1. Chipotle Mexican Grill
Strategic Review
Tori Esser, Cole Monroe, Rachel Peck, Stephanie Steuck, Joann Wolfenberg
Section 1

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Introduction
Chipotle was founded in 1993 by Steve Ells. Chipotle is a Mexican grill that serves
burritos, tacos, and nachos that can be personalized by each customer. Ells wanted to change
how people thought about the fast food industry. He believed that food served fast did not
have to be the typical fast food experience and that it was possible to use fresh, high-quality
ingredients. His mission was to spread the belief that good, fresh, nutritious food should be
acceptable to everyone, even in the fast food industry. With this idea in mind, Ells created a
new segment of the dining industry known as “fast-casual”.
Chipotle has opened over 1,500 restaurants in 20 years. Most Chipotle restaurants are
located on the coasts, near the most populated areas in the U.S. (Chipotle Mexican Grill, 2015).
However, the company has also started to expand internationally and has opened businesses in
Toronto and London. As the Chipotle name continues to grow, it is important for our company
to adapt its strategy to the changing environment. We identified three trends that have a large
impact on our company. These three trends include the changes in minimum wage, the changes
in the desire for healthy food options, and the changes in age of the population. In addition, we
have used the Porter’s Five Forces Model to determine that Chipotle has a threatened position
in the food industry. This will be followed by an analysis of Grant’s Matrix, which rates
resources and capabilities based on importance to the industry and Chipotle’s relative strength.
Finally, this report will discuss a diagnosis of Chipotle’s major concerns, some feasible strategies
to address these concerns, and our recommended strategy, C2C or Commit 2 Consume.
Key Trends
Chipotle is a growing company and it is important that they are aware of changes in the
environment which can impact the company. We analyzed three different trends including
aspects from political/legal, sociocultural, and demographic segments that will have the highest
impact on Chipotle.
Political/Legal Trend: Minimum Wage
An increase in minimum wage is a political/legal trend that Chipotle is currently facing.
The current minimum wage in the majority of the states is $7.25 an hour; however, this could
be raised to $10.10 an hour to $15 an hour. If minimum wage were to reach $15 an hour,

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approximately one-third of the fast food industry’s costs would be labor based (Greenhouse,
2013). As a result, economics professor, Arindrajit Dube, believes consumers would need to pay
17%-20% more (Greenhouse, 2013). By increasing the cost of the desired product, demand for
the product will slowly decline. Chipotle needs to create a plan to reduce costs in order to
offset the labor increase or develop a way to retain customers who are willing to pay a higher
price.
If Chipotle were to ignore the trend of an increase in minimum wage it could be
catastrophic. The research director for Employment Policies Institute stated that “sharp
minimum wage hikes to about $12 an hour in some cities have resulted in business closures,
layoffs and reduced hiring as restaurants and other businesses replace workers with
technology” (Davidson, 2015). In order to stay profitable, Chipotle needs to prepare for this
trend and be ready to make changes.
Sociocultural Trend: Healthy Food Options
Increasing concerns about health and the environment have increased the popularity of
the fast-casual restaurant industry. This industry attempts to find a balance between large fast
food franchises and more formal restaurants (Specter, 2015). More and more diners want food
that is fast, fresh, and reasonably priced. In addition, the food must meet the requirements of
various moral and health choices, including vegan and gluten-free diets (Durisin, 2013). By
offering healthier options quickly and inexpensively fast-casual restaurants are able to fill this
demand.
Although fast-casual restaurants currently make up only a small portion of the industry,
they are expected to grow at a much faster rate than other areas of the market. This growth is
fueled by growing concerns about the health and quality of their food among both millennials
and baby boomers (Li , 2015). The success of fast-casual restaurants, like Chipotle,
demonstrates that offering healthy menu choices may be very closely related to increasing
profits in the current market.
Demographic Trend: Aging Population
As the baby boomers and Generation X and Y continue to age, acquiring new lifelong
customers, specifically Millennials, is key for any business. This means implementing what

