Executive Summary

Chipotle a fast food service restaurant has been in business 22 years, the company now has over
1700 locations and continues to grow steadily with strong return in revenue. It has set itself apart
by providing Genetically Modified Organism (GMO) free menu. Even with a limited menu and
price increase, it still is popular with its customers. It continues to provide fast and effective
service at their restaurants with some of the highest quality control in the market today.

SWOT Analysis
Strengths

One of the biggest strength Chipotle has the ingredients it uses. Chipotle has been
striving for the past few years to step away from GMO products and meats raised with
hormones. Chipotle has finally reached its goal of serving 100% GMO free food and now
serve meats free of hormones this goes hand in hand with their slogan of Food with
integrity.

Chipotle has been expanding at and average of 50 new restaurants reach quarter. It
currently has over 1700 restaurants locations in the United States alone. This large
number of locations works in their favor.

Over the past 22 years Chipotle has been establishing themselves as a brand to reckon
with. It has done this by extensively expanding and providing natural ingredients for their
burritos this has established a strong band presence.

Chipotle strives to build environmentally friendly buildings arching their first LEEDS
platinum certification in 2009. That is the highest rating a building can receive for being

green. Some of the ways the have implemented the environmentally friendly building is
by using led lighting. Water saving faucets and toilets, having rainwater reservoirs.

Weakness

The biggest weakness Chipotle has is price. It items on the menu are not cheap, with that
in mind it still hasnt deterred customers away because it offers a premium product hence
charging a premium price.

Its limited menu choice can also be considered a weakness, however this has been done
strategically to keep the quality of their product top notch and no fluster it with
unnecessary menu items.

Chipotles major presence is only in North America, although it has a few locations in
Europe it has not taken full advantage of other potential markets.

Opportunities

Further expansion in Europe, while this is an opportunity for them, Chipotle is currently
focusing its endeavor on expanding in the U.S currently opening and average of 50 new
restaurants each quarter.

Addition of new items to menu, this is something it is already tapping into, adding more
items to the menu. The company recently added margaritas to some of their restaurants.

Threats

Competition from its competitors, there are many fast food service restaurants and this
leaves their potential customers with many options to chose from. Many of which are
much cheaper options too.

Price volatility of raw materials, because it depends on its farmers to provide the
materials it needs, if there is bad weather that will affect the production of the crops
hence driving prices up

Strategy
Chipotle uses its product differentiation strategy; it has perfected the burrito experience and is
always looking for ways to improve on its product. Since inception it has become GMO free and
provides some of the healthiest burritos on the market. The company has followed the trend of
people wanting to be healthier and incorporated it into their culture. The company also has a
close relationship with its suppliers and demand they meet their strict standards before they
supply their raw materials. Chipotles effort to support local farmers has improved over that past
few years, and it sources raw materials from local farmers whenever in season. The advantage of
its approach is that they have set themselves apart from the competition by providing a very
unique product. The only problem with this is, because of the kind of materials they use, the cost
of its burrito is higher than the competition.
Almost all their competitors have chosen the cost leadership strategy; for example, you can get a
burger for $1 off the McDonalds menu. The advantage of this is it will get more customers who
are price conscious. The disadvantage is it will lose customers who are health conscious.

Porters Five Forces

Threat of New Entrants
The cost alone to try and enter the fast food market is very high. Let us look at McDonalds
franchise for example; one would need upwards of a million dollars just to get in. Chipotle is not

a franchise but it has a large market share currently at over 1700 store locations at a 12% market
share. It would cost a fortune to even try and compete with them. Also because the company
took an old school burrito and reinvented it, it has a strict following. Other companies like
Moes have entered the burrito market but still cant command the presence Chipotle has.
Chipotle currently does not franchise its business, because of these factors threat of new entrants
would be rated Low.

Threat of Substitute Products

This would be rated High, there are so many other fast food restaurants in the market.
McDonald's being one of them, the sheer number of locations that McDonald's has and their
proximity to Chipotle makes them a strong competitor. McDonald's also has a larger selection of
menu items than Chipotle has. Taking price into consideration, if you dont have more than $5
you can still eat off the value menu at McDonalds. However the substitutes dont impact
Chipotles bottom line that much, Chipotles has set itself apart with the kind of burrito it sells.
Their customers go there specifically for the difference in their product.

