Dr. Mike Onorato April 25th 2016 Business Strategy and Policy BU 3010-001

Chipotle Mexican Grill AN ANALYSIS OF THE GROWTH AND FUTURE OF THE FAST-CASUAL DINING LEADER

By Group 5: Amanda Carullo Julio Mendoza Matthew McDougan Pateer

Batros Vivek Jagtiari

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TABLE OF CONTENTS Amanda Carullo

Brief Overview and Company History____________________________________________ 4 C.E.O__________________________________________________________________4 Chipotle’s “Food with Integrity” Mission:_____________________________________ 5 Current Events: Chipotle Alerts CDC______________________________________________________ 5 Damage Control_________________________________________________________ 6 Business Model_______________________________________________________________ 7 7 External Factors Demographics:__________________________________________________________ 7

Natural Environment & Social Factors:_______________________________________ 8 Economic Conditions & Global Forces:_______________________________________ 9 Technology:___________________________________________________________ 10

7 External Factors (Full Analysis)_______________________________________________ 10 Julio Mendoza

Industry Analysis ____________________________________________________________ 11 Fast food restaurants_____________________________________________________ 12 Fast-Casual ___________________________________________________________ 12 Full Services Restaurants ________________________________________________ 13 Family dining restaurants_________________________________________________ 13 Pizza Locations_________________________________________________________ 13 Cafes_________________________________________________________________ 14 Getting into the Restaurant Industry_________________________________________ 14 Driving Forces _______________________________________________________________14

Matt McDougan Porter's Five Forces – The “Fast-Casual” industry Rivalry amongst competing sellers__________________________________________ 16 Threat of new entrants __________________________________________________ 17

Threat of Substitute products______________________________________________ 17 Power of buyers________________________________________________________ 18 Power of Suppliers______________________________________________________ 19

Key Success Factors Quality of Food________________________________________________________ 19 Quick Service__________________________________________________________ 20 Medium Price Point_____________________________________________________ 20 Inviting Atmosphere_____________________________________________________ 20

Pateer Batros Value Chain Analysis Primary Activities Supply Chain Management_______________________________________________ 21 Operations_____________________________________________________________ 21

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Distribution____________________________________________________________ 21 Sales and marketing_____________________________________________________ 21 Service________________________________________________________________22 Support Activities Product R&D, Technology, and Systems Development__________________________ 22 Human Resources Management____________________________________________ 22 General Administration__________________________________________________ 23 Financial Analysis_______________________________________________________ 23

Vivek Jagtiari Generic Strategy Differentiation__________________________________________________________25 Low Cost______________________________________________________________26 Niche_________________________________________________________________ 26 Core Competencies______________________________________________________26 Competitive Advantage__________________________________________________ 27 SWOT Analysis Strengths______________________________________________________________ 27 Weaknesses____________________________________________________________29 Opportunities___________________________________________________________30 Threats________________________________________________________________31

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Brief Overview and Company History: Chipotle Mexican Grill was founded in 1993 by Steve Ells, a chef, who opened his first restaurant in Denver, Colorado. Due to the company’s immediate success, the second restaurant opened two years later, thus the beginning of the value chain commenced. He initially raised capital through franchising, a small number of restaurants, which he has since stopped doing to uphold brand continuity. Ells had 16 restaurants, all in Colorado, when McDonald’s became his main investor in 1998. That investment allowed Chipotle to quickly expand from 16 restaurants to over 500 by 2005. On January 26, 2006, Chipotle made its initial public offering and had to increase their share price twice due to high pre-IPO demand, at which time McDonalds fully divested itself. According to Yahoo! Finance, their stock is currently trading at a volatile $441.16. Chipotle currently owns and operates 1,971 units and employs more than 45,000 Americans, according to CNN Money, 2015’s syndicated report. Chipotle is dually expanding operations internationally and are in the growth stages of two subsidiaries. Their global expansion includes restaurants in five countries, including 11 in Canada; 7 in England; 4 in France; and 1 in Germany. Furthermore, they operate ten ShopHouse Southeast Asian Kitchens” and one “Pizzeria Locale” restaurant. (10) C.E.O: The founding and current CEO, Steve Ells, is a classically trained chef, who graduated from the Culinary Institute of America in 1990. Prior to that, he earned his Bachelor’s Degree from the University of Colorado. Before launching the first Chipotle restaurant, Steve worked for two years at Stars restaurant in San Francisco. (10) His vision is that food served fast doesn’t have to be low quality and that delicious food doesn’t have to be expensive, this the foundation on which Chipotle was formed. Subsequently, this thinking transpired in Chipotle serving more naturally-raised meat and meat bi-products than any competitors in the industry. Steve’s vision became his mission which is the principal, driving force behind making Chipotle an innovative, market leader. He is a proactive advocate for ingredients that are natural, organic and promotes sustainability. He exhibited hands-on, involvement on the fulfillment of his personal mission by testifying before the U.S. Congress in 2009 for the elimination of the use of antibiotics in all ranching on animals. (11)

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Chipotle’s “Food with Integrity” Mission: “Food with Integrity is our commitment to finding the very best ingredients raised with respect for the animals, the environment and the farmers”.—Chipotle’s “Food with Integrity” Mission taken off Chipotle’s Official Website Chipotle implements traceability methods on all of their suppliers which enables the company to reverse-track the sources of all of their fresh food back to its original supplier, including the farm where its produce is grown. “Our Food with Integrity mission is the foundation for all of our business practices, and traceability supports that mission by helping to create a more transparent supply chain.” — JASON VON ROHR, Executive Director of Supply Chain. (13) In 2011, Chipotle Mexican Grill established the “Chipotle Cultivate Foundation” to extend its commitment to creating a more sustainable food future. The foundation is dedicated to providing resources and promoting good stewardship for farmers, raising healthier livestock, and encouraging sustainable agriculture practices; such as fostering food literacy, cooking education, and nutritious eating. (11) Since its inception, the foundation has contributed more than $3 million to likeminded organizations committed to cultivating a better world through food. (13) Current Events Chipotle Alerts CDC: Last half of 2015 was, by far, the most taxing period in the restaurant chain’s twenty-two years of operations. The company experienced one setback after the next over a remarkably short span of time. In September, salmonella contaminated tomatoes, supplied to the company, which was recorded in twenty-two Minnesota locations and infected over sixty people. Multiple locations’ health violations went public; rumors spiraled alleging Chipotle uses dog-food meat in their burritos, along with other minor incidents which were over-publicized in the media, intensified by the main fiasco, the E.coli and norovirus outbreaks. The mass-contamination had a material effect on the company, financially, and on the brand’s reputation as many customers’ perceptions has changed indefinitely. Chipotle took full responsibility for getting more than 400 people sick. According to the Center of Disease Control, two waves of different strains of the E.coli bacteria swept the nation. The first occurred mid-October, encompassing twelve states and the second, determined to be a different strain, affecting three additional states. Consecutively, the highly-contagious Norovirus caused over 300