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Millennials want, like “higher ­quality ingredients, better -value food, entertaining casual
restaurants, and a preference for digital engagement” (McGrath, 2014). It’s extremely
important for fast food restaurants to know their target market and meet the demands of that
specific market.
If Chipotle were to ignore the changing demands, they will likely be unsuccessful. Real
business cycle analyst, David Palmer states “‘it will be critical for restaurant chains to assess
their competitive position and adapt to these new realities’” (McGrath, 2014). Chipotle is
currently working to meet the demands of the Millennials. However, the key to meeting the
demands and retaining customers is affordability. Ashley Lutz, retail editor for Business Insider,
states “Millennials say they want food that is high quality, free of additives, and sustainable, but
they aren't always willing or able to pay for it” (2015). As Chipotle meets the demands of
Millennials, they also need to stay true to the quality of their food and their beliefs, and keep
the products they serve affordable.
Porter’s Five Forces Model
Porter’s Five Forces Model is an analytical tool that can be used to help determine a
firm’s position in the industry. The five factors include; power suppliers, power of buyers,
intensity of competition, threat of new products, and threat of new entrants. Each factor can be
divided into various sub factors to which we used to determine if the threat is low, medium, or
high for our company. In the next section, we explain how the five factors affect Chipotle.
Power of Suppliers: High
Chipotle receives their supplies from various mid-size family farms and strives to always
use fresh, high-quality ingredients. Chipotle has established its “Food with Integrity” mission in
an effort to change the way customers view fast food. The company prides itself on using local
suppliers that meet Chipotle’s mission of animal welfare, sustainability, and social
accountability (Chipotle Mexican Grill, 2015). Having a regulated supplier selection policy limits
Chipotle’s supplier options, which gives suppliers more power. In addition, switching costs are
high and there are few substitutes between products which gives suppliers more power over
Chipotle.

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Concentration of Suppliers: Increases Supplier Power
Chipotle strives to use local food suppliers. This means that in particular areas suppliers
are very concentrated. In addition, Chipotle only works with suppliers that agree with their
“Food with Integrity” mission so they must find firms that are willing to meet this policy. Having
such strict requirements of using local suppliers that can provide high-quality ingredients gives
suppliers more bargaining power.
Availability of Substitute Products: Increases Supplier Power
There are very few, if any substitutes available for Chipotle’s ingredients. This gives
suppliers more power because Chipotle cannot change its ingredients and switch suppliers
without affecting the company’s current menu.
Importance of our Firm to Supplier: Decreases Supplier Power
Chipotle is very important for its suppliers. Local suppliers are often smaller, which
means that Chipotle’s success can have a big effect on their supplier’s profitability. Even though
suppliers can sell their products to other companies, Chipotle is a very large customer which
gives the company more bargaining power over its suppliers. If Chipotle has an overflowing
inventory and is reducing their purchases, this will hurt their suppliers. In fact, Chipotle’s
suppliers have recently been affected by the drop in Chipotle’s sales. The company that
supplies the paper bowls for Chipotle has had to lay off 5 percent of the plant’s employees to
make-up for Chipotle’s decreasing orders (Rainey, 2016).
Production Differentiation for Suppliers’ Products: Increases Supplier Power
Chipotle’s suppliers are highly differentiated based on quality, which limits the options
of suppliers for them. This gives their suppliers more power because there aren’t alternatives
for Chipotle to get their supplies from.
Switching Costs: Increases Supplier Power
Currently, Chipotle gets 70% of its produce from suppliers that are less than 150 miles
away and 33% of the produce is less than 50 miles away (Wederquist, 2010 ). Switching from a
local supplier to a supplier that is farther away will likely increase packaging and shipping costs.
Having high switching costs gives suppliers more power over Chipotle.

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Threat of Forward Integration: Decreases Supplier Power
The threat of forward integration by suppliers is low. There is a very small chance that
Chipotle’s local suppliers will be able to buy out Chipotle and establish themselves in the fast
food industry. This gives Chipotle more bargaining power over suppliers.
Power of Buyers: High
Although Chipotle’s buyers are not concentrated, minimizing the effect of the choices
made by any one group, buyers still have significant power in this industry. This power is
increased by the low to nonexistent switching costs in the fast food industry, the lack of
product differentiation in this industry, and the significant threat of backward integration. This
means that Chipotle must consider buyer power in its strategy and decision making.
Concentration of Buyers: Decreases Buyer Power
Chipotle’s buyers are not very concentrated. The wide base of Chipotle’s customers
limits their buyer power. Because Chipotle’s customers are spread out and not unified, the
desires of a small portion of them are unlikely to influence the policies of the company. This
allows Chipotle to make decisions without the need to fear the consequences of a segment of
their customers disagreeing with the choice.
Switching Costs of Buyers: Increases Buyer Power
In order to switch products, buyers simply need to go to another restaurant. By doing so
they incur little to no costs. The only cost for the customer is the extra distance to the
competitor’s location. This increases buyer power, because customers can change to a
competitor’s product easily and with no penalty.
Product Differentiation: Decreases Buyer Power
Chipotle’s products are highly differentiated. What makes Chipotle differentiated is the
quality of meat they provide. Chipotle buys more vegetarian-fed and antibiotic-free meat that
any other restaurant in the world (Blackman, 2010). Although they offer high quality cuts of
meat, other products offered by Chipotle are very similar products that can be found at other
fast-casual Mexican restaurants. This allows customers to choose to eat at another restaurant
without sacrificing their available options. However, since they are sacrificing quality, buyer
power is decreased.

