Chipotle

Mexican Grille

What went wrong? Where are we now? Where do we want to go?

 Industry/Company Overview
- Industry = fast casual dining restaurant
- Company history
- First restaurant opened in 1993
- Mission = Food With Integrity
- 2005 = large year for growth ⇒ 1,000 new stores
- Today = gaining footing

“Goal from the beginning = Offer a simple menu of great

food prepared fresh each day, using many of the same
cooking techniques as gourmet restaurants. Then serve the
food quickly.”

- Fresh = X
- Cooking techniques = X
- Great food = Up to you
Analytic Techniques
PESTEL analysis for Chipotle completed by the class:
Political
- Changes in tax regulations during the
Government of Trump
- Difficulties sourcing foreign workers,
ingredients, and any sort of equipment used in
the food process
Economic
- 100 shares in 2006 = $2,200
- 2015 = $75,500 (before)
- Stock = $400 (after)
- High profile E. coli outbreak
- $26.4 million quarterly loss
- About ⅓ of restaurant sales
decreased
- Stock sank by 30%
Social
- The July 2017 norovirus outbreak sent shares
tumbling yet again, about 8% (erased their gain
for the year at the time)
- Chipotle has been in the news a number of
times for illnesses within the past year or two,
this itself is enough to turn consumers away
- Social media can either help or hurt when it
comes to marketing, and Chipotle’s marketing
strategies across social platforms have been
masked by the negative news surrounding the
brand
Technological
- New methods/machines used (taking away the “freshness” with
tech.)
- HHP = sterilizes food by blasting it with 87,000 lbs of
water pressure for 3 min
- Small computers monitors each worker’s meat yield
- Some ingredients that had once been prepared in stores (like
vegetables) were now moved to central kitchens
- Hurt morale (not distinguishing themselves)
Environmental
- Ethical and make ethical rights when it comes to how they
source and obtain the product and produce that goes into the
food they make.
- Example of this would be the cows they get milk from to source
the dairy products
- Additionally they believe in reusable and ethical in the way they
treat the environment
Legal
- In Spring 2017, a malware attack struck Chipotle’s point-of-sale
technology, leaving customers with stolen credit card numbers
- Due to the E.Coli outbreak Chipotle is under constant
supervision of the Centers for Disease Control and Prevention &
the Food and Drug Administration
Analytic Strengths
Techniques
- Their ingredients ( from sustainable
sources, as well as being GMO and
hormone free)
- Marketing Strategy
- Rapid growth since they went public, from
500 to more than 2000 restaurants
- Internal promotions system (restaurateur
program)
- High pricing draws in the consumer group
willing to pay for more expensive food
- Very important brand
Opportunities
- They hope to open a lot of stores within the
next year
- They are a fast casual restaurant which
makes them unique as it is becoming the
popular thing for millenials
- International expansion
- Potential cheaper options to lure in a new,
different consumer group
- Continuous effort to regain previously lost
customers due to E. Coli outbreak
Weaknesses
- Their ingredients (E. Coli Outbreak)
- Food safety training
- Publicity surrounding the outbreak
- Their fresh products policy increased the
risk of foodborne-illness outbreaks
- Fans lose faith in food safety
- Possible difficulties sourcing fresh, specific
ingredients
- Limited menu items
Threats
- The sources of the ingredients and the
practices in the way they are prepared
(Food Safety)
- Food safety lapses are always a concern for
restaurants
- Large number of competitors, which have
been consolidated in the fast food market
for many years
- Unforeseen political issues with foreign
sourcing
Financial Analysis
- Chipotle saw significant
drops in Revenue from
year to year after all of
the issues they faced
- Along with the drops in
revenue they had
increases in expenses
Financial Analysis
Causes For Increased Expenses:

- Sales Deleveraging
- Increased Marketing Efforts to
Regain Customers
- New food safety procedures

(Deleverage- paying off debts)