Bargaining Power of Buyers

Recently there has been a GMO craze, a lot of restaurants are being pressured to disclose if their
food is GMO or not. Only two years ago Chipotle was still serving food with GMO ingredients,
the company did in fact disclose that some of their ingredients do have GMOs. Since then
Chipotle has gone GMO free and only serves antibiotic free and no growth hormone food.
Chipotle also partners with a lot of local farmers. Chipotles prices are not the cheapest; in fact it
has raised its prices about twice in the last two years. Its customers expect a certain level of

quality to be delivered and with that, come a price. The company prides itself in providing a
product that is a higher quality than its competitors this will leads to a Low rating.

Bargaining Power of Suppliers

I shall rate this Low, the company is known for its wholesome ingredients and since going GMO
free it strives to keep its food as wholesome as possible. Chipotles has strict rules by which it
sources its ingredients. If it is not up to their standards they simply wont work with you. The
company completely took carnitas off its menu because the farmer it was using did not meet their
standards. The removal of carnitas off the menu has affected their profit margin, but it would
rather make less profit than have a product that does not meet its standards.

Intensity of Competitive Rivalry

This gets a Moderate rating, on T.V and radio we are constantly bombarded with Im loving it
commercials, Jack in the Box, Whataburger. Although there are many competitors I dont
consider them direct competitors of Chipotle, this is because it serves a specific burrito that you
can only find at Chipotle and no where else. Unlike McDonalds you can go to Water burger and
still get a hamburger and it will be relatively similar to the McDonalds one.

Value Chain Analysis

Inbound Logistics
Since Chipotles uses fresh ingredients every day. Their inventory is 1.7 days or less. This ensures
fresh product being used daily. It makes sure it has enough products for one day and may only

keep product back up for one day. When you compare Chipotles inventory turnover to
McDonalds there is a big difference, its inventory turn over is 2.4 days, and this is because
almost all of McDonalds menu is frozen food. Chipotle creates value by providing the freshest
ingredients to their customers this makes them superior over the competition.

Operations
The competition is superior in this case because it works faster than Chipotle does. Chipotle is
not a traditional fast food restaurant but more casual dinning. Its main focus is not to be the
fastest but instead to provide the freshest ingredients. This stage does not add value to their
company.
Outbound Logistics
Since Chipotle is a fast service restaurant and burritos are built at time of order. It doesnt have a
distribution center. This step does not add any value to the company.

Marketing & Sales

Chipotle lives of the fact it is a strong recognizable brand. It does not do any advertising on TV;
you will only find them on social media. Instead it leverages the power of social media; recently
during Halloween season it was offering $3 burritos for anyone who came into the restaurants
dressed in their costumes. This wasnt plastered any where on T.V but was spread all over social
media. Some of the ways it has been successful at charging high prices is one, it genuinely has
fresh ingredients and two, and its ingredients are GMO free. McDonalds on the other hand
spends more than $900 million on advertising compared to chipotles $6 million, yet Chipotle

charges premium prices. It also very heavily uses TV advertisements. This will rate Chipotle at a
superior level, it is able to advertise using minimal amounts of money and still get customers.

Service
The employees at the service line are trained to move fast but as efficiently as possible. There is
always a manager behind the line to make sure if there is any addition service the customer needs
he can cater to their needs with out the service line members turning their back on the customer.
Similarly to Chipotle McDonalds also churns out product very fast, but not necessarily as
efficient at possible, this is because at Chipotle you watch your order being made and can tell
when what exactly to or not to put on your burrito. This adds value because you will get the
freshest ingredients in your burrito and the customers are part of the quality control since they
watch their food being prepared.

