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.

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