Chapter 14: Merger and Acquisition Strategies

Merger and acquisition strategies is an extremely important part of sustaining a competitive advantage over the competition. At this time, Chipotle has remained steadfast in their solo efforts and have not merged with any corporations to further their advancement in the marketplace. At one point the Mexican food chain was joined with the largest fast food franchise in the world, McDonalds. However, in 2005 the two decided to part ways as the margin of growth was not fast enough for the fast food giant. McDonalds which is known for highly processed and inexpensive fast food felt that the mantra of "Food with Integrity" was an unnecessary expense that was hindering margins. Ultimately, the two have gone their separate ways leaving McDonalds disappointed at the big fish that got away.

Over the last few years, ShopHouse and Pizza Locale have emerged in the marketplace taking a lead from Chipotle's business model. There are limited locations of these stores across the United States. Also, the restaurant chains are ultimately owned by the same ownership group already which does not make it a true merger or acquisition. \

Chipotle: The One That Got Away From McDonalds

The Ridiculous Reason McDonalds Sold Chipotle and Missed Out on Millions of Dollars

What Ended the Short-Lived Marriage of McDonalds and Chipotle

Chapter 13: Strategic Alliances

In the textbook, Gaining and Sustaining Competitive Advantage by Jay Barney strategic alliances is the primary topic in chapter 13. "A strategic alliance exists whenever two or more independent organizations cooperate in the development, manufacture, or sale of products or services. Strategic alliances can be grouped into three broad categories: nonequity alliances, equity alliances and joint ventures."

Chipotle like many others in the fast food industry follow the product differentiation model where more emphasis is placed on creating products that are different than the status quo to generate profit in the marketplace. Therefore, Chipotle has not entered into a strategic alliance with another company due to their desire to maintain exclusivity within the organic Mexican fast food industry.

However, the company (Chipotle) did enter into a nonequity alliance with Family Farmed.org in 2011 to create a new market for sustainable farms. Chipotle which prides itself on implementing organic ingredients into its menu items, has joined forces to bring more healthful and organic produce to local communities in hopes of creating a social movement for a healthier lifestyle.

Additionally, the joining of forces between these two organizations assists in proving Chipotle with the organic produce and dairy used in its restaurants and a stable revenue stream for the farmers who produce these goods.

Strategic Partnership with Chipotle Mexican Grill

Chapter 12: Implementing Corporate Diversification

Chipotle like many companies in the same industry employ the M-Form (Multidivisional Form) Organizational Structure reviewed in chapter 12 of Barney's "Gaining and Sustaining Competitive Advantage" text. According to Barney,

In the multidivisional structure, each business in which the firm engages is managed through a division. Different firms have different names for these divisions - strategic business units (SBUs), business groups, or companies. Whatever their names, the divisions in an M-form organization are the true profit and loss centers: Profits and losses are calculated at the level of division in these firms.

This is typically the best structure for companies to follow because it allows for the segmentation of divisions to view accurately the profitability of each sector. If things were not segmented in this fashion, it would be difficult to see where financial disparities lie. Also, segmentation allows for a much easier time in governing and delegating responsibilities as the restaurant chain continues to expand.

The hierarchy of this structural system usually headed by the board of directors (please see below for specifics regarding Chipotle), Senior Executive Management Team, Business Operations (Finance, Accounting Human Resources, Legal, etc - who are responsible for facilitating activities that aid in the business system), and General Managers. While this is not the only organizational structure, this is certainly the most successful and fitting of this particular company.

At the top, the board of directors acts as an intermediary between the shareholder and executive management to ensure sounds decision are made for the company at the organizational level. The executive management team makes all of the higher level decisions regarding the direction of the company. Business Operations acts as an information acquiring and organizational entity that maintains the administrative dealings of the company. General Managers are responsible for carrying out the operational objectives set forth by upper management.

Chipotle Investor Relations

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Chapter 11: Diversification Strategies

For most companies, it is extremely important to their business plan to expand into other realms and implement some sort of diversification to grow. In the text "Gaining and Sustaining Competitive Advantage" by Jay Barney it lists three types of corporate diversification: limited diversification, related diversification and unrelated diversification.

Limited diversification is the strategy where all or most of a company's business activities fall within a single industry. Two kind of firms exist in this realm, single business firms which are firms that have more than 95 percent of their total sales in a single industry and dominant business firms that which have between 70 and 95 percent of their business within a certain industry.

