	U.S. Convenient Meals	U.S. Grocery	U.S. Snacks
Competitiveness Strength	4.85	5.9	6.25	6.85	7.05
Industry Attractiveness	4.5	5.8	5.7	7.05	7.15
Revenue	5.50%	7%	6.10%	6.60%	11%

5. Does Kraft Foods’ portfolio exhibit good strategic fit? What value-chain match-ups do you see? What opportunities for skills transfer, cost sharing, or brand sharing do you see?

·      Purchases from suppliers: All business units share the purchasing power from suppliers.

·      Technology: All business units share some kinds of food processing technology to each other.

·      Operation: All business units collaborate to enhance operation performance

·      Sales and marketing, Distribution, Service: All business units share marketing power, distribution channels to create strong selling capacity. All business units share direct or indirect customer service with the Kraft brand name.

6. What is your overall evaluation of Kraft Foods’ corporate strategy and planned restructuring in 2012? What evidence and/or reasons support a conclusion that Kraft Foods’ shareholders will or will not benefit from the spinoff of the company’s North American grocery business?

The overall strategy for Kraft Foods is divestitures and acquisitions. Kraft Foods has done a good job expanding its market share and improving its profit margin. Kraft had become a giant food company that had slowed down their total growth rate. Moreover, layers and layers management overhead cost had nibbling its profit margin on those mature businesses fields. To spin off its slow growing business would benefit its shareholder from higher business units’ ROE. The spin-off business unit could have more freedom on operation strategy and have better operating efficiency performance.

7. What actions do you recommend that Kraft Foods management take to improve the company’s performance and boost shareholder value after the spinoff of its North American grocery business? Your recommended actions must be supported with convincing, analysis-based arguments.

After spun-off grocery business unit on 2012, Kraft Foods had renamed to Mondelez international that maintain high growth snacks business unit and two international market units. First action, try to eliminate operational management positions that were used to collaborate with grocery business unit. Second, invest on new products development for local market in the international business units. The diversity cultures and living styles lead to different favor of taste on the product. It is important to keep testing and developing new products to match the desires of the new local market.