Can Chipotle save themselves from

where they are?
4th Quarter 2017 VS. 4th Quarter 2016
- Revenue increased 7.3% to 1.1 Billion
- Comparable restaurant sales increased 0.9% for the quarter
- Restaurant level operating margin was 14.9%, an increase from 13.5%
- Net income was $43.8 million, an increase from $16.0 million
- Earnings per share was $1.55, including a benefit of $0.21 per share
resulting from changes in the US tax law, compared to $0.55 in the 4th
quarter of 2016
- Opened 38 new restaurants
Financial changes from 2016 to 2017
● Revenue increased 14.7% to $4.5 billion
● Comparable restaurant sales increased 6.4%
● Restaurant level operating margin was 16.9%, an increase from 12.8%
● Net income was $176.3 million, an increase from net income of $22.9
million
● Diluted earnings per share was $6.17, including a benefit of $0.21 per
share resulting from changes in U.S. tax law, compared to $0.77 in 2016
● Opened 183 new restaurants and closed or relocated 25
Panera Comparison
- Revenue is sometimes
deceiving to success
- Panera has a better
operating Margin
- Panera has a 100 million
dollar less SG&A Expense
- Panera’s Net Income is
much higher
Marketing Analysis
Product Review

Burritos Different ingredients

● 4 products Tacos
you can choose
Bowls
Salads More than 65,000
combinations
● Burritos are assembled by order

● Strong importance of both quality and freshness of their ingredients

○ Use of responsibly raised meat
○ Differentiation from the products of the fast food competitors

● Lack of new menu items introduction

○ Chorizo → introduced in 2016 and ruled out in 2017
○ Queso
Marketing Strategy (Before Outbreak)
● Previous methods

○ 2009 Mark Crumpacker

○ Food Ethics (packaging, music, food, ideas)

○ Unique, set apart from typical fast food (creative, ethically conscious aura)

○ Able to charge more (for better quality), began the fast-casual trend

■ Spent 1.5% of spending on marketing ($69 mill.)

● Mcdonalds (2.9%)

● Message oriented
Marketing Strategy (After Outbreak)
● Current Main Goal (3 main objectives)
○ Regain previously lost customers & gain new consumers (perhaps different segmented group)
○ Issues: Narrow options, can’t offer cheaper & cheaper discounts for incentives (counteract high costs)
○ Methods of marketing: 5.1% (increased), 2017 expected to decrease again (can have adverse effects, will increase
later if needed)
■ Directing mailing to previously loyal customers
● 20 mill homes, free meals & $50 off catering orders 20 burritos or more
● Aimed to “community,” not “Individual”
■ Westworld Fairground Scottsdale, AZ
● Anti gmo, family friendly, home cooking promo event
● Building brands culture
● “Family Farmed” “Locally Grown”
Current Marketing Dilemma & Solutions
● New Marketing Benefits Altogether

○ Complexity with previous “home cooking” campaign

○ Foods = 3x washed, pre-cooked, pasteurized

■ Risk safety for sake of home cooking?

○ More focused on family farmed, locally grown

○ New checklists and procedures added

■ “Black Book”

● personal hyg. temperature logs, workstation, sanitation, disposing of items immediately

■ Off-site cleaning

● High-hydrostatic pressure (water blasts for 3 minutes

Main Competition’s Tactics
● Red Robin
○ Traditional eats, burgers, etc.
○ mobile, social media, app platform
■ “Let’s Burger”
● Panera Bread
○ “our food is clean”
■ Removal of artificial flavors, sweeteners, colors, preservatives
■ TV & billboards
Customer Overview ●
●
2015: 1.5% of sales on marketing
2016: 5.1% of sales on marketing

● Customers’ opinions of chipotle has dipped

to historic lows. Review scores have declined continuously

Lost of the customers’ trust

 55% of the customers only go to Chipotle
Why people eat less often in Chipotle? a couple of times a year

More than a half of Chipotle’s customers

are not actually loyal

If Chipotle did not discover what caused the

E-Coli outbreak, how can they solved it
completely?
Industry trends and opportunities
● U.S. industry is highly fragmented
○ Huge number of competitors
○ The 50 largest companies account for about 20% of revenue

● Fast food industry is expected to have an annual growth of 2.5% for the next several years
○ More opportunities to grow

● Fast casual dining growth

○ Sales at the 250 largest U.S. fast casual chains grew by about 8% in 2016
○ More competitors starting to focus on fast casual dining market

● Many fast-food chains rely on new menu items and product launches to attract new customers