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Threat of Backward Integration: Increases Buyer Power
There is a significant threat of backward integration in this industry. Customers could
easily produce the same, or similar, meals at home. This option may appeal to customers,
because such meals could be healthier and less expensive. Making their own meals would also
allow customers to choose the flavors and seasonings that appeal to them, rather than having
to accept the standard ones offered by Chipotle. Having the option to cook at home increases
buyer power.
Intensity of Competitive Rivalry: High
The intensity of competitive rivalry in the Mexican fast food industry is high. The
following factors have increased competitive rivalry: number of competitors, industry growth
rate, storage costs, switching costs, and strategic stakes. Chipotle’s product differentiation does
put them ahead of the competition, which helps decrease the competitive rivalry. Each factor’s
relevance is important to Chipotle’s future as a Mexican fast food restaurant.
Number of Competitors: Increases Competitive Rivalry
In 2015, Chipotle was the leader of the Mexican fast food industry (Investopedia, n.d.).
Chipotle has the following four direct competitors: Qdoba Restaurant Corporation, Fresh
Enterprises, LLC, Mswg LLC, and Rubio's Coastal Grill (Investopedia, n.d.). Taco Bell Corporation
is also one of Chipotle’s competitors; however, the competition isn’t as strong. Having four very
similar restaurants competing in the Mexican fast food industry increases the threat of rivalry
for Chipotle. Consumers have the ability to purchase meals very similar with little effort.
Industry Growth Rate: Increases Competitive Rivalry
Chipotle participates in the 200 billion dollar fast food industry that is expected to grow
by 2.5% annually (Franchise Help, 2016). The fast food industry as a whole is incredibly large,
but Mexican fast food restaurants only account for 7% of the market share in the quick service
restaurant industry (Franchise Help, 2016). The growth rate for Mexican fast food is fairly low,
resulting in an increase in competitive rivalry. Chipotle will need to continue to differentiate
themselves to maintain customers in a slow growth rate industry.
Storage Costs: Increases Competitive Rivalry
Storage costs are an important factor in considering the intensity of competitive rivalry.
High storage costs in the food industry can lead to an increase in pricing. Chipotle’s whole or

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nothing promise is as follows: “We're all about simple, fresh food without artificial flavors or
fillers. Just genuine raw ingredients and their individual, delectable flavors. We source from
farms rather than factories, and spend a lot more on our ingredients than many other
restaurants. We wouldn't have it any other way” (Chipotle, 2015). The whole or nothing
promise forces Chipotle to have high storage costs, which increases prices and waste. Chipotle’s
fresh ingredients allow its competition to have an edge over storage costs, leading to lower
pricing and increasing competitive rivalry.
Product Differentiation: Decreases Competitive Rivalry
Product differentiation is a primary factor in having a competitive advantage and
maintaining a customer base. Chipotle’s advantage of fresh ingredients has led Jeremy
Bowman, writer for Business Insider, to state “Chipotle's loyal customer base is not about to fall
for cheap imitations” (2014). Having a product that sets Chipotle above its competition has
decreased the competitive rivalry for the firm.
Switching Costs: Increases Competitive Rivalry
Customers have low switching costs when comparing Chipotle to its competition,
resulting in a high intensity of competitive rivalry. Chipotle’s prices for a burrito are about
double the price of Taco Bell (Dastin, 2014). Comparing prices on a more head-to-head basis
with Qdoba, the pricing puts Qdoba at an advantage and they offer free guacamole (Johnson,
2015). Consumers have the ability to easily get Mexican fast food cheaper than Chipotle, giving
the competition an edge. This threat is high for Chipotle, as they face keeping profits and
continuing to maintain the quality of their food.
Strategic Stakes: Increases Competitive Rivalry
The remaining factor that is influencing the intensity of competitive rivalry for Chipotle
is strategic stakes. Currently, Chipotle is facing high strategic stakes and has a lower market
position than in previous years. Chipotle’s E.coli outbreak resulted in a drop of $10 billion of
market value since August of 2015 (Johnson M. , 2016). In efforts to gain the trust of their
consumers and increase market value, Chipotle plans to spend $10 million to ensure food-
safety and closed 2,000 restaurants to implement new food procedures (Jargon, 2016). Chipotle

