Develop a TOWS Matrix ——–7 Chipotle Mexican Grill, Inc.: Conscious Capitalism by Serving “Food With Integrity”
Alan N. Hoffman
Bentley University
The author thanks Barbara Gottfried and Bentley University BMBA students Suman Akkinepally, Thomas Daly, Qing He, Donald Khoury, Mena Mahaniah, Craig Richey and Elisaveta Tsvetkova for their research and contributions to this case. Please address all correspondence to: Dr. Alan N. Hoffman, Dept. of Management, Bentley University, 175 Forest Street, Waltham, MA 02452-4705, ahoffman@bentley.edu, (781) 891-2287. Printed by permission of Dr. Alan N. Hoffman.
Background
Founded by Steve Ells in 1993, Chipotle Mexican Grill, Inc. (CMG or “Chipotle”) quickly became one of the fastest growing restaurant chains in history. A pioneer in the fast-casual segment of the restaurant market, Chipotle focused on changing the way food was processed and delivered to consumers by the restaurant industry.1 Over the course of 21 years, Chipotle grew to over 1600 restaurants in the United States and 11 internationally. The first restaurant opened its doors in Denver in a renovated Dolly Madison ice cream shop. In 1995, the company added a second and third shop in Denver and eventually expanded to sixteen restaurants in 1998.
Through luck and hard work, Chipotle attracted the attention of MacDonald’s Corporation whose investment of $350 million plus expertise in processes, systems, and real estate allowed Chipotle to grow to over 500 restaurants by 2006. Chipotle filed its initial public offering (IPO) that same year. In 2007, McDonald’s divested itself of Chipotle, resulting in an impressive return of $1.5 billion on its original investment. However, McDonald’s then missed out on CMG’s huge growth in share price after the divestiture.2
Beginning in 2000, Steve Ells made a concerted effort to serve consumers “food with integrity” utilizing a sustainable and responsible approach to ingredient sourcing, production, and service. For example, CMG began serving naturally raised pork in some of its stores, highlighting the company’s commitment to transparency. By 2010, all of the pork served in Chipotle restaurants was naturally raised. In 2002, CMG began serving naturally raised chicken. By 2014 the company sourced 100% of its chicken product from farms that met that standard. And as of 2007, 100% of its beef was naturally raised and 40% of its black beans were organically grown. In 2009, Steve Ells testified before Congress about ways to try to eliminate antibiotics completely from farming.3
Chipotle’s brand power, customer engagement, and loyalty was evident in 2000 when CMG began to serve naturally raised pork in its burritos. The company was forced to raise the price of its carnitas filling by one dollar, but was rewarded for its efforts rather than punished: sales rose rather than fell, fueling Chipotle’s faith that customers would buy responsibly raised food and even pay a premium price for it.4
Strategic Direction
According to the company’s website, “Chipotle’s mission is to change the way people think about and eat fast food.”5 Its vision was to serve delicious food made with fresh ingredients from sustainable resources, and sell it for a reasonable price. All elements of Chipotle’s strategic direction were closely aligned and revolved around its flagship program, “Food with Integrity,” defined as finding the very best raw ingredients raised in a sustainable way with respect for the animals, the environment, and the farmers who produced the food.6 Chipotle made a particular effort to use animals raised in a humane way, such that the animals had not been treated with antibiotics or hormones that cause rapid or unnatural growth. It was CMG’s firm belief that natural and high-quality ingredients, freshly prepared, resulted in better tasting food as well as better “politics.”7
Conscious Capitalism: A Higher Purpose
The company’s “Food with Integrity” program meant that its supply chain and corporate culture were closely integrated from the time that raw materials (ingredients) were farmed, raised, harvested, and shipped to stores to the time a burrito (the final product) was placed on a customer’s serving tray. Chipotle believed that its appeal to its socially responsible customers only deepened as those customers became more aware of the sustainable way Chipotle sourced its ingredients.8 Unlike its competitors, all of CMG’s restaurants were company-owned and supplied by Chipotle’s independently owned and operated distribution centers whose suppliers were evaluated on the quality of what they provided and their understanding and empathy with the company’s mission.
The Chipotle Business Model: Redefining “Fast Food”
As with any number of other fast-food restaurants, Chipotle’s business model was “a few things a thousand ways.” Its menu was designed to offer a relatively limited number of menu items (burritos, burrito bowls, tacos, and salads), but with a large variety of extras such as beans, salads, and guacamole such that through extensive recombination of ingredients, customers could create unique and exciting food selections each time they visited, enhancing their overall Chipotle experience.
Even though Chipotle used classic cooking methods with stovetops for heating, knives for chopping, and vessels for mixing, its food was served to customers extremely fast. Its assembly line was seen as one of the most efficient in the business, and unlike competitors such as Starbucks, it didn’t take very long for customers to order food and be served. Chipotle saw this customer-oriented culture as key to its success.
Finally, the company made quality assurance and food safety integral to its supply chain.9 To maintain quality, Chipotle invested heavily in its staff. In many cases, the company mentored future leaders internally, fostering continuity amongst its management team to sustain its explosive growth.10 Assuring quality and food safety promoted customer loyalty and ongoing engagement.
Ultimately, Chipotle’s main objective was profitability achieved through staff and operational efficiencies designed to offset the higher than average cost of its organic ingredients.
Sustainability
CMG’s goal was to deliver delicious fast food in a way that was transparent, safe for the environment, and responsible to the animals slaughtered for meat11 so as to build a reputation as an organization which did not simply pay lip service to the tenets of sustainability, but lived up to those tenets. As the demand for sustainable products grew and became more competitive, Chipotle worked to foster strong relationships with its supply chain to secure and expand its supply of high-quality, natural, organic, and local ingredients. Beginning in 2008, the company embarked on a program to increase local sourcing to 35%. “This seasonable produce program was meant to cut down on fossil fuels used to transport produce, give local family farms a boost and improve the taste of the food served to customers by using ingredients during their peak season.”12 In addition, the company refined its cooking techniques to continually offer customers the very best food possible.
Chipotle followed a similarly innovative path in the way it designed and built its restaurants, looking for more environmentally friendly building materials and systems that made its restaurants more efficient13 In 2009, the company announced that it had partnered with a renewable energy company to install solar energy systems in Chipotle restaurants across the country, making Chipotle the largest producer and user of solar energy in the restaurant industry.14
Competitors
The National Restaurant Association projected total U.S. restaurant sales would hit a record high of $683.4 billion in 2014. Chipotle captured $3.3 billion of total sales revenue in 2013.15 The industry was divided into three large segments:
Full Service
Quick Service
Fast-Casual
Fast-casual restaurants were seen by consumers as offering a slightly higher quality food, service, and atmosphere than quick-service restaurants, and quickly became the fastest growing segment of the restaurant industry: expanding from 4% growth in sales in 2009 to 9% growth in sales in 2012 and 8% in 2013.16 According to The NPD Group, fast-casual restaurants had the highest traffic growth in 2013 among all restaurant segments (Exhibit 1),17 evidence of the strength of this segment of the business. “The fast-casual segment always does better than the rest of the industry because it’s a
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