Related diversification is when less that 70 percent of revenue comes from a single industry and the different businesses share some links and attributes. Unrelated diversification is when less than 70 percent of a firm's revenue comes from a single business and there are few links or attributes shared between businesses.

Chipotle as a company certainly encompasses the limited diversification strategy. The fast food chain that has reinvented and raised the standard on quick eats pretty much stays within the confines of the empire they have created. While most can certainly agree with the old mantra of "if it ain't broke, don't fix it", for Chipotle to grow it needs to create other avenues in which they can thrive.

In 2011, they capitalized on this notion and created ShopHouse. An Asian inspired Chipotle with organic ingredients, ShopHouse currently has four locations across the United States. While they have a long road ahead before they are able to reach the successes of the flagship brand/restaurant of Chipotle, ShopHouse is making progress one customer at a time.

Utilizing the information provided in the text, these two businesses are reflective of the limited corporate diversification model because they are both in the same fast food industry and for the most part rely on the same distributors and suppliers to do business. Although the type of food being offered is different, more or less everything else is the same or is constructed in a similar fashion.

Shop House

Five Reasons Why ShopHouse, the Asian Chipotle, Will be the Next Big Thing

Chipotle's ShopHouse Expansion

Chapter 10: Vertical Integration Strategies

Vertical integration is the process by which a company is responsible for producing all of the components that make up the end product which is eventually sold in the marketplace. A good example of a company that practices vertical integration is Apple. Apple which is responsible for some of the most popular technological products on the market (iPad, iPhone, iWatch) has become very successful adopting this model where they manufacture the pieces that comprise these items and sell the end product. However, Apple does not assemble these items.

Although the idea to vertical integrate may work for Apple, it does not seem as if this strategy would be ultimately lucrative for an restaurant such as Chipotle. Restaurants are continually patronized due to their excellent customer service and fare. Understandably, one cannot manufacture service; therefore, Chipotle is a bad candidate for this approach. However, one can produce food items that can be fashioned into the ingredients needed to service the restaurant's menu. Let us explore the lucrativeness of this possibility.

For Chipotle to take over the daunting task of manufacturing the products that go into making their entrees, they would need to manage and service several ranches/chicken farms, dairies, and several thousands of acres of farmland to keep up with demand. Also, they would need to acquire several warehouses or refrigerated storage facilities to keep the products cool until ready for transportation. Additionally, Chipotle would have to spend more money on transportation and logistics costs to get the products from the manufacturing site to the restaurants.

The extra costs listed above would be associated with a majority of restaurants that would attempt to vertically integrate their companies. However, Chipotle would have even more of an added expense as they are wholly devoted to GMO and hormone free/organic meats and produce. So the extra care and resources needed to produce items up to those specifications is even more of an expense that would be leveraged against the financial success/profits of the restaurant in itself, potentially resulting in a loss of money due to issues such as food spoilage and other issues associated with organic farming.

While vertical integration worked for Apple, that is not the accurate for all manufacturers of high ticket items. General Motors, one of the largest auto manufacturers in the world operated in a fashion that is the reverse of Apple in the assembly department as they were only responsible for the manufacturing and creative process of the vehicle. If they were to take on the responsibility of manufacturing the parts as well, it could increase the operational cost beyond the limits of profitability. Other companies in the region would relish the opportunity to partner with these mega companies so as they can have a steady revenue stream.

Ultimately, vertical integration works for some as a strategic process. There's no definitive indicator as to the type of company that should try to adopt this approach.

Chipotle Mexican Grill - Expansion and Growth Strategies

Owning your Supply Chain - Lessons from Chipotle Grill's Antibiotic-Free Beef Dilemma

There Aren't Enough "Naturally Raised" Cows to Meet Chipotle's Demand 

Chapter 9: Tacit Collusion: Coooperation to Reduce Competition

One of the primary focuses since the beginning of the course has been competition. What company's in competition with another? How to drive competition? Who's the biggest competitor? Are all questions that were used to guide discussions regarding our company position within their respective industries. However, chapter 9 in Barney's text leads the discussion in a completely different direction with the tacit collusion concept.