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patrons in California and Massachusetts to fall ill, all incidence resulting in numerous hospitalizations and many open lawsuits against the Mexican food-chain. The specific food item being linked to these illnesses is unknown. (14). In the midst, the Salmonella bacteria was linked to the restaurant chain as well, reported in three states and infecting over a hundred more people. (5) The stock plunged over 40% in three months, and Chipotle was ringing in the new-year with a 15% decrease in sales for the fourth quarter. (7) Damage Control: Ells made several public apologies for the outbreaks, taking out a full-age ad in several major U.S. newspapers including the New York Times, Wall Street Journal, and USA Today. They gave away millions of burritos, chips and guacamole via digital coupons, text message, and by “winning” online matching games. To get customers back inside the restaurants, Chipotle anticipates circulating 21 million coupons to redeem a free entrée, in total, and expects two-thirds to be redeemed. (15) Millennials are a highly unforgiving generation, and with numerous Mexican casual dining spots popping up all over the place, there are local alternatives to get a taco, burrito, or salad. After a half hour Q&A January 13th, they released their plan to implement new quality control protocol. Working with an epidemiologist, their plan included improved food handling and preparation procedures; doing more research on their supply chain, prepackaging of their lettuce and tomatoes to receive a rigorous washing, enhance food training by implementation of DNA-based testing on their produce and meats in a central kitchen. “They've also introduced measures at the farms they source their ingredients from and in restaurants themselves, where they've focused on "kill steps" to eliminate any microbes that do make it into the kitchen.” This plan seemed to moderately sooth investors as the stock rose 13% merely hours afterward. (8) Implementing these new protocol procedures are going to be costly. Since opting for lower quality goes against their mission, they are going to have to spend to ensure the quality of their food, to protect their loyal customers, brand reputation, regain credibility, and prevent this disaster from recurring in the future. (7) With reports of Norovirus making Chipotle’s headlines in a Boston location as recent as March 9th, (6) the company faces an arduous road to regain momentum, and do not anticipate recovering their profit margins until 2017, at which time they’ve forecasted they’d remain 100-200 basis point lower than before the E.coli outbreak. (8)

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They know 2016 is going to be a volatile, first quarter’s report is being release this week and is expecting to show revenue decline in the double-digits for the first time in the company’s history. (12) Business Model: The “casual dining” section of the market is a newer industry which is becoming increasingly more popular due to millennial preference. Casual dining is a mix between fast food and a sit-down restaurant; it has the fast-food convenience aspect of a Taco Bell or Mc Donald’s, the quality of food from a full-service restaurant, and is priced between the two. The appeal for this type of industry is millennials desire for faster service and the willingness to pay extra for better quality food.

“Casual dining” style restaurant incorporates restaurant quality with fast food wait time - One to two minute prep time per order A defined menu focusing on tacos, burritos, burrito bowls and salads prepared to order - Assembly line system enables chipotle to prepare menu items in front of customers High-quality food sourcing - Organic, natural ingredients - No prepackaged, processed, or frozen products - Works with local farms and ranchers who treatment animals in a humane manner

above what is required by the USDA Ambiance - Each restaurant’s décor is a modern-styled metal and light wood - Providing customers with an aesthetically pleasing, clean atmosphere to dine in as

well as maximize functionality for operations. Employees - Hires individuals motivated to be part of a team and takes pride in working for a

company which has positive effects on the environment, therefore elevating customer service

7 External Factors Demographics: The demographics which hold the consumer majority of Chipotle restaurants are, by far, the millennials. As previously stated they virtually created the casual dining industry with their desire for quickness, convenience, and sacrificing extra money for better quality food. This is why traditional fast food restaurants, like McDonalds, has been struggling to compete by modifying their menu in attempt to make healthier, appealing items, such as the “snack wrap” and started labeling nutrition facts to their menu items. Millennials have been making their

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presence known, asserting their purchasing power as vital current and future consumers of the market. They comprise 20% of the consumer population in the United States’ market, Chipotle’s “food with integrity” advertisement targets the 18-34 year old, “upper-middle class”, “mass affluent” market segment who are generally more educated, socially, environmentally and health conscious. Nearly every aspect of their business strategy, mission statement, vision statement markets sustainability in those areas. (2) Natural Environment & Social Factors: As previously mentioned, CEO Steve Ells is an involved advocate for sustainable and healthy foods. Chipotle lives by the “Food with Integrity” slogan he created and campaigns. The natural environmental factor from which Chipotle derives their food sources from is arguably held to the highest standards in the industry. It is a major selling point and dominant social factor as well for a majority of Chipotle’s most loyal customers and they have accredited its success and continued growth to the quality of their ingredients. (12) The necessity for natural ingredients is non-negotiable as it is the foundation of the company’s business model. Above all, all of their ingredients are organically produced and locally sourced. Their produce is fresh and is from smaller, locally grown farms. Their rule of thumb is that the food is sourced within a 350 mile radius of its destination. They’re very particular in the manner the livestock is raised. In addition to not receiving any antibiotic or growth hormone, pigs are fed a 100% vegetarian diet and cattle are grass fed. Because they denounce factory farming, all the animals are uncaged. Chipotle believes that using this technique produces better tasting, healthier meat. It is an important aspect on the treatment of their livestock because many factory farming methods have animals in extremely poor, inhumane conditions. Even the cows which produce Chipotle’s bi-products, such as cheese and sour cream, are growth hormone free, and have outdoor access. (9) In addition to the health benefits of natural foods without additives, the humanitarian requisites incorporated into choosing their distributors are also social factors which contribute to making Chipotle one of the market leaders in the industry. Aside from the health factors which appeal to many, another social factor (that can also be included in the economic category) which enhances chipotle’s appeal is the help they provide to the “middle class”, “mom and pop” farmers. Larger companies paying a bit more to support small business owners and increase the “strengthening of the middle class” is socially respected

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and economically beneficial. Larger corporations have tended to give themselves a bad reputation, There are larger-scale, corporate, organic farms but Chipotle choosing to conduct its business in this way, appeals to the corner of the market that advocates for social justice and small-business support. “While industrial farming practices have evolved to maximize profits and production, we make an extra effort to partner with farmers, ranchers, and other suppliers whose practices emphasize quality and responsibility…We make our choices with farmer, animals, and the environment in mind.” (12) This quote, taken directly from the company website, exemplifies Chipotle’s marketing strategy to differentiate themselves from competitors. Economic Conditions & Global Forces: The economy has improved over the last few years with inflation at approximately 1%, and all-time low unemployment, with rates just under 5%. However, there are plans in place preparing to raise minimum wage over the next few years upward of $15 dollars an hour. This is going to have a material effect on Chipotle’s operating costs. Chipotle currently expends approximately a quarter of its sales on labor expenses. (3) This figure is already optimized by their lack of menu changes. Menu consistency saves in the retraining of employees, necessary when introducing new menu items. (3) They’ve just incurred numerous new expenses for quality control and they’ve stated their plans are not to cut cost. Since they are still working on re-securing their customer loyalty, it isn’t feasible to immediately raise prices. They have plans to recover their losses by continuing to grow corporately, as they want to maintain the integrity of their brand by opting out of franchising. Their goal to increase cash flow is to expand brand recognition and global presence. They are focusing on new ventures in Europe and Canada; therefore whatever is not covered by their international expansion plan, will ultimately cut into their margins. Technology: Chipotle has a new app available for most smart phones. The app allows Chipotle locations to be easily found and connects to Google Maps for GPS directions. It also offers view of their full menu to order, customize the order, and pay for the order all from customer’s fingertips. This purchasing method will be most successful among their target market, the millennials. They are generally more technologically savvy than most generations before and have an appreciation for