Firm Infrastructure
Chipotle has been working steadily to become a debt free company. Two years ago it finally
achieved that goal. It does not pay a dividend to their stockholders. Profits are reinvested back
into the company this is seen through the expansion of the restaurants. McDonalds on the other
hand has over $17 million debt, the do however pay dividends to their shareholders.
The company finds ways of giving back to the community by having fundraisers at their
restaurants. Their give back revolves around sustainable gardening and is geared towards K-12
schools, university groups and youth community groups. It donates 50% of its sales to those
groups. McDonalds give back by investing in local charities and youth sports. This will be
equivalent to Chipotle. This adds value by being a recognizable brand, a lot of people want to be

associated with a company that gives back to the community, and so keeping their name in the
public keeps the customers aware of what its doing.

Human Resource Management

The company employs a clear career advancement and payment structure that is shared with
company employees. If employees want to move up the career ladder they know exactly how to
do it and what steps they have to go through in order to get to where they want to be.
The company is big at promoting from within, instead of recruiting top management from top
college MBA programs it choses to promote from within. You dont necessarily have to have a
college degree to make six figures at Chipotle. 60% of McDonalds employees are 20 or under,
meaning that this is a first job for most. Half of the current managers are recruited from within
the other half are recruited from colleges. This is a superior rating because Chipotles values
company experience over a college education, and gives their employees the option to advance
further into the company than most companies offer. This adds value to the company because
Chipotle knows it can keep their employees longer and reduces the employee turnover rate.

Technology Development
Chipotles allows you to place your order online through their website or through their mobile
app. The use of the mobile app has made it easier to play orders for pick up. It has also been a
way to eliminate the wait them for a customer standing inline. A customer is able to place and
order and its ready for pick up at the store when they get there. Last year Chipotle was working
on streamlining the payment method through its app to make it easier for their customers to pay.
McDonalds does not allow you to make orders online or through their up, their order making is

strictly done through walk in or drive through. This would make Chipotle superior in this area.
The convenience of having multiple avenues to place your orders adds value because it makes it
convenient for the customer to suit their specific needs and cuts waiting time.

Procurement
Chipotle works closely with its suppliers, but before you even make it to the chipotle supplier
list, you have to be able to pass their screening process. Since Chipotle is a GMO free company,
its suppliers have to adhere to strict guidelines. Its meat has to be raised in natural setting as
possible free from antibiotics and hormones. The company also strives to support local farms and
sources products from them when ever possible. While McDonalds sources its products from
anyone who is able to do the bare minimum, meaning it is not picky about where their animals
are raised or if they used growth hormones on them, Ill rate Chipotle superior because its focus
is providing wholesome ingredients free of additional hormones and antibiotics. This is probably
the biggest value add to the company, because it is what the company is made of, fresh
ingredients, GMO free and sustainably raised meat. Most of their customers go to Chipotle
because of their food with integrity campaign.

Financial Analysis
Over the past few years Chipotle has been striving to be a debt free company. Two years ago it
hit its goal of being totally debt free. It has a strong current ratio at 3.6; because it has no debt it
heavily reinvests profits back into the company by expanding into new regions. Having no
interest payments also increases its profit margin. When you compare McDonalds to Chipotle,
although it is able to cover its debt with a current ration of 1.5 it is still a very debt heavy

company with a debt to equity ratio of 116.70%, having all this debt reduces its profit margin.
The market values Chipotle higher than McDonalds, strong evidence of this can be seen by their
stock price. Chipotle rings in almost at $600 per share and McDonalds at about $110 per share.
Over the next few years McDonalds is scheduled to make a decline in revenue with Chipotle
steady growing revenue.

Recommendations
There are a few recommendations that Chipotle can apply to their restaurants, one, is to do
nothing. It has completely changed the fast food service restaurant by providing a product that is
unique to only them. The company offers catering, works directly with their suppliers, and uses
green architecture. I mean it is well rounded when it comes to the strategy it has chosen, to be
different and sustainable. Secondly, Chipotles can consider having more promotional events,
recently when it had the $3 burrito event this increased revenue. It can have more promotional
events like this to help draw customers that are price conscious or it can provider a smaller
burrito for a cheaper price. Another strategy that it can implement is more expansion in European
countries, its competitors like McDonalds have been successful in the region and Chipotle might
be able to benefit from this expansion as well.

APPENDIX
Chipotle

Chipotle

McDonalds

McDonalds

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