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has faced these high strategic stakes, but it’s too soon to see the results of their efforts to
redevelop the trust they’ve lost.
The Threat of New Entrants: Low
As a company in the Mexican fast food industry, Chipotle has a select few competitors.
Chipotle has a well-known brand name, has established distribution channels, has proprietary
knowledge, and has easy access to raw materials in the industry which decreases Chipotle’s
concern about competition. The fast food industry also has reachable capital requirements and
low switching costs which make it easier for other companies to enter the market in a single
location. However, an established and comparable chain isn’t easily attainable. Therefore the
threat of new entry is low.
Economies of Scale: Decrease Threat of New Entry
Chipotle’s quality of food standard means that they pay high prices for the foods they
offer. In addition, they buy locally grown food which inhibits them from buying a vast amount
from one location. This doesn’t allow Chipotle to capitalize on a decrease in costs, because
they’re unable to increase their quantity. Therefore, the threat of a new entrant would
decrease because there isn’t a cost benefit.
Product Differentiation: Decrease Threat of New Entry
As a brand, Chipotle is very established and consumers know exactly what to expect
when it comes to the quality of their food. Chipotle is known for its promise to use the best
quality ingredients they can. However their products are similar to other fast food Mexican grill
competitors, aside from quality. As a result, this would slightly decrease the threat of a new
entrant. A new company would need to be established for some time to achieve the same
brand recognition that Chipotle has.
Capital Requirements: Decrease Threat of New Entry
Capital requirements in the fast food industry are very obtainable when opening one
restaurant. A new business can be started by spending between $100,000 and $250,000,
according to 20% of new business owners (McCamy, 2014). Opening one restaurant is easy to
achieve when entering the fast food industry. However, it isn’t easy to build a chain
comparable to Chipotle’s. As a result, this decreases the threat of a new entrant because the

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startup costs are significant.
Switching Costs: Increase Threat of New Entry
Switching costs in the food industry are very minimal. Since this means they would not
deter customers from switching from established restaurants to new ones, it increases the
threat of new entrants.
Proprietary Knowledge: Decrease Threat of New Entry
Chipotle’s co-CEO is a classically trained chef, and the company believes that each
location must learn cooking techniques specific to Chipotle. Chipotle’s chefs learn how to
prepare their high quality ingredients in a particular way that makes Chipotle’s food special
(Chipotle, 2015). Having a unique recipe and way to prepare food gives the company more
power, and decreases rivals’ power.
Access to Raw Materials: Decrease Threat of New Entry
Chipotle has special access to raw materials because they get their produce from local
farms as opposed to factories. The company has a special relationship with their sources, which
is hard to replicate. Having a strong relationship with their suppliers gives Chipotle an
advantage and decreases power for competitors.
Threat of Substitute Products: High
The threat of substitute products provides a significant threat in the overall market.
However, the fast-casual industry offers a balance between efficiency, quality, and price that
appeals to a large portion of the market. This allows restaurants like Chipotle to compete with
the variety of substitute products available to consumers.
Some of the major categories of substitutes to be considered are full-service and casual
restaurants, fast food restaurants, and grocery stores. While these substitutes are certainly a
concern, depending on customers’ priorities, Chipotle offers advantages over each of these
other industries.
Full-service and casual restaurants
Although full-service and casual restaurants are able to offer greater service and, in
some cases, better quality food in a more traditional dining environment, they are generally
more expensive and require a greater time commitment than fast-casual restaurants, like
Chipotle.

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Fast food restaurants
Fast-casual restaurants attempt to balance the quality of food and service offered by
casual restaurants with the speed and inexpensiveness of fast food restaurants. This means
that, though they may be slower and slightly more expensive, they offer superior quality to fast
food restaurants.
Grocery Stores
Consumers also have the option of purchasing ingredients at a grocery store and
cooking at home. A home-cooked meal may or may not be better quality and less expensive,
but it also requires significant time and effort. This option is also discussed under Power of
Buyers as the threat of backward integration.
Conclusion
Chipotle is a fast growing, well known restaurant that has helped to change how people
feel about fast food. Through our research we were able to identify three political/legal,
sociocultural, and demographic trends that have a big impact on Chipotle, they include the
change in minimum wage, the change to healthier eating, and the change of the aging
population. In addition, we analyzed the five forces; power of suppliers, threat of new entrants,
power of buyers, threat of substitute products, and intensity of competition to determine
Chipotle’s position in the fast food industry. Currently, Chipotle is in a high-risk position which
could very dangerous for the company.

