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