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features which enhance convenience and time management; this new service does just that by omitting the customer’s necessity to wait on line. A different technological feature gaining popularity, which has already been added to most corporate restaurants, and is making its way into the fast food and casual dining industry are kiosks. However, this is a technological device that, similar to Subway, Chipotle may not have to invest in. Since Chipotle’s business model is built around the “face to chef” experience, their presentation of menu items prepared in front of the customer removing the need for additional kitchen staff in the back as well as the need for the virtual-ordering kiosks. 7 External Factors (Full Analysis)

1. Demographics: Who eats at Chipotle Mexican Grill? - “Millennials” are the age group that Chipotle attributes their success - Health Conscious: Stays away from processed foods and mechanically separated

meats 2. Social forces: Health conscious, unprocessed foods, not previously frozen or prepackaged,

Environmentally friendly, and humane Chipotle is one of the few fast food restaurants with many vegetarian options Values the support Chipotle gives to local business opposed to large factory farming corporations such as KFC

3. Regulations: Food and Drug Administration - The FDA is the main agency which regulates the food industry - There were several acts and requirements passed when labeling, recordkeeping,

and reporting - Inspections from FDA’s offices of regulatory affairs Federal Trade Commission - Franchising is regulated by the U.S. Federal Trade Commission (FTC) and by

various state agencies. - Chipotle is mainly corporately owned, with very few exceptions from the early

days, and they intend to keep it that way; Chipotle is currently not offering to franchises

4. Natural environment: Local Ranching livestock - The animals are uncaged free roaming - Pigs fed 100% vegetarian diet - Cows are grass fed Local Farming Produce - All organic vegetables - Not loaded with pesticides and insecticides

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They do not use frozen or canned food, all natural ingredients 5. Global forces: Company has a presence in five countries Continued expansion into European market 6. General economic conditions: Unemployment the lowest it has been in decades, (under 5%) Inflation is less than 1% Plans to increase minimum wage

- will lead to operational cost restructuring - with labor expenses accounting for approximately a quarter of its sales it will

have a strong impact the company (3) Morgan Stanley predicted 20% of an economic recession in 2016 (4) 7. Technology Chipotle’s mobile app offers convenience for on-the-go accessibility, at customer’s

fingertips. Features include : - Finding the closest location - Order ahead of time from their full menu, avoiding human mistakes with

computerized customization - Pay ahead of time via debit card, to pick-up the order upon arrival and avoid lines

natural ingredients

Industry analysis: The restaurant industry has grown over the past five years due to change in consumer preferences and is expected to continue to expand in the next five years according to IBISWorld. Fast food locations will benefit and continue to grow as the economy improves and as consumers continue to eat out. Restaurant industry sales are around $783 billion in the United States. The industry is highly fragmented with a total of around 1 million locations in the United States. The restaurant industry is responsible for the employment of approximately 14.4 million workers in the U.S., according to the National Restaurant Association. Overall it employs about 10% of the workforce in the United States and is expected to create about 1.7 million more jobs by the year 2026. The restaurant industry is extremely competitive because of the need to constantly find new ways to innovate and reinvent themselves. Restaurant growth remains moderate year round. For example around 4,500 new locations are opened in the United States but according to the NPD Group, 9000 fail each year. Business insider said 80% of new restaurants are likely to fail. The reason why this is likely occurs could be due to location , product pricing ,and promotion styles,

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these aspects are essential for a restaurant to succeed. It is also important that Investors know that running an independent restaurant is different from managing or operating a restaurant chain.(16) There are many types of restaurants that offer a variety of food and experiences. These include Full Service restaurants and Limited services restaurants. Full-time services restaurant offer full table services and is further classified into casual dining and family dining. Limited –service restaurants have no table services can be futher classified into fast food and fast casual formats. These restaurants rely on high –marging items and effective marketing. Fast food restaurants Fast food restaurants specialize in serving food they can prepare and serve quickly . Their menus are priced on the lower end .Most fast food restaurants have a drive thru due to their fast service. The food quality at these locations are on average high in calories and low nutritional value. Fast food restaurants are known for offering items as low as $1, and the average amount spent at these locations is about 4 to 10 dollars. The biggest player in the fast food restaurant industry is McDonalds(MCD) with a market share of 17.8%. McDonald annual . Yum brands, which own KFC, Pizza Hut, and Taco Bell . Other popular fast food restaurants include Burger King, Wendy’s, Popeyes, Jack in the Box, and Arbys. At all these locations food is served quickly and their staff is limited to food preparation, manager, and cashiers. Many analyst consider that the fast food industry has reached its mature stage in the United States. Due to this several fast food chains are focusing on international expansion like in Asia, the Middle East and the African region. For example in China McDonald’s has opened 275 locations. Yum Brands have opened 1300 locations worldwide. (17) Fast casual Fast casual restaurants are a combination of fast food and casual dining restaurants, they offer minimal table service. Fast casual currently represents approximately $30 billion of the $783 billion total restaurant industry in the U.S., but is projected to grow to an additional $100 billion. The menu is limited and moderately priced somewhere between $8 to $15 per person. People like the fast –casual restaurant style because of the high quality food and the affordable price. Food at these restaurant is usually prepared fresh , with high- quality ingredients. Unlike fast food restaurants and casual restaurants, fast-casual restaurants are experiencing growth in the

