Internal Analysis
SWOT Analysis
Strengths
CMG’s mission of ‘Food with Integrity’ resonates well with the increasingly health conscious consumers. It underscores the restaurant’s commitment to selling the best Mexican dishes based on natural ingredients produced in a sustainable manner (Yahoo Finance, 18-1). The compelling mission is a major strength for CMG as it underlines the restaurant’s strong stance on quality food and service.
CMG comprises of a wide network of restaurants spread mainly across the US and Canada. It owns 1,316 restaurants that increase its market presence in the areas it serves. The restaurant has also opened branches in the UK and France to reach the European market. The chain of restaurants is a key strength for CMG because it enhances the restaurant’s market presence and reach.
The restaurant achieves operational efficiency through a lean workforce and use of solar energy. The installation of solar panels was meant to cut down CMG’s power consumption, and thus, reduce operational costs (Chipotle’s Unique Take, 18-6). CMG offers limited menu options in its ‘A model’ restaurants to reduce staff requirements and labor costs (Chipotle Plans Major, 18-7). Lean production contributes to CMG’s growing profit margins.
CMG has streamlined supply chains. The restaurant sources its raw materials, including pork, beef, and chicken, from local suppliers embracing concentrated animal feeding operations. The reliance on fresh supplies produced in a sustainable way resonates with its ‘Food with Integrity’ mantra. The streamlined supply chains help in inventory management, hence, a key strength for CMG.
The restaurant owns 1,316 branches mainly in the North America. It also has branches in key locations in Europe. The ownership of a wide restaurant network enhances CMG’s capital base and profitability, which could be affected by franchise agreements.
Weaknesses
The restaurant’s menu prices are comparatively higher than those of its rivals are. Chipotle’s focus on quality ingredients leads to high menu prices, which may force customers to switch to cheaper alternatives, hence, weakness.
The reliance on naturally produced meat sources contributes to high production costs. CMG sources its raw materials from certified CAFOs that are more expensive than other suppliers are. The high production costs increase menu prices, hence, a weakness for the restaurant.
Chipotle’s ‘A model’ restaurants are not well equipped to provide quality service. Besides having limited Mexican cuisines, they lack freezers and microwave ovens (Jim Collins, 18-7). Thus, the lack of equipment is a weakness as it affects the restaurant’s quality of service.
CMG is primarily concentrated in North America. Out of its 1,316 branches, 1,308 are in the US and four in Canada. Only four branches are located outside North America (Thomson Reuters, 18-6). CMG’s concentration in North America reduces its global reach and market presence, hence, a weakness.
Chipotle’s menu list is limited compared to that of Cantina Bell. Cantina Bell’s menu list has additional items besides CMG’s staples (burrito-based dishes). Besides burritos, Cantina Bell’s menu contains items like ‘black beans, cilantro rice, and corn salsa’. CMG’s narrow menu list is a weakness because it gives customers limited choices, which may force them to frequent rival restaurants, including Cantina Bell.
Opportunities
Chipotle can diversify into new untapped markets in Europe and Asia to compete effectively with its rivals. Opening up new branches in these markets will give CMG an opportunity to expand its market share. Diversifying into the European and Asian markets will help spread out the risks resulting from competition from direct competitors such as Taco Bell, and thus, give CMG a strategic advantage.
CMG should also consider expanding its menu list. Providing more alternatives for customers will prevent them from switching to rival restaurants. Thus, a broader menu list will give CMG an opportunity to retain current customers and attract new ones.
The demand for healthy food is growing, hence, an opportunity for CMG to attract health-conscious customers. CMG can project itself as a restaurant of choice for consumers who desire healthy Mexican dishes to gain more clients.
Franchise agreements present an opportunity to CMG to expand its reach to underserved areas. CMG can open franchises with established restaurants such as McDonalds to reach more customers and reduce startup costs.
The use of solar panels to power the restaurants can reduce operational costs further boosting CMG’s profits. CMG should consistently use the installed solar panels to lower operational costs.
Threats
CMG faces stiff direct competition from rivals in the fast casual segment, especially Taco Bell and Qdoba. The restaurants offer lower prices and a broader menu list than CMG, hence, a threat to Chipotle’s profitability.
The volatility of food prices is also a threat to CMG’s business. Rising commodity prices may force the restaurant to charge higher prices for its dishes, which might turn away its regular customers.
Economic instability reduces individual incomes, which means that few people can afford expensive dishes. CMG provides quality dishes at marginally higher prices; hence, economic instability is a threat to its business growth.
Responding to higher commodity prices by increasing menu prices may drive away loyal customers. Therefore, raising menu prices may hurt CMG by reducing the number of visitors frequenting the restaurant.
Unlike its rivals, CMG relies on naturally produced supplies, which are expensive. The costly supplies eat into CMG’s profits, hence, a threat to its business success.
Resource-Based View
Chipotle has tangible resources that it can leverage on to develop a distinctive strategic advantage. It owns 1,316 branches (at a cost of $850,000 each) strategically located in North America and Europe (Jim Collins, 18-7). Its assets, including inventory, equipment, and property, as of 2011 December, stood at $1,425,308 (Chipotle, 18-11).