Described in the textbook as an act when

...firms in an industry agree to coordinate their strategic choices to reduce competition in an industry. In the extreme, collusion occurs when firms coordinate their output and pricing decisions. In some circumstances, such collusion can lead to economic profits. As suggested earlier in this chapter, explicit collusion exists when competition-reducing decisions are coordinated directly, through direct communication and negotiation. This kind of collusion is illegal in most developed economies. Tacit collusion exists when these decisions are not coordinated through direct communication and negotiation, but coordination develops nevertheless.

Through examination, it is observed that Chipotle really has no competition in their industry. As discussed in other posts, Chipotle is leading the way in revolutionizing the upscale fast food industry with innovative menu items, organic ingredients and trendy appeal to millennials. Therefore, the tacit collusion referenced in the text is not present in the strategic planning of Chipotle's business operations.

However, it should noted that Chipotle is the exception and not the rule. Overall, the fast food industry is full of collusion within the leading companies. The US fast food industry generated about $190 billion in revenue last year. While places like Chipotle, Chop't and Panera Bread are starting to gain great strides in the marketplace due to their devotion to "healthfulness" of their products; the average burger and fry restaurants are striking back.

Fast food over the two decades have transitioned from "fun time fare" to food for those who have limited access to healthier options. Places like Detroit which tote a high poverty and unemployment rate among its residents, live in a "food desert" where people mainly rely on these inexpensive fast food restaurants and convenience stores for meals as access to supermarkets are not simply attainable. Therefore, those lower end fast food chains (McDonald's, Burger King, Wendy's, Checkers) have acquired prominent placement in these communities to grow revenue.

While these is only so much diversification that can take place in this industry, it seems as if the major four companies engaged in some form of tacit collusion in their business strategies in the latter part of 2015 and early 2016 by unveiling their $5.00 meals. Similar to the dollar menu concept that emerged a decade ago, it seems as these companies now look to entice customers with affordable/cheap multi item meals that include a drink and dessert to contest the progress of companies like Chipotle in the marketplace.

Through this collusion, the willingness customers have for wanting to purchase higher end fast food items could potentially diminish thereby eliminating the Panera Breads and Chipotle of the world. Certainly, the higher end fast food would still continue do business in the same marketplace but its revenue would be hampered as the cheaper places would be seen as the go to for many individuals for its price point. For those who did not buy into the marketing schemes, an overall reduction in the purchase of fast food would be likely as the overall marketplace would be devalued.

Chapter 8: Flexibility: Real Options Analysis Under Risk and Uncertainty

All aspects of business (similar to life) are filled with risk and uncertainty. The very actions associated with business in and of itself is quite risky to say the least. A company creates and initiates a business model and course of action to provide to the public that may or may not be profitable. While all hope to thrive in the marketplace, a certain level of flexibility must be present to assist in the re-organization, re-thinking or re-tooling of the product or service to acquire the profits truly desired. 

The textbook "Gaining and Sustaining Competitive Advantage" by Barney cites, 

Flexibility can take numerous forms in an uncertain strategic investment, including the option to defer, the option to grow, the option to shut down and restart, the option to abandon, and the option to expand. There often exist trade-offs between retaining these options and other business strategies. For example, a manufacturing plant designed to implement a low-cost leadership strategy may be very different than a plant designed to maximize flexibility. Thus flexibility should only be a strategic objective for a firm when it is likely to be valuable, that is, under conditions of high uncertainty.

Recently since Chipotle's Ecoli scare, the Mexican restaurant chain had to definitely maintain a great deal of flexibility within the company maintain its customer base and profits. When the first few illnesses occurred, Chipotle alerted the public, temporarily closed those locations, and pulled the alleged affected meat from the stores. While this was thought to potentially remedy the problem, this was not the case as another outbreak occurred in another location. Seemingly, after much analysis, investigation and deliberation the company asserted its flexibility and closed all of its locations (whether affected or not) on February 8, 2016. 

For one of the leading fast food restaurants to opt to lose profits across the country for a day in order to get in front of this continual problem exhibited a great deal of flexibility. All of the major fast food chains have experienced Ecoli or other food product related illnesses in their history. However, there has been no documented restaurant shutdown for an entire chain in United States history. If so, it was not of the magnitude of Chipotle.   

Seemingly, the shutdown and action taken by Chipotle was well received by consumers as revenue has begun to rise once again for the fast food chain. Analyzing the risk associated with this action was integral in the retention of customers who may have abandoned the chain as a whole due to safety concerns and has certainly paid off. 

