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External Factor Evaluation Matrix (EFE)

Eating Places Industry Chipotle Mexican Grill Inc. KEY EXTERNAL FACTORS Opportunities 1. Increasing Latin population .0.5 4 .20 WEIGHT RATING WEIGHTED SCORE

2. Advanced technology: Smartphones and internet 3. Growing health concerns

.10

.20

.10

.40

4. International expansion of the business .15

.15

Threats 1 Increasing food prices .20 2 .40

2 Hyper competitive industry

.15

.45

3 Government regulations

.05

.05

4 High unemployment rate TOTAL

.20 1.00

.40 2.25

External Factor Evaluation develops a finite list of opportunities to be explored, and threats to the firms future and evaluates their potential impact. EFE contains five different factors that help to evaluate the external environment of businesses and shows what strategies should be considered in order to survive competition. These factors are demographical, social and cultural factors; economic factors; political, legal, government factors; technological change; competitive forces.

Opportunities
Opportunity is the condition in the general environment that if exploited effectively, help a company achieve strategic competitiveness (Hitt, Ireland, & Hoskisson, 2011). There are four factors that develop few opportunities for Chipotle Mexican Grill Inc.: economic factor, technological factor, and demographic factor and cultural factor.

Increasing Latin Population


Increasing Latino population is one of the interesting opportunities for Chipotle. Chipotle cuisine originally is Mexican, and it is preferred by both Hispanic and non-Hispanic segments of the population. By looking at the statistics of US Census Bureau, persons of Hispanic or Latino origin [represent] 16.3 of US population (Census, 2012). Nowadays, Latino population is one of the largest minority groups in the United States. According to the US population projections from 2005 to 2050, [it] will triple in size and will account for most of the nations population growth, [which] will make up 29% of the US population in 2050 (Passel & Cohn, 2008). Chipotle sees opportunity and responds to the Latino population expansion by representing

Spanish-speaking employees in every store. Therefore, bilingual employees are Chipotles assets that attract two major ethnicity groups in US: white and Hispanic.

Advanced technology: Smartphones and internet


Advanced technology that is in our everyday life is another opportunity for restaurant industry. For few past years, there has been noticeable change in the industry. There is a shift from physical line ordering to online ordering and delivery. With advanced smartphones and growing Internet usage, restaurants can utilize a tremendous opportunity in order to reach more customers and to boost companies revenues. By looking at the statistics, 65% of restaurant patrons surveyed have ordered a meal in the past 3 months on a smart phone (Nettles, 2011). Online ordering can help many customers to escape long lines during lunch hours by ordering food with usage computer or smartphone. However, Chipotles attempts to take over online ordering were not successful. In 2005, Chipotle enhanced online ordering system on its website (QSR, 2008). By looking at success of Iphone, Chipotle Mexican Grill Restaurant had released their IPhone appduring the second week of January, 2009 (Worldpress, 2009) However, the success of the application did not meet the expectations. New technological development and staff were having troubles processing, receiving and preparing orders due to undeveloped system and lack of training.

Growing health concerns


Nowadays, people are more concerned about their lifestyle, and with easy Internet access, they can read about benefits of organic food and detriments of conventional food. According to Organic Foodie magazine, sales for organic and ethical products in the US are rising more so

than sales for conventional products and consumers demand for those products is increasing despite the global economic downturn, according to a report published in October by Packaged Facts (Spevack, 2009).Therefore, many different restaurants make changes in menus by adding organic products and calories amount. For example, due to health concerns, McDonalds changes its image and tries to be healthier. McDonalds is working to draw back customers concerned about childrens health amid surging obesity rates. [It] will advertise its Happy Meals [with] the benefits of eating Happy Meal items such as apple slices and fat free chocolate milk (Patton, 2012). Restaurant industry is shifting towards healthier and lower calories products. Chipotle is known as healthy food provider due to the usage of organic products like pork, beef, chicken, sour cream and beans; however, it has to put more effort in developing.