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United States gaining share from other restaurant format. Some of the reasons for this growth include shifting demographic, preferences in taste, food quality, and food ordering methods. Chipotle Mexican Grill (CMG) emphasizes in the high –quality food and hand-held characteristics that make fast casual a fast growing trend. Chipotle Mexican grill for example sources its ingredients from local producers and their menu can be customized at the counter. Chipotle has about 2000 locations in the U.S. Other examples include Panera Bread, Qdoba Mexican grill, and Smash burger. Full Services Restaurants The casual dining restaurant environment has a relaxed and a casual ambiance with a lot of seating. They offer full service such as appetizers, entrees, desserts and may also have a wine menu or full bar service. The portion sizes are usually large and they do not use disposable cutlery. Compared to fast food locations the food takes longer to prepare, you have greater control over customizing your order and you pat after you have eaten the meal. The menu is moderately price because of full table services and tips. The total amount spent at these restaurant locations is moderately priced from 10 to 25 dollars per person. Examples include restaurants like Olive Garden and Red Lobster (DRI). Chili’s bar & Grill and Little Italy (EAT) . Other casual dining restaurant includes names like Applebee’s, Outback Steakhouse, TGI Friday’s, and Ruby Tuesday’s.(18) The casual dining restaurant is declining due to changes in customer preference and increasing competition from fast-casual format restaurant. Family dining restaurants Family-Dining restaurants also offer full table services which include breakfast, lunch, and dinner menus but they differ from casual dining because they do not offer alcohol. Some family- dining restaurant may be open for longer hours ,up to 24 hours a day for seven days a week. The average check at a family restaurant is between 20 to 60 dollars. Family restaurants include IHOP ,Denny’s, Cracker BarrelOld country Store and the Waffle House . Pizza Locations Pizza places are also very popular in the United States restaurant industry. Pizza locations may have limited seating space focusing more on take out or home delivery. Pizza places not only offer pizza but may also include some entrees, sides, and dessert. Pizza places include

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Domino’s(DPZ) and Papa John (Pzza). According to your Guide to Pizza and Pizza Marketplace there are around 70,0000 Pizzerias in the United States alone. Cafes Cafes do not offer lunch or dinner and focus heavily on beverages and breakfast during the day. Cafes often prepare orders to go but they may also offer seating places and free wifi connections to its customers. Cafes example include Dunkin Brands (DNKN) , Starbucks(SBUX) and Krispy Kreme (KKD) .(20) Getting into the Restaurant Industry There are two main models that are commonly used when opening a new location in the restaurant industry. These include The Company Operated Model and Franchise and License Model. In the company operated model the company finances all of the cost .The company takes ownership of the operation at the restaurant location. The company uses its own resources to get the location ready for business, which include purchasing or leasing the land or building, hiring the staff , buying furniture ,kitchen equipment and inventory supplies The company takes on the risk of litigation. In this model the company require a significant amount of capital upfront, but it a gives the company full control over the day to day management of the restaurant and protects its brand value. This gives the company the right to any implementation and execution of any strategic changes made at the restaurant company’s corporate headquarters. In a franchise model the franchisor, for example McDonald’s,and the franchisee enter into a agreement to sell the franchisor’s branded product. The Franchisee pays an initial fee as well as a percentage from the restaurant’s sales, paid rent, and has to develop the restaurant.(19) For example hire staff, take care of daily operations and manage cost for running the restaurant. The success depends on the owner. The Franchisor(McDonald’s) is able to expand locally and globally very quickly, own the location , has lower risk if the store underperforms, and focus on product and operation research. Overall the franchisor has less control over management. Driving forces One of the greatest driving forces is Social Forces. Social forces includes the greater demand for healthy fast foods led by the millennial generation, which is highly critical to the restaurant industry. Millennial are people between the age of 23 to 36 and represent 20% of the US population .This population focuses on demanding food of better quality ,food made with

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ingredients that are free of additives, antibiotics ,and other artificial components. Not only the millennial but people in general are getting smarter about their health and making better choices about the food they eat. This trend has made a big impact in the fast food industry making them change and improve their menus. In recent years 56 % of food companies have shortened their ingredient lists. Mindful dining customers want to feel good about themselves, for example wanting products that are organic, meaning they are not give growth hormones or antibiotics and most importantly are not mistreated.(21) Economic forces are also one of the main driving forces. For instance, when the economy drops people tend to spend less money causing to cut back in dining out causing pressure to the restaurant industry Restaurant will either have to lower prices or increase quality at the same price to compete.Many customer are selecting restaurant that offer a good prices mixed with fast food options Political forces also play a role. An example of this is minimum wage. Low wages are leading people to srtike and demand higher wages, health care reform forcing restaurant to provide medical insurance for their employees. Technology forces have an impact in restaurant industry growth. . With the growth of internet users the restaurant industry has to invest more in technology and modify the way they do business. Among millennial ,the availability of technology is an important factor when choosing a restaurant. Now most of the people want a restaurant that offers Wi-fi, consumers want to be able to used the internet to do online reservations, place orders , and track their orders online . The restaurant industry can also use social media to communicate with the customers via internet by showing new products, and offer promotions. Social media platforms like Facebook and twitter have now become a part of the dining experience. Social media has helped in advertising because of pictures that are posted which lead to people choosing the restaurant. Another way that the internet has helped the restaurant industry is through online reviews. Porter's Five Forces – The “Fast-Casual” industry Rivalry amongst competing sellers- Strong – As Chipotle is having food integrity issues, Chipotle records its first quarterly loss and is losing customers to other fast casual

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restaurants like Panera, Moe’s, and Qdoba. The fast casual industry is growing and consumers have many options of where to eat. Amongst all Mexican fast food restaurants overall, Chipotle is second only to taco bell. As of late 2014 Taco bell had 5,769 locations to Chipotle’s 2,010 locations. But Chipotle isn’t trying to be a fast food restaurant and run the kind of business that taco bell runs. Chipotle describe their industry as “ethical quick serve restaurant” and is run in differentiation from a restaurant like taco bell. They’ve led a food revolution and millennials have become attracted to the Brand’s non-GMO stance, and organic options as a healthier alternative to traditional fast food. This approach has thus far proved very successful, since 2007 they’ve nearly tripled the amount of locations, and gone from 820 million in revenue to 4.1 billion. (22) However, if defined by the Fast Casual, sit down style dining approach their rivals would be Panera, Moe’s southwestern grill, Qdoba Mexican grill, and Baja Fresh. Rivals in this industry pride themselves in comfortable dining areas, unique and quality taste, and food integrity are key. Although those that differentiate based on healthy options have done particularly well. The cost for a customer to choose one fast casual restaurant over the other is low, so it is important to create loyalty amongst its customers. When Chipotle recently had food integrity problems they asked their customers to give them another try by improving its food preparation and offering free burrito coupons. Rivals in this industry’s biggest costs are food costs. Chipotle has been able to fend off rivals in the past by being the leader in the health conscious food movement. Their uniqueness, simplistic menu, and quality has given them some distance in market share from their rivals but their latest food integrity problems could give their rivals a chance to gain market share. Its biggest rival Panera (and only other publically traded in the fast casual industry) is taking some of the customers discouraged from going to Chipotle after their recent food integrity problems. Despite their recent food issues, Chipotle has strong financials. Many analysts think Chipotle will rebound after time and the food integrity problems die down. They also believe the future is bright for Panera. Analyst James Gellert says “Panera, similarly, has a clean bill of financial health. They’re investing heavily in their stores to enhance their service and improve their overall operating efficiencies. While that increase in spending is taking a bite out of their profits in the short term, the market should watch for how well these investments translate into value creation.” (23) In 2015 Panera bread earned 2.6 billion dollars in revenue and now has 1900