Chipotle Announces Mass Shutdown for One-Day Food-Safety Conference

43 Washington and Oregon Chipotle restaurants closed after E. Coli outbreak

CHIPOTLE: A FOCUS ON FOOD SAFETY

Chapter 7: Product Differentiation

Last week, it was discussed how some companies use the Cost Leadership model as an economic strategy in which to grow their business. Organizations who utilize Cost Leadership operate on the assertion that the best way to grow profit is through low operational and production costs. While it is still possible for these companies to produce high quality items, primarily groups that employ this tactic tend to create goods and services that are cost efficient/discount alternatives to the pre-existing standards. While some may think that this would be highly unpopular with the public as the most individuals would like to spend their funds on high quality items, the idea of getting "more bang for your buck" has taken over.

However, not all companies utilize this strategy. Chipotle for example operates by what is known as Product Differentiation. According to Barney, "Product Differentiation is a competitive business strategy whereby firms attempt to gain a competitive advantage by increasing the perceived value of their products and services relative to the perceived value of other firm's products and services." As was mentioned in previous posts, Chipotle prides itself of providing food with integrity which is exemplified in its GMO and hormone free entrees and sides. While this a somewhat "safer" (more healthful) alternative that makes customers happy (thereby creating customer loyalty/value), it is extremely costly undertaking as organic products are more expensive than the standard alternatives.

Also, Chipotle rarely charges extra for additional items on their entrees (unless it's meat or guacamole). This boosts customer patronage as consumers recognize the value in their purchase as the mantra of the "customer is always right" is seemingly followed to a tee. The extra money Chipotle spends on creating a pleasant customer experience through acquiring excellent employees (which costs a bit more) adds to the operating costs as well.

Overall, Chipotle does not skimp on extras and goes the extra mile to provide exemplary service at the expense of it's bottom line. However, the revenue/profit Chipotle hopes to acquire from their product differentiation strategy has proven to be successful in creating one of the largest fast food restaurants in the marketplace today.

Quality Product and Customer Service: How Chipotle Conquered a Crowded Market

Chapter 6: Cost Leadership

There are several different strategies one may choose to follow when trying to construct a profitable business. To some, providing the customer with the best quality service, product, etc. is the most influential factor in acquiring those repeat customers. For others, the best method to guide their business in the right direction is by way of Cost Leadership. Defined in the Barney text as a firm that "focuses on gaining advantages by reducing its economic costs below all of its competitors", cost leadership can prove to be quite lucrative in the long run if implemented correctly. While this may seem like the most practical approach, Chipotle does not agree.

As was discussed in previous weeks, Chipotle is not a company that looks to the cost leadership model to base their company. While this does not mean that the company splurges frivolously, Chipotle does not cut corners when it comes to packaging, food product costs or quality customer service workers. This is what has the restaurant at the top of the fast food restaurant totem pole,

For example, the restaurant claims that it only utilizes the best organic and GMO free products in its food items. While all food (particularly meat and produce) should be void of these somewhat harmful chemicals and fillers, it is understood that the acquisition of these items is a bit more costly that the standard types. On average. Chipotle's food cost is nearly 35% of revenue acquired each year. These product costs created a higher price point which has transferred on to the customer at the tune of 4 to 6 percent more than last year.

Ultimately, the abandonment of the cost leadership business strategy can be lucrative in some cases. Chipotle has certainly found the recipe for success with this; however, it comes with its own set of issues that are also quite costly as well.

Chipotle Just Raised the Price on its Beef Burritos

Price Hike for Wage Increase Did Not Hurt Chipotle's Sales

An In-Depth Overview of Chipotle Mexican Grill

Chapter 5: Evaluating Firm Strengths and Weaknesses - The Resource Based View

In the previous chapters, we utilized the frameworks suggested in Chapter 3 and 4 to discuss the economical threats and opportunities that plague Chipotle in the marketplace. While these models were helpful in analysis, Chapter 5 introduces "The Resource Based View" to aid in understanding other complexities faced by management. The primary concept discussed is the "VIRO Framework". VIRO is an acronym that stands for: (1) Value, (2) Rarity, (3) Imitability and (4) Organization. Let us examine Chipotle from this standpoint by answering the following questions.

Value

Do a firm's resources and capabilities enable the firm to respond to environmental threats or opportunities? 