● Expanding breakfast menus

● Delivery service
Marketing Issues
- Issue 1: Food & Illness
- Mission Statement = Food WIth Integrity ⇒ misleading?
- As Real As It Gets
- “We’re the only national restaurant brand that preserves our food with no added
flavors, colors, or preservatives.”
- 2013 and 2014 annual reports = foreshadowing?
- Marketing Mix: Product
- Sales & Earnings
- Illness = loss of customers= decreased business = spending to get people back in stores
- Marketing Mix: Price & Promotion
- Reputation
- Tarnished name
- Losing touch with core values/mission statement
- Marketing Mix: Place & Process
 Marketing Issues - Food
- Commitment to fresh
- Product ⇒ Fresh in stores or sent
- Reputation from afar?
- Freshness and “Food With Integrity” - As real as it gets
- Process ⇒ Is it safe? - Ex: Beef
- Get past the past
 To
Chipotle

Farm
Need to emphasize the
process and attention that is
placed on getting a healthy
product from point A to point B
Recommendations
Loyalty Programs (PROMOTION)
- This is a great way to get current customers to
keep on coming.
- Chipotle customers are very loyal and with an
incentivized program then
Reduce the idea of expansion (PLACE)
Evaluate current employees and bring in new
management and food safety specialists (People)
Adjust menu, and offer different sizes at different
price points (Price)
Reevaluate current supply chains and make sure not
only the farms are using proper practices, but the
distributors and food handlers
- Introduce new menu options
Ex, Chic Fil A, Panera Bread, Starbucks
- In turn this will increase customer counts again
Refrain from expansion and concentrate on gaining
back potential customer loyalty
Evaluate and try to establish better grounds of work
then what we have heard in the past with chipotle.
- Chipotle recently raised its prices after the
food outbreaks which could have even more
negative effects
- Chipotle’s food outbreak issue can occur on
any of the distribution levels
Ex. Chipotle offered a new Queso and is has not been
well received. It went viral on the internet for being so
bad
Where do we want to go, and how will we get
there?
-Ultimately, the goal is get financials, as well as customer loyalty, to previous statuses

-Increase customer count

-Introduce loyalty program with incentives for customers

-Ensure consistency across restaurants and regions

-If something goes wrong at a few locations, word of mouth spreads and many other
locations are impacted

-Improve training programs

-Attract target market with new, exciting changes

Strategies for Attracting Customers
-New Menu Items

-Queso has been launched

-New CEO (Brian Niccol, previous Taco Bell CEO) is bringing changes to the
business, as well as new menu item considerations

-nachos, salads with different kinds of grains, breakfast burritos, and

alcohol options at more locations

-Cheaper menu items

-When people are not willing to pay, the price needs to come down

-Different social media strategies

-Niccols believes that Taco Bell’s success on social media is due to consistently
switching up their strategy, which is something he will be bringing to Chipotle
Quality Control
-Work on product sourcing/ standards

-local sourcing adds complexity, increases risk and

fragments the supply chain

-When utilizing local sourcing, it is important to

integrate a higher percentage of sales allowance for food
safety and ingredient testing than if you are sourcing
nationally from a few big suppliers

-Revamped training programs

-Chipotle recently announced they will be putting

more than ⅓ of their anticipated savings due to recent
tax laws to improvement of restaurants and operations
Cites Used
○ https://www.mobilemarketer.com/ex/mobilemarketer/cms/news/social-networks/23822.html

○ http://adage.com/article/cmo-strategy/panera-bread-cleans-act/307387/

○ https://www.merriam-webster.com/dictionary/recommendation

○ http://www.businessinsider.com/chipotle-taco-bells-ceo-changes-2018-2#adding-more-alcohol-to-the-menu-7

○ http://subscriber.hoovers.com/H/company360/overview.html?companyId=106335000000000

○ http://www.businessinsider.com/chipotle-customer-ratings-plunge-to-historic-lows-2018-2

○ https://www.fastcompany.com/3064068/chipotle-eats-itself

○ https://www.forbes.com/sites/deeppatel/2017/08/26/food-leaders-take-notice-how-millennials-are-changing-the-way-we-eat/#5c677178717

○ https://www.businesswire.com/news/home/20180206006270/en/

○ https://www.prnewswire.com/news-releases/chipotle-announces-bonuses-new-training-programs-and-expanded-parental-leave-for-emplo

yees-300594727.html

○ https://hbr.org/2016/06/why-sourcing-local-food-is-so-hard-for-restaurants

○ https://www.cnbc.com/2017/02/02/heres-chipotles-plan-to-win-customers-back-this-year.html