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Grant’s Strategy Analysis Model of Resources and Capabilities
In this section, we will identify Chipotle’s strengths and weaknesses through the use of
Grant’s Strategy Analysis model. After these strengths and weaknesses have been identified,
Chipotle’s superfluous strengths or zones of irrelevance will be detected. A total of 5 resources and 5
capabilities will be analyzed. Each resource and capability will first be analyzed in terms of
importance to the industry, followed by Chipotle’s relative strength. Each resource and
capability will be given a score on a scale of 1 to 10, with 5 as average or the same as the direct
competition. Chipotle’s main competition, Qdoba and Taco Bell, will be referenced to support
the scores given to Chipotle.
R1: Importance of Human Resources to the Industry (8)
Higher sales and profits are often the result of quality managers (Keller,
2012). Management quality can be encouraged by training and promoting employees that
portray leadership skills. Providing training and development opportunities to employees can
also increase productivity and job satisfaction, leading to lower turnover and a decrease in the
costs necessary to hire new employees. Since the turnover rate is more than 100 percent in
this industry, the ability to retain quality employees can be a big advantage (Headley,
2016). Since retaining employees and developing managers can both lower costs and increase
profits, human resources scores an 8 in importance to the industry.
Chipotle’s Relative Strength (9)
The Denver Post cites Chipotle’s training program as a key factor contributing to its
growth. Because of this training program 98 percent of managers at Chipotle in 2012 started as
burrito rollers. This is a huge increase from 20 percent in 2005 (Keller, 2012). Although these
training programs can have significant benefits, many restaurants have accepted the high
turnover and have failed to create programs to develop leaders among their current employees
(Headley, 2016). Since Chipotle’s training and promotion program is unusual in the industry
and has been correlated with its growth, the company received a score of 9 for this resource.
R2: Importance of Reputation to the Industry (8)
The survival of a business is directly linked to their reputation and the confidence their
consumers have in their abilities (Bracey, 2012). Building a strong brand and reputation is how a

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firm stands out and is chosen over the competition. In the fast food industry, it’s crucial for our
consumers to think of our firm with high regards. Reputation is what encourages new
customers and maintains loyal customers. The importance of reputation in the fast food
industry is ranked as an 8 based on Grant’s Model.
Chipotle’s Relative Strength (3)
Maintaining a reputation that is stronger than Chipotle’s competition is the key to their
success. Chipotle once had a strong, recognizable, and reputable brand that was quickly
growing and in high demand. Recent events regarding E.Coli outbreaks and norovirus cases
have harmed Chipotle’s reputation. Hayley Peterson, senior correspondent for Business Insider,
stated that consumer perception of the brand is at its lowest level since 2007, according to the
(YouGov Brand Index) survey. Chipotle’s competitors, Qdoba and Taco Bell, have been able to
maintain their reputations, unlike Chipotle. Chipotle’s brand recognition is widely known, but
Qdoba isn’t too far behind when it comes to recognition and a growing reputation (Guess
Which Burrito, 2015). Consumers are receiving exactly what they expect. The same is true for
Taco Bell, which has stayed true to its reputation consisting of cheap quick-serve food (Oches,
2011). Reputation is important in the food industry and consumers want what they expect.
Taco Bell and Qdoba have been able to maintain their reputation, as Chipotle’s has declined.
Due to recent events, Chipotle’s brand reputation is much lower than its competition, resulting
in a score of 3.
R3: Importance of Finance to the Industry (10)
Finances are crucial to making good opportunities happen, as the old saying goes, it
takes money to make money. How a business uses their finances can affect their ability to
purchase goods, employ staff, acquire licenses, and expand and develop. While most
businesses have some forms of debt, it is important to have adequate debt to income
ratios. Vendors and suppliers often run credit checks and may limit what a business can buy on
credit. Debt ratios can affect a company's ability to attract investors including venture capital
firms and to acquire new commercial space (Feigenbaum). When some element of the finance
process breaks down companies go out of business and the economy moves into

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recession. Due to the hindering effects that finances have on a company, we provided finances
with a relative strength of 10 in the food service industry.
Chipotle's Relative Strength (6)
When comparing Chipotle to the competition in terms of profit margin, Chipotle
comes out slightly ahead. For the ending of fiscal year 2015 Chipotle had a gross margin of
26.09%, which in basic terms is the percentage per each revenue dollar left over after
accounting for cost of goods sold (Morning Star). In comparison, Taco Bell ended with a
gross margin of 24.55%, just slightly lower than Chipotle (Y Charts). We were unable to
find financial information for Qdoba due to them being a privately held corporation. Even
though Taco Bell’s ultimate motive is low cost and Chipotle’s is the use of quality
ingredients, each company ultimately comes out the same in terms of accounting for cost of
goods sold in their overall revenue. Since the gross margin ratios are close, with Chipotle’s
slightly higher, the strength of Chipotle’s financial resources scored 6.
R4: Importance of Trade Secrets - Recipes/Techniques – to the Industry (4)
Recipe and food preparation methods are an important resource for firms in the fast
food industry. They allow restaurants to consistently prepare and serve food that tastes the
same or similar in different locations with less regard for who is preparing the meals. Recipes
can also allow restaurants to predict costs more accurately by allowing them to determine how
much of each ingredient is required to prepare a meal and how long preparing that meal is
likely to take (Kelnhofer, 2013). Consistency and cost control are both important aspects of any
business. However, since having a recipe to follow is generally enough and specific recipes
rarely offer competitive advantage, this resource scores a 4 in importance to the industry.
Chipotle’s Relative Strength (5)
The main thing that sets Chipotle apart is the quality and freshness of their ingredients
(Chipotle, 2015). That being said, the recipes themselves are not unusual for a Mexican
restaurant, and consumers and competitors could fairly easily identify the ingredients and
prepare a similar dish with only slight variations in taste. If there are any secret recipes or
ingredients they are not well publicized and, therefore, offer little competitive advantage. The
recipes and food preparation methods Chipotle uses do, however, contribute to their ability to
serve the same dishes consistently and track and control their costs. Qdoba, Taco Bell, and