Chipotle's greatest value lies in it's dedication to serving organic and GMO-free products, portion size and their customizable  menu options that add value to customer service. For the majority of the company lifespan, Chipotle has been responding to the opportunities presented in the marketplace. That is primarily why the company's customer loyalty has been so high despite higher than average pricing. 

However, the Ecoli outbreak in late 2015 has caused Chipotle to somewhat operate on it's heels and be on the responding end of environmental threats. No food establishment can continue to thrive in the marketplace if consumers become ill from the consumption of its products. Additionally, Chipotle's entire business model is premised on providing "Food with Integrity" that is of a higher quality than that of the typical fast food establishments. 

Chipotle could choose to lower its standards on food but that would affect consumer decisions as the high standards are what has previously generated sales. Conversely, the company could choose to seek out other suppliers or look to produce the items for their products in some internal fashion. However, this could prove to be quite costly in the long run which could reduce profit margins across the board. As a result of the scarcity of low-cost quality food suppliers, Chipotle is operating on the defensive in this situation and is managing a threat.

Rarity

Is a resource currently controlled by only a small number of competing firms?

There is really nothing rare about Chipotle's offerings from an overall food perspective. You have restaurant chains such as Chop't who also provide GMO-free and organic menu items for a above average price for a good size portion as well. Much like Chipotle, Chop't operates only walk-up "street stores" in limited areas and builds customer loyal through high end service and food quality. Similarly, ShopHouse which is Chipotle's Asian inspired restaurant also encompasses these same characteristics. 

However, Chipotle could potentially have some strategic advantages that would set it apart from the competition internally. Not to my knowledge has Chop't had a consumer loyalty and financial setback to the magnitude of Chipotle's Ecoli scare. Therefore, it remains to be seen the type of strategic maneuvering that will be done internally to prevent this calamity and how to resolve this problem in a transparent manner so that no economic losses occur. 

Imitability

Do firms without a resource face a cost disadvantage in obtaining or developing it?'

Nothing that Chipotle current does is proprietary. Therefore, at any time a business can decide to come in and copy the same business model and take it in whatever direction they see fit and there is legally nothing that can be done about it. While this may be a costly undertaking for a startup company or company that has not been doing well fiscally in the marketplace, it can be done and the initial investment could potentially pay off exponentially going forward if Chipotle's model is followed.

Organization
Are a firm's other policies and procedures organized to support the exploitation of its valuable, rare, and costly to imitate resources?

Chipotle has an interesting management style that bridges the gap between the goals of executive management and the responsibility store level management feels to carry these operations out. Almost a decade ago, Chipotle decided to implement  a position known as "restaurateurs" in their business model. The role of these individuals is to create/train general managers for restaurant locations. While on the surface this does not seem too odd, these individuals are compensated very well for each general manager trained that sustains a world class store. Through this, these individuals who were general managers (some even kitchen staff or cashiers) at one time who also provided exemplary service can continue to indirectly make an impact on customer service at the various locations.

All too often when people are chosen for these corporate recruiting roles does the real mission of the restaurant get pushed aside for the politics of the executive team. However, these restaurateurs do an excellent job of maintaining the real mission of Chipotle due to their previous experiences at the store. Also, this position allows for those employed in this role to not be stuck in meaningless middle management positions and make a difference in the operation of the restaurant in itself.

As a result, Chipotle's organizational policies and procedures definitely are impactful in their dedication to customer loyalty and service as many of those creators of policy have started their careers at the bottom of the totem pole and incite change based upon real not theoretical need.

How Chipotle Transformed Itself by Upending its Approach to Management

Chapter 4: Evaluating Environmental Opportunities

In last week's blog, we discussed how Porter's 5 Forces could be utilized to examine the threats posed to Chipotle. However, as this framework can be applied to chronicle the shortcomings of a particular company; it can also convey how Chipotle is capitalizing on the weaknesses of other companies within the marketplace.

Threat of Entry
According to the Gaining and Sustaining Competitive Advantage text by Jay Barney, "the best way for a firm to neutralize the threat of entry is for it to erect barriers that prevent other firms from entering the industry." The primary two methods of attack for Chipotle is through building customer loyalty and product differentiation.