International Expansion of the business


International expansion is one of the most important steps in any kind of business. By looking at emerging countries like Singapore, China, India and Brazil, many companies are attracted to go overseas and expend their business. Due to the size of population, China is the country that brings the most attention. China has the largest population in the world 1.3 billion, the most developed manufacturing system and very strict educational system (WorldBank, 2012). This strategic development helps country to rise quickly and attract new investors. For example, Wal-Mart is one of the companies that opened 284 stores in China and all of them were very successful (Latest Counts of Wal-Mart, 2010). In addition, Chinas Purchasing Power Parity is the second after the United States. India has the second largest population in the world and also attractive to investors. However, due to the Indian culture, Chipotle restaurants will not meet success as in China. A

2006 survey by the Hindu newspaper found that 40 percent of the population, or 399 million people, are vegetarians; whereas, in China, the percentage of vegetarians is almost negligible (Lifestyle). Due to religious believes, cow considered as saint animal; thus, beef will not be accepted. In addition, the Muslims are about 12% of India's population, but their influence on the Indian society was much stronger (Daniel, 2005). Islamic religion is the second-most practiced religion in India, which prohibits consuming pork. Therefore, China is the best choice for Chipotle to expend, because its food mostly based on variety of meets (grilled and spicy chicken, steak, carnitas and barbacoa) mixed with sauces (sour cream, salsa, tobasco) and vegetables (avocado, rice, beans, onions, pepper and corn). Until today internationally, Chipotle has stores only in Canada and England (Chipotle Mexican Grill Inc.). It did not take full advantage of opportunities to be international company. However, Chipotle has the latest plan to open Chipotle restaurant in China, which would follow Chipotle service format and its focus on food with integrity in ingredients (Chipotle Mexican Grill Inc.).

Threats
Threat is the condition in the general environment that may hinder a companys efforts to achieve strategic competitiveness (Hitt, Ireland, & Hoskisson, 2011). There are 3 factors that develop threat for Chipotle Mexican Grill Inc.: two are economic factors and one government factor.

Increasing food prices


Chipotles suppliers are not as limited and powerless as regular suppliers for restaurant industry because of the organic products. Suppliers that provide organic food have ability to

increase the prices due to the high prices of organic products and limited number of distributors. In addition, rising food and commodity have tremendous impact on food and restaurant industries. Food Service Magazine wrote that restaurants have awareness of increasing food prices and food costs are tops on their list of concerns followed by the economy (Carbonara, 2011). There are several factors that make major impacts on high food prices: increasing commodity prices, high gasoline price, and rising foreign demand in U.S. agricultural commodities (Synergy, 2011). Therefore, Chipotles main concern is having as low prices as possible, compare to its competitors, even if it should raise prices due to changes in economy. It should meet customers satisfaction; otherwise, consumers will move to its competition or substitutes.

Hyper competitive industry


Basic characteristics of hyper competition are price-quality, protection of new products, geographic expansion and good financial capital. By looking at the eating places industry, there is tremendous amount of restaurants that try to be better choice for consumers. The industry has changed from slow moving atmosphere to environment characterized by intense and rapid competitive moves, in which competitors strike quickly with unexpected, unconventional means of competing (D'Aveni, 1998, p. 183). The rate of failure is very high, which makes many restaurants compete very hard against each other. Most of the places have to decrease the prices to attract more new customers, increase the quality of food, develop powerful marketing strategy, and have high efficiency. By looking at many different restaurants in the industry, there many different restaurant chains and fast-food restaurants that create hypercompetition easily. As was mentioned earlier, McDonalds changes from fast-food products to healthier dishes, which

increases the quality of food and popularity of the place due to low prices. In addition, McDonalds is the huge restaurant chain that can destroy competitors easily. Therefore, Chipotle, should be very cautious about price and quality of food its offers and develop new strategies to gain sustainable competitive advantage.

Government regulations
Chipotle as any other brand should hold its brand reputation. By looking at few articles, Chipotle violated few government regulations that may affect its reputation and future revenue. According to Chipotle Annual Report, the company is a subject to various laws including wage and hour laws, requirements to provide meal and rest periods or other benefits, family leave mandates, requirements regarding working conditions and accommodations to certain employees, citizenship or work authorization and related requirements, insurance and workers compensation rules and anti-discrimination laws (Chipotle Mexican Grill Inc.). For example, there were found several undocumented workers that were discovered during an immigration audit (Jamieson, 2011) . Due to these violations of state and federal laws, Chipotle has to change its attitude toward government control and be more responsible for its actions.