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locations. (24) The industry is growing fast, and many companies in the fast casual industry such as Moe’s are adding many locations and make healthy profits. Threat of new entrants – Moderate - Entry costs in entering the fast casual industry are relatively low, regulations are relatively low and growth in industry is good, but the big companies such as Chipotle are obviously make much larger profits, more locations, and brand recognition and loyalty. The segment of fast casual dining is a relatively new market. Chipotle as a brand itself has only been around for just about 15 years when they opened their first location and has grown rapidly since then. Similar restaurants (such as Moe’s southwestern grill with 500 locations) are growing in popularity right now and could potentially take market share from Chipotle in years to come. The startup costs to opening a fast casual low are relatively low compared to many other industries. The outlook for the fast casual industry is good as consumer’s tastes have switched to a more health conscious, environmentally friendly and ethically conscious. Chipotle, Panera, and other fast casual restaurant’s growth rate has grown much more than traditional fast food restaurants. The industry is regulated by the FDA and zoning regulations by local governments but the regulations on the industry aren’t insurmountable as to create a difficult barrier for new entrants. An established fast casual restaurant such as Chipotle and Panera obviously have more capital and brand recognition than new entrants, but if a new fast casual restaurant comes along that becomes popular, barriers to compete with Chipotle and others are not great enough to prevent expansion of a trendy start up restaurant as Chipotle and Panera came from humble beginnings not too long ago. There are many new competitors in this industry within this industry within the past 10 years and the demand for this style of restaurant has increased. Threat of Substitute products – Moderate – Numerous, large traditional fast food companies make way bigger revenues, compete for consumer’s dollars when people are looking to eat, and are a cheaper option, but fast casual is growing fast and popular amongst key demographic, millennials. The top substitute products that compete with the fast casual industry, is traditional fast food operators such as McDonald’s, Wendy’s, and Burger King. In 2014 Chipotle earned 4.1 billion in revenue which when compared to top fast food company McDonald’s seems insignificant.

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However, McDonald’s revenue grew by 2% in 2013 and since then their growth has declined, meanwhile, Chipotle’s revenue has grown by 20% for the past five years. (25) (Although now that growth has slowed by their recent food integrity issues.) The average meal at McDonald’s cost $3-$6 at traditional fast food restaurant, while at a fast casual restaurant the average meal costs from $8-$15. This puts fast casual at an in between price point between traditional fast food and casual dining restaurants, like TGI Friday’s and Applebee’s. The concept of fast casual restaurants is to be not only the price point between these two restaurant styles but aesthetically in between as well. Fast casual restaurants have a differentiation from fast food restaurants. Typically, fast casual restaurants have a more inviting dining area than traditional fast food restaurants but not quite as comfortable as a typical casual dining restaurant. It’s not necessary that they have organic, or healthy food as there are some new burger places such as shake shack, and smash burger which are considered fast casual which are not necessarily healthy. What is key to being considered part of this industry is offering high quality food at a higher price point, usually ready to eat in under 5 minutes, typically no drive through, and a unique comfortable sitting area. As a result of millennial’s spending habits and the boom in growth of this fast casual industry, Wendy’s and others in the traditional fast food industry are trying to add healthier options on their menu and making customers dine-in experience more hospitable and comfortable. Power of buyers – Strong - As consumers have many options for where and how they get their meal. In the fast casual industry buyers have many options from local restaurants that offer quick service, upscale décor and different styles of food. However, when buyers are deciding where they are going to eat they can choose a high price point, high quality meal at a casual dining restaurant or fast casual restaurant, or even a low price point and something to grab through a drive-thru window at a fast food restaurant. Consumers can even eat at home, or prepare a meal to bring with them for lunch. Buyers have many options so the power of buyers is strong. Therefore, Chipotle and others in the fast casual industry have to create loyalty among its buyers by giving them quality food and a unique and create a great customer experience. Power of Suppliers - Moderate to strong – Suppliers would compete for a supply contract with a big company like Chipotle. So Chipotle has some leverage in dealings with suppliers.

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However, finding reputable suppliers is important to Chipotle and other fast casual restaurant’s identity. Fast casual restaurants and Chipotle in particular are concerned in overseeing their supply chain after their recent E. Coli and food integrity issues. Also as seen in 2013 shortages in crops can affect availability, food prices, and affect margins. According to Great Speculations an analyst group for Forbes, in 2013 “The cost of food, beverage and packaging, accounted for 33.5% of the sales, up 1.3% from the fourth quarter of 2011. Apart from the higher commodity costs, the lack of higher menu prices is squeezing the profit margins. As a result, operating margins declined 150 basis points to 24.6%.” To combat the rise in food costs Chipotle raised prices “The company should get some respite once it raises its prices, which could be as early as in the summer of 2013.” (26) And analysts think these prices may even need to go higher in the future as Chipotle implements new quality controls and continues its commitment to using local, cage-free, hormone free food costs more. According to Kevin O’Marah of Forbes, “Local, sustainable farming sounds great in a marketing pitch and may even taste better, but it absolutely increases the burden on procurement. A reality of food supply chains is that elimination of variability in sourcing and production is essential to achieving low costs while maintaining quality. Chipotle, by avoiding the industrial food supply chain as a matter of principle ends up needing to accommodate massive variability in its supply base.” (27) So unless consumers chip in more for their food, Chipotle will not get the margins it has the potential to make. Key Success Factors Quality of Food Food quality is the most important key success factor and is essential to the core of the industry. By quality I don’t necessarily mean healthy, organic, or locally sourced (although these attributes can create differentiation and attract the niche of people that are looking for healthy food) but in superior taste and ingredients. A burger place such as Bobby’s Burger Palace (highly recommend it) is considered a fast casual restaurant, it fits the price range, the unique dining area, and the quality of food, preparation, and presentation is far above anything offered by any traditional fast food burger chain. Quality is what creates brand loyalty from consumers, the feeling of when a customer pays extra money for a premium product they feel it’s well worth the value. Chipotle creates this premium buy by using locally sourced food, hormone free, GMO free, organic and

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now because of its recent issues, more intensive food safety preparation. These ideals connect with its health conscious target demographic. Despite its recent problems, Chipotle prides itself in its quality of food and incorporates it in its branding and as its mission as a company, “Food with integrity”. Quick Service Fast Casual restaurants have a similar atmosphere to a casual dining restaurant, but try to have food served in the time it would take to get a meal from a traditional fast food restaurant. Time is a big factor to those looking to eat especially a working class lunch crowd that may be short on time and can’t sit down and wait at a casual dining restaurant. This is a major reason why the fast casual industry has grown the way it has, people want their food to be good and they want it fast. As we’ve discussed in the General Mills case study, people have become more “on-the-go”, but still desire a high quality product not offered at traditional fast food restaurants. Medium Price Point While traditional fast food companies vie for the lowest possible price point, (e.g. Wendy’s 4 for $4, McDonald’s value meals) fast casual restaurants set their price point at around $8-$15. While it is more expensive than fast food, price points remain below that of casual dining restaurants, making it a moderate price option. This price point is attractive to those who are willing to pay a little more for better quality ingredients and better tasting food. Inviting Atmosphere Another core competency of the industry is its unique dining areas that implore guests to stay and eat. This welcoming and relaxing atmosphere also creates brand loyalty because customers are more likely to return where they feel comfortable. It gives the consumer the option of sitting comfortably with friends and family in a unique environment, without relying on wait staff and tipping that is required at casual dining. Chipotle typically has a dining area that is relaxing and facilitates ease of use with plenty of condiments and access to anything a customer needs with their meal.