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other restaurants in this industry have recipes that can presumably be copied fairly closely,
creating a competitive parity. This leads to an average score of 5.
R5: Importance of Physical Resources to the Industry (10)
In the fast food industry, the physical resources would include the number of
restaurants within each franchise. The more restaurant locations a company has, the more
potential the company has to make income. However, these physical locations must be in
favorable locations in order to attract customers and increase the chances of the location being
profitable. The company with the most favorable locations has the advantage. With no physical
locations, a business in the fast food industry would not succeed. Therefore, we give physical
resources an importance score of 10 in the fast food industry.
Chipotle’s Relative Strength (5)
Currently, Chipotle has 2,010 locations worldwide (Statista, 2016). In comparison,
Qdoba currently has opened 641 restaurants (Qdoba, 2016). This means that Chipotle has
approximately 3 locations for every 1 of Qdoba’s restaurants. This gives Chipotle an advantage
over Qdoba because with more locations customers often have easier access to a Chipotle
restaurant. However, Chipotle’s other competitor, Taco Bell, has opened 6,400 restaurants
worldwide (Taco Bell, 2016). This means that Taco Bell possesses about 3 times as many
locations as Chipotle. Chipotle has an average relative strength when comparing the company’s
physical resources with Qdoba and Taco Bell, which is why we gave Chipotle a score of 5.
C1: Importance of Customer Service to the Industry (9)
In the fast food business it is important to provide a good experience for the customer.
If the customer is not pleased with a company’s service they may decide to visit a competitor’s
business the next time. Having quality customer care ensures that a customer is loyal to the
company and will be a repeat customer. Customer service is based on many factors. These
factors include staff courtesy, service speed, order accuracy, food services, restaurant layout
and cleanliness, food variety, beverage variety, food quality, beverage quality, and ease of
website navigation (American Customer Satisfaction Index, 2015). Companies must consider all
of these aspects in order to have good customer service. If a company does not consider these

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factors, then they reduce their quality of service. Since having great customer service is very
important in the fast food industry, we gave this capability a relative strength of 9.
Chipotle’s Relative Strength (9)
Through our analysis we ranked Chipotle’s customer service at a 9. Chipotle has a well-
known reputation for having great customer service. According to the American Customer
Satisfaction Index, in 2015 Chipotle had one of the highest ratings for customer service in the
fast food industry. Chipotle received a score of 83. In comparison, Taco Bell received one of the
lowest scores, which was a 72. Additionally, Taco Bell has also been listed as #7 in the fast food
industry for worst customer service (Tice, 2012). Yet, in another study conducted by Market
Force Information, Chipotle was listed as the America’s second favorite fast food Mexican
restaurant for customer service. Qdoba was ranked fourth and Taco Bell was ranked last out of
11 Mexican fast food restaurants (Market Force, 2016). According to our research, Chipotle has
a better reputation for Customer Service in the fast food industry. Taco Bell has very low quality
customer service and Qdoba’s customer service is average quality. We ranked Chipotle’s
customer service at a 9 since Chipotle has been given many quality reviews and high ratings
based on the company’s customer care.
C2: Importance of Food Preparation to the Industry (9)
Since the primary business of fast casual restaurants, like Chipotle, is the preparation
and serving of food, food preparation is one of the most critical capabilities for these
firms. According to Forbes, fresh and high quality food preparation is one of the major
characteristics separating fast casual restaurants from fast food (Trefis Team, 2014). This
means that the ability to prepare quality food in such a way as to appeal to consumers is
essential to compete in this industry. It is also important that food preparation methods meet
safety standards intended to prevent the spread of disease. This is an essential capability for
any restaurant and scores a 9.
Chipotle’s Relative Strength (5)
Most of Chipotle’s food preparation takes place in the restaurant, by hand and using
classic cooking techniques and quality ingredients (Chipotle, 2015). However, the company has
made some changes in their food preparation methods following a recent E. coli outbreak. New