As was mentioned in last week's blog, Chipotle has created a cult following among it patrons making it the leader in Mexican fast food restaurants. However, Chipotle's success has been in it's elimination of previous competitors. Few other fast food restaurants allow for the customization and portion size that Chipotle brings to its customers. As a result of this factor alone, Chipotle moves to the front of the pack and has eliminated nearly all of it's competition. Additionally, the introduction of new products to the market(during inception such as burrito bowls) and variety of fillings (barbacoa, carnitas, sofritas) that cannot be found in any of the competing chains makes threat of entry by another company slim.

Furthermore, the Chipotle has increased it's customer loyalty in the wake of the Ecoli scandal. Formerly a company that allowed their food and customer service build brand loyalty, Chipotle gave the customers the ability to download a QR Code or coupon for a free entree at it's restaurants. The fast food restaurant in the past has minimally given free items. Primarily in cases where customer service was poor, incorrect item was given or sponsorship endeavor (which really is not free) did the general public receive any sort of "gift" from the chain. However, as the scandal has made the public skeptical of the chain, Chipotle has looked to increase its customer loyalty by inviting customers to have a meal "on the house" to emphasize safety and quality in their product.

While other fast food chains tend to offer a lot of promotional items and discounts, their lack of quality and product differentiation tends to limit their customer loyalty. Additionally, it should be recognized that the more free items one gives away, the less the confidence the public may have in the product itself as the product may be perceived as inadequate. Ultimately, this will also decrease customer loyalty as consumers will only want to patronize the establishment if they feel something free will be given.

Lastly, let us not forget that all discounted/free items come at a cost to the company itself. While it may be good to give free items from time to time, it must be noted that nothing is free and it reflects negatively on the bottom line when the invoices start to come in. Needless to say since Chipotle has been leading the pack in the Mexican fast food world, Taco Bell and some of the other competitors who exist in this marketplace have been faced with declining sales since the "Chipotle boom" of the last decade and are not able to undertake this financial burden.

Threat of Rivalry
Additionally, the Barney text states "The best way for any firm to neutralize the threat of rivalry within its industry is to base competition with other companies on an element other than price." As was mentioned last week, Chipotle eliminates nearly all of its competition with it's dedication to GMO-free food. Healthy living and "green" initiatives are all the rage in today's society. While Chipotle is a far stretch from healthy eating (healthy fast food seemingly appears to be an oxymoron), it does allow the customer to indulge in a safer product. This aspect of Chipotle's business model allows them to sustain a competitive advantage through innovation. While nothing is new about meat in restaurants, offering a variety of meats that are hormone free from premium cattle in fast food for a low price is innovate to say the least.

Threat of Substitutes
Since there is nothing proprietary about prepared food items, the threat of duplication or substitution is high for Chipotle in the marketplace. However, the substitutes available in the marketplace are of such a substandard quality that Chipotle holds a clear advantage over its competitors and the threat is neutralized.

Also, the perceived level of product differentiation is another element that helps to eliminate the threat of substitution in the marketplace. Chipotle has always done a solid job in creating their own identity in the fast food world. As a result, customers feel a bit better about paying six dollars for an entree as the cost of quality dining comes into play.

Threat of Suppliers
Unfortunately, the suppliers still pose a threat to the prosperity of Chipotle. Since Chipotle prides itself on using hormone-free and organic items in its dishes, the farmers and ranchers who cultivate these products are in control. Recently, we see how the company hung in the balance as the Ecoli scare deterred loyal customers from purchasing. Unless Chipotle utilizes its capital to invest/purchase its own farmland and animals from which it's products are created they will have not be able to neutralize this threat.

Threat of Buyers
It seems as if Chipotle has a good handle on neutralizing the threat of buyers in the marketplace. Even in the wake of the latest scandal Chipotle is still ascending to their former position on the top of the fast food chain. This is primarily due to the perceived excellent quality of their items which has created a sense of customer loyalty. Other than the free entree code that was offered in early February 2016 ( in an attempt to bring lost customers back into the fold), Chipotle has not changed its marketing/business plan; nor has it reduced pricing.

It seems as if Chipotle thoroughly examined the Porter's Five Forces model before acting on any business decision. While one can always point to shortcomings or things that could be done differently, the current position held by Chipotle in the marketplace certainly can as an economic model for those businesses that would like to exist in their own "lane" independent of all competition.