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Value Chain Analysis Primary Activities Supply Chain Management: Chipotle has built strong long term relations with industrial suppliers. It relies heavily on industrial suppliers for its ingredients and supplies. Despite its “food with integrity” mission, it doesn’t rely on local produce for its ingredients. Nevertheless, taking up local suppliers has been one of its goals over recent years. Chipotle looks to work its way toward that goal by adapting a local program through most of the U.S. from June through October. In the program, it will resort to local produce to keep its food quality premium and fresh. After its E.coli breakout, it has tightened its regulations in terms of supply chain. However, Chipotle is not backward integrated. Operations: Chipotle favors human skills over rules, robots and timers. They have tight regulations within the supply chain for specifications and requirements. They employ a Quality Assurance department that monitors the quality and food safety efficiently. This department additionally maintains the standards of the suppliers, distributors and food. Chipotles also employs a “restaurateurs program” which facilitates hourly crew workers to rise up to senior management positions. Distribution: Chipotle owns and operates 23 distribution centers to supply ingredients and other supplies to the restaurants. These distributions centers are independently owned and operated in different regions. The number of distributions centers will only go up as Chipotle has been expanding its number of restaurants steadily over recent times. Sales and Marketing: Chipotle deliberately used to spend less on marketing. By doing so they believed they could afford to spend more on higher quality ingredients. Chipotle doesn’t rely much on TV commercials although they did air a commercial once during the Grammys in 2012. After the E.coli and Norovirus outbreaks, they plan to spend 50 million on marketing and promotion campaigns to win back customers who have been driven away. Chipotle plans on stepping up on digital and in-store marketing. They also rely heavily on publicity from articles and social media.

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Promotional activities within newly opened stores are also one of its strategies to raise awareness about the new stores. Chipotle’s average sales per store were “2.42 million US Dollars” in 2015. [39] Service: Chipotle changed American fast food forever. Its food is produced fast and inexpensively, yet the quality and flavor is not compromised as is in typical fast food. Chipotle’s biggest goal with service is to have a customer’s order ready as quickly as possible, and impressively they achieve it. Chipotle began a trend i.e. dubbed “fast-casual” which offers an upscale dining environment, premium food quality, high prices and fast food service. They have a convenient service line where the employee and customer move through quickly in which the customer gets to see the fresh food and ingredients used to create the meal. In 2015, Chipotle took appropriate measures to keep up with the toughening labor market of the restaurant industry. A recent survey indicated that the worst may be over for Chipotle and that the willingness of people to eat at Chipotle has gone up since the E.coli outbreak in the fourth quarter of last year. Support Activities Product R&D, Technology, and Systems Development: When Chipotle started their “Food with Integrity” campaign, it involved researching ways to use organically grown ingredients. They researched farming companies who practiced animal ethics and cared about the environment. In 2014, Chipotle implemented new software that enhanced traceability to increase efficiency and food safety. This update to their systems has enhanced their overall awareness and execution of their products and services. Human Resources Management: Chipotle employs a general manager, an apprentice manager, a kitchen manager, and an average of twenty full and part time crewmembers. Chipotle came with a list of 13 traits they want every employee to have: Conscientious, respectful, hospitable, high energy, enthusiastic, happy, presentable, smart, polite, motivated, ambitious, curious and honest. Due to tightening market of restaurant labor, Chipotle hired 4000 employees in one day back in 2015.

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General Administration: Chipotle employs a team of real estate managers who research potential locations for new restaurants. For the most part the team is dedicated to projected sales in an area and targeted return on investment. In 2015 alone, Chipotle opened 227 stores. Although Chipotle’s growth has been stagnant in the past couple of years and is expected to slow down more after the E.coli and Norovirus break out, it looks to expand its growth globally. After the E.coli and Norovirus break outs, Chipotle quickly took the initiative to shut down restaurants and take precautionary measures. In recent times, Chipotle started two side projects: ShopHouse that serves Southeast Asian style rice bowls and Pizzeria Locale that serves gourmet pizza. Financial Analysis Growth Chipotle has experienced steady growth over recent times. In terms of unit numbers, it has seen annual increases over the past years. The number of restaurants worldwide has grown “from 704 in 2007 to over 2000 in 2015.” [43] Chipotle’s total number of assets have increased “from 1.1 billion U.S. dollars to 2.7 billion U.S. dollars” [43] between 2010 and 2015. Revenue: $ 4,501,000,000

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Revenue benchmarked to competitors:

Profitability: $ 475,602,000 x 6.8% = $ 32,340,936 (Net Profit)

Liquidity Current Assets: $ 814,647 Current Liabilities: $ 279,942 Current Ratio: Current Assets / Current Liabilities = $ 814,647 / $ 279,942 = 2.910 Working Capital: Current Assets – Current Liabilities = $ 814,647 – $ 279,942 = $ 534,705 Leverage Total Assets: $ 2,725,066 Total Liabilities: $ 597,092

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Total Stockholder Equity: $ 2,127,974 Debt-To-Asset Ratio: Total Debt / Total Assets = $ 597,092 / $ 2,725,066 = 0.219 Debt-To- Equity Ratio: total debt / total stockholders’ equity = $ 597,092 / $ 2,127,974 = 0.280 Stock Performance $442.73 as of April 22, 2016

Generic Strategy Differentiation Chipotle uses a focus differentiation strategy through its “Food with Integrity” campaign which has contributed to its growth by providing customers a timely service and quality food. Its mission has been to source ingredients friendly to animals, farmers and the environment. The social motive of protecting animals and supporting local farmers facilitates drawing in environmental and health conscious customers. Chipotle believes that although costs of organic ingredients are higher, customers are willing to pay extra for healthier food. Chipotle also believes that using environmental friendly organic ingredients and a modern upscale environment sets it apart from competitors and meets consumer demands. Low Cost