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safety measures include chopping some vegetables, such as tomatoes and cilantro, in
centralized locations and increased testing of meats (Ruggless, 2015). With these new
measures, Chipotle is attempting to strike a balance between fresh preparation and safety
standards. On Ranker’s list of The Top Mexican Restaurant Chains, Chipotle was listed as
number one. Qdoba Mexican Grill was number four and Taco Bell came in at fifteen. One of the
reasons cited for this ranking was the quality ingredients used by Chipotle (Ranker, 2015).
Despite the recent E. coli outbreak, Chipotle is known for its quality ingredients. These
ingredients are one of the main factors giving Chipotle the capability to prepare quality food
and leading to a score of 5 despite doubts as to whether Chipotle’s new food preparation
techniques will be enough to prevent the spread of disease in the future.
C3: Importance of Cost Management to the Industry (9)
Success of an enterprise is largely based on the company's cost management
techniques. It helps in preparation and successful executions of plans for development and
expansion. Cost management is also used as a focal point in decision making. By evaluating the
profitability of a potential project and the potential risks, a company can use cost management
to make executive decisions. Cost management allows a company to perform food cost
calculations and evaluate their menu planning. If certain items cost more than your target
customer is willing to pay, that item probably shouldn't be on the menu. By eliminating items
with low profits, a company can reduce their food costs and increase their profit margin. When
it comes to a restaurant's cost structure, there is no cost as big as food and beverages which
can range from 25-40% of the restaurant's total costs (Controlling Food Costs In a
Restaurant). Cost management is essential for the success of any company in the food service
industry which is why it is rated a 9 on Grant's model.
Chipotle's Relative Strength (5)
With food costs making up almost half of a restaurant’s total costs, it is important to
decide whether your food options will be based on price or quality. Chipotle and Qdoba’s cost
management program consists of quality ingredients. They both are looking to provide their
customers with quality food which comes at a greater price. Taco Bell, on the other hand, has
established a business model on feeding people, quickly and cheaply (Coomes, 2013). They

18. [17]
have even outsourced the cooking of their meat in order to limit prep work and worker
utilization. There is a target market for both low cost food and quality food, which is why
Chipotle’s relative strength in terms of cost management is a 5.
C4: Importance of Human Capital Management to the Industry (6)
The fast food industry presents a variety of challenges when it comes to managing and
retaining human capital. With turnover rates exceeding 100 percent, fast food restaurants are
constantly incurring the costs of hiring and retraining employees. Being able to capitalize on
employees and receive a return on the investment of workers is important, but hard to achieve
in the fast food industry (Reynolds, n.d.). Many employees view their positions in the industry
as temporary, undercompensated, and very limited when it comes to advancement. This
capability has been ranked as a 6 on our Grant’s Model because having the ability to retain
employees in the fast food industry helps lower costs and keeps knowledgeable employees.
Chipotle’s Relative Strength (9)
Chipotle continues to add incentives to retain employees and attract individuals.
Chipotle began a tuition reimbursement program, added vacation time, and added paid leave in
July of 2015 (Jones, 2015). In addition, their employees start at a wage higher than the
minimum wage and have opportunities for advancement through training programs. Taco Bell
has been reducing their turnover rate since the 1990’s, but they haven’t made the efforts that
Chipotle has in terms of additional benefits (Thompson, n.d.). Chipotle’s other main competitor,
Qdoba, hasn’t done anything to stand out as an employer to attract or retain employees. This
means that Chipotle’s ability to manage human capital is much better than their competition,
which is why their relative strength score is a 9.
C5: Importance of Supply Chain Management to the Industry (9)
Supply chain management is an essential piece of the food industry. Without good
supply chain management restaurants could be paying too much or running out of the foods
they need to serve. Todd Bernitt, general manager for C.H. Robinson, stated "One thing all
restaurants are doing is managing labor farther up the supply chain, and pushing inventory
levels back to suppliers to manage, thereby controlling costs, keeping inventory fresh, and
allowing menu planning variability" (O'Reilly, 2012). By successfully managing suppliers in the