Chipotle's Greatest Strength is now its Greatest Weakness Too 

Chapter 3: Evaluating Environmental Threats

Another major factor in the overall strategic process of Chipotle is evaluating environmental threats. According to the text, "an environmental threat is any individual, group, or organization outside the firm that seeks to reduce the level of that firm's performance". While such factors are normal and frequently found in competition, the need to reduce the effect/eliminate these facets are needed to ensure successfulness.

Typically, Porters Five Forces is the framework employed to describe the environmental effects that dictate the organization's competitive advantage. The five forces are listed as threat of entry, threat of rivalry, threat of substitution, threat of powerful suppliers and threat of powerful buyers. Below is the application of this framework to Chipotle.

Threat of Entry
Chipotle has been so innovative in a variety of niche markets that it is hard for one competitor to enter into the marketplace and be a direct threat. There has yet to be a fast food restaurant (besides Chipotle) whose entire mission is to provide GMO and fresh ingredient food. Other establishments in the recent past have looked to increase the healthfulness of their items but none have gone so far to assert that they utilize solely organic ingredients and take no short cuts in the preparation process. Chop't is the only restaurant that comes to mind that could be anywhere close to Chipotle in their mission of "food with integrity". However, this would come with much scrutiny as Chop't (which serves customizable salads) does not use the variety of meat products as Chipotle and primarily serves raw food items thereby making it a much less daunting task in providing organic items.

Threat of Rivalry
In every marketplace there is always a threat of competition (unless you have a monopoly). For Chipotle, there are a few competitors who are looking to take over in the Mexican fast food category. Some examples that come to mind are: Moe's Southwest Grill, Lime Fiesta Kitchen and California Tortilla. Moe's and Lime are similar to Chipotle in the regard that they provide highly customizable options for all of their items. However, they do not emphasize the organic/non-organic quality of their ingredients nor does each allow for the flexible portion size.

Conversely, California Tortilla provides ample portions to patrons but definitely lacks the overall healthfulness provided by the other three options. Filled with processed cheese and pickled veggies CalTort is more of a "upscale"/more diverse Taco Bell versus a direct competitor for Chipotle.  

Lastly, none of these organizations encompass the serving/customer service style employed by Chipotle and Subway. Due to the incidents publicized in the media regarding disgruntle food workers, many people prefer to watch their food prepared directly in front of them. While this method works well, it is more expensive to hire workers who provide this method of customer service than continue with the same standard of service that is employed in the majority of fast food restaurants. Along with the higher prices Chipotle spends for its organic food, it seems unlikely that others will follow suit.

Threat of Substitution
In the fast food industry, there is always a threat of an organization coming in and providing a similar item or type of cuisine. The same is true for Chipotle. Nothing Chipotle sells or does is proprietary; therefore, it is just a matter of time before someone steps in and claims the "Mexican" fast food market due to the Ecoli issues currently plaguing the mega chain. To help curb this, Chipotle should start a rewards program to incentivize people who frequent their restaurants. Similar to those free grocery store cards, these programs drive brand loyalty as the perks definitely make a difference in how the consumer spends their money.

Threat of Powerful Suppliers
The threat of powerful suppliers could be somewhat detrimental to the Chipotle brand. While there are several suppliers Chipotle could purchase from, the price at which they are able to acquire these "fresh ingredients" and hormone free meats is the real issue here. Typically, items that are organic or "healthy" tend to cost a great deal more than the cheaper alternatives. As a result, the suppliers truly control the successfulness of Chipotle as the price of goods is almost always transferred over to the consumer. Higher prices could result in a decrease in business as the perceived economic value would be diminished.

Threat of Powerful Buyers
As a fast food chain, powerful buyers are of little consequence to the overall successfulness of Chipotle. Even now in the midst of the Ecoli scandal, people are still flocking in droves to the locations. While the volume in the stores have decreased, Chipotle is still profitable during this time. As long as patrons continue to love the product, people will continue to purchase and Chipotle has the ability to recover from this setback.

Ultimately, these five factors could change at any time. However, Chipotle has positioned themselves to continue being at the forefront of the fast food market for years to come.

Chipotle outpaces rivals on strong sales

Another Chipotle Rival Bites the Dust

Chipotle Points Finger at Australian Beef as Source of E.Coli Outbreak

Chapter 2: Firm Performance and Competitve Advantage

Recently, Chipotle has acquired a vast amount of bad press in the media outlets due to the outbreak of Ecoli in some of it's locations. While this has certainly left Chipotle executives and shareholders looking to pick up the pieces of the overwhelmingly popular food chain, it is certainly worth noting how Chipotle made it's rise to the top of the market was through the annihilation of its competition through economic value.