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Instead of implementing a low cost strategy, Chipotle spends a great amount of money on its food. They are willing to spend such due to the need of complying with their campaign “Food with Integrity”. Nevertheless, they are hesitant to make a complete switch to local ingredients due to higher costs. They would prefer sticking to industrial suppliers to regulate lower costs. Regardless of costs, Chipotle still intends to use organic ingredients which are higher in price in comparison to regular ingredients. Chipotle does not plan to raise the prices of food due to food safety measures after the E.coli and Norovirus outbreak. Although Chipotle already “raised its prices 6.3 percent” [39] back in 2014 to keep up with the increase in meat prices. Niche If you think of Chipotle’s niche, it has to be ‘fast casual dining’. Chipotle was one of the first to begin the trend of the fast casual dining. It strikes the balance between fast food and fine dining. This niche has blossomed from nothing to a major trend over the past 25 years. Chipotle’s revenue growth “has declined 6.8% year over year” [41] which is the first decline in the decade long history of Chipotle being a public company. This drop is mainly due to the E.coli and Norovirus outbreak in the fourth quarter of 2015. Nevertheless, Chipotle is still the leading restaurant in its niche of fast casual dining. Another niche of Chipotle would be ‘fresh food’ which comprises of organic ingredients. Several years ago Chipotle brought to the table the unique combination of fresh ingredients, fast pace and upscale environment. This achievement of Chipotle has driven its success for the most part. Having fresh ingredients and serving fresh food is what has mainly kept Chipotle at the top of its game. However, ever since the outbreak of E.coli and Norovirus in December 2015, the company’s niche has been compromised and it has taken a hit in its sales, growth, customer loyalty and stock price. Even though the outbreak of E.coli has come to an end, the questions arise whether Chipotle will regain its reputation of its niche i.e. fresh food, boost its growth and sales, and rise in terms of stock price. Core Competencies Chipotle’s core competency is its ability to offer high quality food at a reasonable price. It can afford to offer this quality at a reasonable price because it limits its menu and does not expand

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itself too much. This preserves its ability to keep prices low through effective supply chain management. Competitive Advantage – It meets their customer needs more effectively with products/services that customers value more highly or more efficiently at a lower cost. The average person at Chipotle spends about $9 per visit and the average American spends $5-$10 per meal anywhere. Therefore, if you take the quality of the food Chipotle offers, plus their portion size, and the average $9 per visit, you get competitive advantage. No other place offers all three. For example, Panera has certain items with good quality and their food items are also about $9 per visit, but their portion sizes are not as big. Some other things that differentiate Chipotle from other businesses in their industry are that their food is made with integrity, farm raised produce, and have no added hormones in their meats. Unlike Panera, much of their food is not frozen. According to an article by tasteterminal.com, many of Panera’s soups and their mac and cheese is frozen, not made fresh every day. Also, a lot of their pasta is frozen as well. This is a competitive advantage for Chipotle because most of its food is not frozen and made fresh daily (28). This is also because it has a smaller menu compared to Panera; it is focused on only two items: burritos and burrito bowls. SWOT Analysis Strengths Focus on food made with ingredients from sustainable sources Chipotle’s main focus is to provide food that tastes good and is healthy for the customers. Chipotle uses naturally raised meats such as beef, chicken, and pork. According to an article from business source complete, the cheese and sour cream they use to serve is made with milk from cows and have no added antibiotics or hormones such as RBGH (recombinant bovine growth hormone.) Anything milk related in the company comes from pasture-raised cows. Chipotle also gets a lot of their produce from local farms (30). This guarantees the freshness of their produce to best satisfy their customers. On average, chipotle buys 155 million pounds of naturally raised meat, 20 million pounds of local produce for its restaurants, 4 million of organic black beans and 2.5 million of organic pinto beans (30). This is something that Chipotle does well, better than their competitors. As I have mentioned, Panera, a big competitor in the fast

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casual industry, keeps a lot of its food frozen such as its soups, mac and cheese, and much of its pasta (28). This makes its products not as fresh as Chipotle’s products. As a result of Chipotle’s hard work to keep their food fresh and organic for their customers lead to an increase in sales and has enhanced the brand image that everyone is familiar with. Marketing Position Chipotle does not just stick to standard advertising like commercials on TV and the radio. Instead it has specific and unique marketing programs. For example, it has in-store communications and unique design elements that attract customers. They advertise through ‘owned media’, communication channels that are within one’s control, such as websites, blogs, and email (32). This is unlike paid media such as advertisement on television, radio or Google Ad Words (32). Owned media is a cheaper way of advertising and very beneficial if executed properly. Chipotle has unique video and music programs that it uses to attract customers. For example, 4 years ago, Chipotle released a 2:30 music video that went viral on the internet. This video is called “Back to the Start” and it talks about how all it wants is to bring healthy and fresh food for its customers. It also has an original song in it. Again, 2 years later, another video made by Chipotle went viral. This one is called “The Scarecrow”, it is 4 minutes long and it talks about how a lot of companies now are very industrialized with the use of hormones and inorganic substances. In this online ad, it distinguishes itself from the rest of the businesses in its industry by saying we are better because we have no hormones in our food. Chipotle has also developed games around that ad. Chipotle does a good job keeping up with the millennials. Many millennials do not watch TV as much anymore. They do not see commercials on TV; instead they navigate themselves through the web. The ability to build awareness about its brand with relatively low advertising expenditure makes this a strength for Chipotle. Unlike Panera, Moe’s, and Qdoba, Chipotle’s brand is more familiar and well-known to the millennials. Fast growth in terms of revenues and operations Chipotle opened its first restaurant in Denver in 2003. By 2006, the company had opened over 570 stores in 26 states and 8 franchise restaurants. Though Chipotle is not very well-developed internationally, 7 years after opening its first store, it opened its first international store in London in 2010. By 2014, it was operating 1755 stores, 7 in Canada and multiple internationally. That that number is still growing. By early 2016, it had 2020 stores and it is still growing (30). In

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2012, average store sales were 2.5 million annually. In 2013 it had revenues of 3.2 billion. In 2014, it had revenues of 4.1 billion (31). That is a 28% increase. That is a huge increase in revenue and it is mainly because it does a well job in branding itself and provides healthy, organic, fresh food for its customers. Its fast growth is definitely a huge strength for Chipotle. Weaknesses Limited items on menu All chipotle offers is a menu of burritos, salads, and burrito bowls. Unlike its competitors, Panera and Qdoba. Panera offers a wider range of food items than chipotle. Panera is known for its bread and soups, but it offers more than that. It offers a wide range of pastries, sweets, bagels, spreads, cheese, salads, broth bowls, pasta, sandwiches, and drinks (33). Chipotle needs to try to differentiate a little more. For some, this can be a turn off for chipotle. They want to see selection. Qdoba offers more than just burritos and bowls; it offers nachos, special quesadillas, chips and dip, and taco options (33). Even though Chipotle is trying to increase their menu size a little by adding quesadillas and tacos to the menu, they still need to add more like Qdoba does. Items such as nachos and different types of chips and dip. Higher food cost (compared to fast-food industry) Some of Chipotle’s competitors are McDonald’s, Burger King, Taco Bell, and KFC. Their average food cost is lower than Chipotle’s food cost. As a result, Chipotle does lose some of its customers because of that. Chipotle’s food, beverage, and packaging cost has been increasing (30). For the food, it is because there is inflation on a lot of it such as the beef, avocado, and dairy. This is one of the reasons why Chipotle’s average cost is higher than a lot of fast-food chains. Since the food is organic and the produce is fresh and local, it results in a higher food cost which some customers are not willing to pay but as years go on, people, mostly the millennials, are more health conscious. Since people are more health conscious, they are willing to pay a bit more for their food. Still though, the high food cost can negatively impact customer traffic in the restaurants and affect their future sales (30). Not Globally Developed A major weakness for Chipotle is that it is not globally developed. Most of Chipotle’s restaurants are in the U.S. They do have a couple of stores in Canada and parts of Europe, but not enough;