High Unemployment rate


Unemployment is one of crucial factors in every business; it is affecting everyone and everything around. Restaurant business is affected by high unemployment rate in many different ways. Consumers do not have money to spend due to low income. People will stop going out, move to substitutes, and prefer to stay home and cook dinner. As has happened in 2008 and 2009 with economic downturn, restaurant business was having huge losses. According to U.S. Bureau

of Labor Statistics current unemployment rate in the United States is 8.3 percent (Employment Situation Summary, 2012). Therefore, still restaurant industry has major impact on its revenues and number of consumers. However, according to The Economist, cheap restaurants are becoming more popular during economic downturns (Economist, 2008). Still, people try to spend less money than usual. Mostly, consumers will be attracted to special promotions in different restaurants, like special value meals or combo special. Despite the economic downturn, Chipotle's total revenue jumped 20 percent, second-best in the restaurant group (Steverman, 2010). Thus, Chipotle is threatened by unemployment, but has good chances be unaffected by it. Chipotle final External Factor Evaluation Matrix score is 2.25. A company does not successfully respond to the threats that are lying ahead of it. It also does not take a full advantage of the opportunities that the company faces. Chipotle might want to adjust its strategy, and as a result companys revenues will rise. In addition, it does not pay enough attention to threats, which make company vulnerable and easy to compete with.

Works Cited
Carbonara, J. M. (2011, June 6). Foodservice Operators Learn to Tackle Rising Food and Gas Prices . Retrieved February 10, 2012, from Food Service: www.fesmag.com Census. (2012, January 17). State & County QuickFacts. Retrieved February 10, 2012, from US Census Bureau: census.gov Chipotle Mexican Grill Inc. (n.d.). Retrieved January 12, 2012, from Business & Company Resource Center: http://galenet.galegroup.com.ezproxy.library.berkeley.org/servlet/BCRC?locID=nysl_me_berk Daniel, A. (2005). information on India - Religions in India:ISLAM in INDIA. Retrieved February 10, 2012, from TRIPOD: adaniel.tripod.com D'Aveni, R. A. (1998). Waking Up to the New Era. In R. A. D'Aveni, Hypercompetition (p. 183). THE WASHINGTON QUARTERLY. Economist, T. (2008, April 10). Tightening belts. Retrieved February 10, 2012, from The Economist: www.economist.com Employment Situation Summary. (2012, February 3). Retrieved February 10, 2012, from Bureau of Labor Statitics: www.bls.gov Hitt, M. A., Ireland, D., & Hoskisson, R. E. (2011). Strategic Management: Competitiveness & Globalization. Mason: South-Western Cengage Learning. Jamieson, D. (2011, May 12). Huffington Post Skips E-Verify . Retrieved February 10, 2012, from Centerfor Immigration Studies: cis.org Latest Counts of Wal-Mart. (2010, April 30). Retrieved February 10, 2012, from Walmart: www.walmartchina.com Lifestyle, R. F. (n.d.). The Number of Vegetarians In The World. Retrieved February 10, 2012, from Raw Food Health: www.raw-food-health.net Nettles, M. (2011, October 24). What's Hot In Restaurant Technology. Unites States of America.

Passel, J., & Cohn, D. (2008, February 11). U.S. Population Projections: 2005-2050. Retrieved February 10, 2012, from Pew Research Center: www.pewhispanic.org Patton, L. (2012, March 5). McDonalds to Air Television Ads About Healthy Food for Kids. Retrieved March 8, 2012, from Bloomberg: http://www.bloomberg.com QSR. (2008, October 28). Industry news: Chipotle Enhances Online Ordering Program. Retrieved February 10, 2012, from QSR Magazine: www.qsrmagazine.com Spevack, Y. (2009, November 27). Organic food sales rising in the US. Retrieved February 10, 2012, from Organic Fordee: www.organicfoodee.com Steverman, B. (2010, September 12). Bulls Haven't Had Their Fill of Chipotle. Retrieved February 10, 2012, from Bloomberg Businessweek: www.businessweek.com Synergy. (2011, May 4). How do high food prices affect your restaurant? Retrieved February 10, 2012, from Synergy Restaurant Consultation: www.synergyconsultants.com/how-do-high-food-prices-affectyour-restaurant/ WorldBank. (2012). China: Population. Retrieved February 10, 2012, from Google: Public Data: www.google.com/publicdata Worldpress. (2009, October 6). Chipotle Online Ordering via iPhone-What it means to the future of Fast Casual Restaurant Industry. Retrieved February 10, 2012, from Marketing Restaurant Online: www.marketingrestaurantonline.com