Economic value is one of the key contributors to the competitive advantage held by a particular organization. The notion that one is acquiring a good or service at a price less than what should be accepted given it's quality is something that most individuals constantly seek. As a result, Chipotle was able to enter the marketplace and completely revolutionize the arena by it's emphasis on quality and customization when others companies were relying more on gimmicks and cost saving efforts.

Fresh ingredients and meat devoid of all hormones and other "fillers" at a reasonable price was certainly the biggest selling point for Chipotle. In a society where "going green" and "eating healthy" is all the rage. Chipotle found a niche market in the fast food industry with it's dedication to bringing integrity to the food it serves. Unlike other restaurants, they state that their meats "(Animals) have received no added hormones, no antibiotics ever, and were humanely raised." Therefore, droves of patrons flock to the restaurants in hopes of being able to eat this responsibly cultivated product that seemingly fits into everyone's budget.

Additionally, there are very few other companies that exist in the same subgenres as Chipotle thereby creating a competitive advantage for Chipotle. Taco Bell the original "Mexican" fast food chain lacks the creativity, perceived healthfulness and social responsibility of Chipotle. Ultimately, their similarities end with the same product offerings. Nothing else between these two is comparable; therefore, Chipotle has all but stolen a vast majority of Taco Bell's customers and has the competitive edge. The same is also true for the few smaller chain "Mexican" restaurants such as California Tortilla, Moe's and Lime. While they all sell tacos and burritos, the others are mainly typical fast food filled with mystery meats, processed nacho cheese and unnecessary fillers.

Conversely, you have restaurants like Subway who have the same serving/customer service setup as Chipotle (where customers can customize their items). In  a marketplace, where many who consume fast food complain about the pre-constructed quality (lack of freshness) of their food Chipotle has not only allowed patrons to see their food cooking behind the counter, customers can finally successfully manipulate the portion size of each item received (for most items free of charge). The only competition in this realm for Chipotle is Subway who may construct the items in front of the customer but the cuisine is far from fresh. As a result, many individuals can feel the high economic value of Chipotle based on the quality of service and food received.

Ultimately, Chipotle since it's inception in 1993 has been striving to solidify it's position in the fast food world by emphasizing quality food and service; thereby acquiring a competitive advantage. While this advantage has all but disappeared over the last few months (due to the Ecoli scare), slowly but surely Chipotle using previously utilized tactics to move back to the top of the fast food restaurant market.

Food with Integrity

Ingredients Statement

8 Tips to Get Your Money's Worth at Chipotle

Chipotle vs. McDonald's: The Rise Of Fast Casual Food In 'The New Yorker

Welcome

Good Morning All,

Welcome to my personal blog for the Capstone course in the University of Memphis MBA program. While students have been encouraged to utilize several different methods/platforms to promote interactive learning (as I am enrolled in the online MBA program), this is the first time I have ever been responsible for my own blog. I am definitely looking forward to expressing my thoughts and concept comprehension; however, just a quick disclaimer this is my first blog so please forgive the lack of conciseness or textbook rhetoric that may appear from time to time in my posts. I will certainly do my best to ensure that my voice regarding the application of these topics is not lost in these posts.

For the purpose of this assignment, I have chosen Chipotle as my company of interest. Recently, the popular "new-age" fast food chain has come under increased scrutiny and boycott during the health scares that have occurred as a result of consuming the chain's food. Established in 1993, Chipotle has always prided itself on organic and hormone-free products in their dishes and an overall responsibility to the customer in providing these more healthful options. However, the company is has completely dropped the ball on its mantra of "Food with Integrity" as many patrons have reported serious illness as a result of Ecoli bacteria bring present in the food.

While this happens from time to time in restaurant chains, Chipotle has been somewhat slow to remedy the re-occurring issues in all of its restaurants. As a result, Chipotle has decided to close all of stores on February 8, 2016 to calm the public's fears and make sure all contaminated products are removed from their establishments. However, for the majority of the public these actions are too late as many have discontinued eating at the popular chain.

As a result, I felt that this was a good company to follow as I can utilize the framework of the class to examine their rebuilding efforts and overall company growth. Looking forward to seeing how much Chipotle values integrity in it's new business model and how this will impact the company and similar restaurants.