Chipotle’s intangible resources include brand recognition and an innovative assembly line. Each restaurant maintains a production line for food preparation to optimize operational efficiency. Chipotle is a recognized brand offering Mexican cuisines prepared using supplies sourced from certified local suppliers.
The restaurant’s organizational capabilities lie in the unique assembly line, a culture of performance, and streamlined supply chains. CMG runs excellent supply chains; certified suppliers (CAFOs) supply distribution centers with fresh inputs that are delivered to each restaurant, hence, helping in inventory management. They include various meats, vegetables, such as “lettuce, tomatoes, and cilantro, and dairy products, such as sour cream and cheese” (Chipotle 18-11). Secondly, the assembly line enables CMG to reduce order transaction duration, as customers, after receiving their orders, proceed to add their preferred flavors. In this way, CMG is able to reduce delays and staffing requirements, hence, a unique organizational capability that competitors cannot duplicate. CMG has also cultivated a performance-based culture characterized by staff training and development, creating an internal talent pool for the restaurant. For example, its long-serving Chief Operating Officer, Mr. F. Moran, was promoted to the position of Chief Executive Officer in 2009. because of his management experience in CMG. The firm did not hire the CEO from among external candidates but relied on its internal talent pool. Employees receive hands-on training that prepares them for career advancement within CMG and creates results-oriented teams. The COO was appointed a co-CEO to enhance continuity of the organization’s business strategy.
Value Chain Analysis
It focuses on two sets of activities, namely, primary and support activities.
Primary Activities
- Operations – It has an assembly line system for preparing meals to enhance operational efficiency. Clients, after receiving their order, proceeded to add their preferred ingredients placed downstream the queue. This approach reduces labor requirements and increases the operational efficiency of the restaurant.
- Inbound logistics – Chipotle sources fresh supplies from certified organic food suppliers. Each restaurant receives fresh supplies from a regional distribution center owned by Chipotle. The distribution centers procure vegetables and dairy products from certified local suppliers.
- Marketing and sales – CMG runs the ‘Food with Integrity’ promotional campaign. The campaign projects CMG as a restaurant selling quality food prepared from sustainable sources. The aim is to attract healthy conscious customers and boost its sales.
- Service – CMG serves Mexican cuisines prepared from fresh inputs. Its service model requires customers, upon receiving their orders, to move along the queue adding their preferred flavors to their dishes. This approach gives each customer an opportunity to select his or her preferred flavor and minimizes staffing requirements.
Support Activities
- Human resources management – It has an elaborate staff training, development, and succession planning strategy. Moran, the company’s long-serving COO, was appointed CEO in 2009. He now serves with Steven Ells in the same capacity. CMG has a lean workforce of 2,570 full-time and 28,370 part-time employees (Thomson Reuters, 2012).
- General administration – Run by two CEOs, namely, Steven Ells (also serves as the board chairperson) and F. Moran. Ells certifies the CFOs supplying inputs to CMG. The company also has a communication director, Chris Arnold, who communicates its strategy.
- Procurement – Supplies are purchased from a list of certified organic food suppliers. Fresh inputs, including pork, chicken, and beef are sourced from certified CAFOs. Each restaurant obtains organic inputs (vegetables and dairy products) from certified suppliers through its regional center.
Ratios
Current Ratio
Current Ratio = Current Assets/Current Liabilities (Year 2010)
= $281,455/$123,054 = 2.29
To calculate the current ratio, we found the sum of the current assets and current liabilities for 2010 and divided the two. CMG has a good liquidity level, as the current assets are 2.29 times the current liabilities. The current ratio for 2011 is higher (2.83) than the one for 2010 (Chipotle, 18-11). Chipotle’s cash flow is growing, which shows that it is doing well in the industry.
Inventory Turnover
Inventory Turnover = Sales/Inventory
= $224,838/$7,098 = 31.7
To calculate inventory turnover, we divided sales (Cash and cash equivalents) with inventory for 2010. The ratio obtained shows that CMG’s inventory was replenished 32 times in 2010 and 45 times in 2011 (Chipotle, 18-11). Hence, CMG’s sales are growing, which is an indicator of improving performance in the industry.
Leverage Ratio
Leverage Ratio = Total Debt/Total Equity
= 310,732/1,121,605 = 0.28 = 0.27
To calculate CMG’s leverage ratio, we divided the total liabilities (debt) by the total assets (equity). The low leverage ratio of 0.28 remains relatively unchanged in 2011 at 0.27, indicating that loans have not financed Chipotle’s expansion (Chipotle, 18-11). Thus, Chipotle has an excellent performance in the industry.
References
Chipotle 2011 10-K. Chipotle Plans Major Solar Power Initiative, Business Wire, 2009. Web.
Chipotle’s Unique Take on Sustainable Sourcing, Web.
Jim Collins, Harper Business, New York, 2001.
Thomson Reuters, Chipotle Mexican Grill, Inc. Stock Report, Web.
Yahoo Finance, 2012.