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unlike some fast-food restaurants that they are globally developed and bring in a lot of revenue internationally (30). Opportunities: International Expansion Chipotle has done a great job expanding inside the United States, but they can improve on expanding internationally. Chipotle opened its first international store in 2010, but since then they did not open many more. Currently, Chipotle has 6 restaurants in England, 3 in France, and one in Germany (30). I believe that with full international expansion, Chipotle can double its revenue, but yes, it is not as easy as it sounds. They do need the resources to do so. In certain places, it would hard to keep local produce coming in and keep the motto about healthy food. It would be harder to maintain what it established here in the U.S. In Europe, restaurants and cafés are the largest segment of the restaurant industry. If they are able to establish a supply chain outside the United States, they should support it and expand internationally, as it would increase their brand recognition and revenues. Growing Industry With Millennials still growing and still a huge part of consumers, the fast casual industry is still a growing industry. This gives a great opportunity for Chipotle to continue to prosper and increase its revenues and brand recognition. The reason the fast causal industry is still growing is because the economy is growing. If the economy was declining, people would not be as health conscious as they are now and would settle for the fast-food industry. Instead, the U.S. economy is growing and people are becoming more and more health conscious and eating healthier. As a result of the economic growth, Chipotle will continue to prosper and improve its overall sales. Burger Chain- “Best Burger” In March 2016, Chipotle filed for a trademark under “Best Burger”. As a way of expanding and increasing their sales and brand, Chipotle plans to open a burger chain restaurant called “Best

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Burger”. They are doing this as a way to compete with burger joints such as Five Guys, Shake Shack, and more. They are also doing this as a way to bring their sales back up since they had their worst quarterly performance as a publicly traded company (29). They are hoping this idea can bring back sales since net income fell 44% to 67.9 million (29). Chipotle did not say much about their plan except that they are opening this burger chain restaurant. As an overall idea of the industry, burger chain restaurants generated about $73 billion in sales in 2014, according to trade publication burger business (29). Also, burger joints account for 7.4% of all U.S. restaurants internationally and Chipotle plans to get in on that action to increase in size. Threats: Rise of Competition Since this industry is still a growing industry, a lot of competition will be rising. The competition in the fast casual industry is fierce. In order to prosper in this industry, restaurants need to attract customers in taste, food quality, presentation, service, location, and price. Yes, people are willing to pay a bit more to be health conscious, but they are not willing to pay a lot. Therefore, prices cannot be too high. Restaurants do not have to be a multi-billion dollar companies in order to compete with Chipotle. For example, any locally-owned restaurants, national restaurants, or regional restaurants can compete with chipotle (30). Any business is taking away from Chipotle’s. The company’s main competitors are Panera, Qdoba and Moe’s. If Moe’s and Qdoba become more and more popular, that will definitely hinder Chipotle’s revenues and sales. It is going to be a threat to them. Increase in labor cost Due to the increase in labor cost, Chipotle will have to change some of its operations or increase their prices to avoid their profit taking another hit. Increase in food safety regulations There are many of food safety regulations that Chipotle has to go through and that is expensive to maintain. With the E. Coli outbreak, Chipotle lost a lot of business. Their sales fell more than 15% (31). With two outbreaks, one in 2015, Chipotle has to pay a lot of fines to settle these law suits. All that takes away from their gross profit and hinder their future brand.

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WORK’S CITED PAGE

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12. Gomez, Amanda. "How Will Chipotle (CMG) Stock React to Q1 Earnings Next Week?" TheStreet. N.p., 22 Apr. 2016. Web. 22 Apr. 2016. <http://www.thestreet.com/story/13541403/1/how-will-chipotle-cmg-stock-react-to-q1-earnings-next-week.html>.

13. "Chipotle Mexican Grill--US Case Study." The Global Study of Business, n.d. Web. 19 Apr. 2016. <https://www.gs1us.org/DesktopModules/Bring2mind/DMX/Download.aspx?command=core_download&entryid=1306&language=en-US&PortalId=0&TabId=785>.

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14. "Multistate Outbreaks of Shiga Toxin-producing Escherichia Coli O26 Infections Linked to Chipotle Mexican Grill Restaurants" Centers for Disease Control and Prevention. Centers for Disease Control and Prevention, 01 Feb. 2016. Web. 20 Apr. 2016. <http://www.cdc.gov/ecoli/2015/o26-11-15/>.

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Julio’s Citations 16. 2016 Restaurant Industry Forecast." National Restaurant Association. N.p., n.d. Web.

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21. Allen, Aaron. "10 Trends Reshaping the Restaurant Industry." 10 Trends Reshaping the Restaurant Industry Comments. N.p., 23 July 2015. Web. 19 Apr. 2016. <http://aaronallen.com/blog/10-trends-reshaping-the-restaurant-industry>.

Matthew’s Citations 22. Where Chipotle Leads, Fast Casual Follows

Ugolik, Kaitlin. "Where Chipotle Leads, Fast Casual Follows." Institutional Investor May 5, 2015 ProQuest. Web. 24 Apr. 2016. <http://predator.oldwestbury.edu:2048/login?url=http://predator.oldwestbury.edu:2157/docview/1686341116?accountid=29096>

23. Forbes: Fast Casual Throwdown: Panera vs Chipotle Williams, Grace L. "Fast Casual Showdown : Panera vs. Chipotle." Forbes. Forbes Magazine, 10 Jan. 2016. Web. 24 Apr. 2016. <http://www.forbes.com/sites/gracelwilliams/2016/01/10/fast-casual-throwdown-panera-vs-chipotle/#251e51014162>. 24. Hoover’s: Panera Bread Company Revenue and Financial Data Panera Bread Company Revenue and Financial Data." Hoover's. Hoover's, 12 Feb. 2016. Web. 24 Apr. 2016. <http://www.hoovers.com/company-Information/cs/revenuefinancial.Panera_ Bread_Company.59b82960f75a0c07.html>.

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