19. [18]
food industry, companies are able to have control over their profits and inventory. This
capability is ranked as an 8 based on our Grant’s Model.
Chipotle’s Relevant Strength (4)
Unlike Taco Bell and Qdoba, Chipotle has very unique food standards that their suppliers
must comply with. In order for Chipotle to consider a supplier, there is a list of requirements
that need to be met in order to meet the food with integrity standard. Caroleann Boyle,
employee of next level purchasing, wrote “Chipotle’s many requirements limits the options for
suppliers, increasing sourcing risks and the potential impact on consumers” (2015). Chipotle is
limited in their abilities to select suppliers and has had to remove menu items when suppliers
were unable to produce what Chipotle needed. Both Taco Bell and Qdoba have an upper hand
when it comes to supply chain management. Taco Bell uses Restaurant Supply Chain Solutions,
LLC to maintain their supplier-relationships and negotiate pricing (Restaurant Supply Chain
Solutions, 2016). Chipotle’s other main competitor, Qdoba, has suppliers that have helped
them “manage commodity costs and meet high performance standards” (Business Wire,
2014). If Chipotle was managing their suppliers as well as their competition, they wouldn’t be
unable to serve certain menu items at times. The food standards that Chipotle has set make it
difficult for them to take advantage of commodity costs, because they are unable to buy in
bulk. Overall, Chipotle has room to improve their supply chain management relative to their
main competition. Due to the fact that Chipotle’s competition is able to manage their suppliers
and receive the cost benefits, Chipotle’s relative strength has been given a 4.
Conclusion
After analyzing resources and capabilities, we’ve found that Chipotle has 5 key
strengths, 3 average ratings, and 2 key weaknesses. This tells us that Chipotle is doing many
things well or equal to their competition, but there is room for improvement. In order for
Chipotle to be at par or better than their competition, we need to address our reputation and
lack of supply chain management.

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1
Relative Strength
1 5 10
10
5
Zone of Irrelevance
Superfluous Strengths Key Strengths
Key Weaknesses
Strategic Importance
R4
C1
C5
C3 C2
R3
R1
C4
R2
R5

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Diagnosis and 3 Strategies
Before a strategy can be developed, the problems and concerns facing Chipotle must be
considered. The most important of these concerns are high buyer power and a severely
damaged reputation. Other concerns include high supplier power, significant competitive
rivalry, threat of substitute products, a limited number of physical locations compared to Taco
Bell, poor cost management, and poor supply chain management. A feasible strategy must
address the primary concerns of decreasing buyer power and improving Chipotle’s reputation.
The best strategy will also address some of our other concerns. Our three potential strategies
include Encourage and Educate Customers or ENE, Backward Vertical Integration, and Commit 2
Consume or C2C. Commit 2 Consume will be recommended as the most efficient strategy that
addresses many of Chipotle’s concerns.
Strategy 1: Encourage and Educate Customers
In this strategy there are two main aspects; encouraging new and old customers to
continue buying from Chipotle and educating customers on our company’s new food
preparation policies. With this strategy, we would set up a free membership program that gave
members rewards for signing up and continuing to make purchases at Chipotle. These rewards
would include special discounts, coupons, and holiday specials that we would offer to show
appreciation to our loyal customers. Also, we would incorporate a “bring a friend” rewards
aspect to the program. Customers that got new people to sign up for the rewards program
would receive a free burrito or equivalent item.
In addition, this strategy would publicize the changes Chipotle has been making to
prevent another E.Coli incident. Through YouTube videos and other social media channels

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Chipotle’s new food preparation techniques would become common knowledge. By educating
customers on these new techniques, this would encourage new and current customers to
purchase their food from Chipotle. In order to help with publicizing our new techniques, we
would hire a new Public Relations manager that specializes in crisis management. This way an
expert would be working with our company to address and resolve our current issue and any
future issues should they arise.
Adhering to Current Trends
Other restaurants have started to use membership rewards programs to attract new
customers and keep customers returning to their business. Our competitor Qdoba, already has
a rewards program known as “Qdoba Rewards” in place to help maintain their customer base
(Qdoba). By incorporating a similar program Chipotle would have an easier time competing
with Qdoba, and could mirror their membership program so Qdoba would no longer have a
competitive advantage. Chipotle could also make small improvements to their membership
program, so their program offers more benefits to customers.
Reducing Pressure From The Five Forces
By implementing the Encourage and Educate strategy, Chipotle would be able to
address the force Power of Buyers. Through our research we found that our buyers were a high
threat and this strategy would help to decrease buyer power. By establishing a membership
program our product and services would become more differentiated, which would decrease
buyer power. A membership program could also create some switching costs, further
decreasing the power of buyers.
Properly Aligning With Our Resources and Capabilities
This strategy most closely aligns with Chipotle’s reputation (R2). The recent E.Coli
outbreaks have made customers hesitant to return to Chipotle. Through our research we
discovered that Chipotle’s current customers are still loyal to the company. The issue for
Chipotle is attracting new customers (Verhage, 2016). By publicizing Chipotle’s new and
improved preparation techniques the idea is to ease customers’ fears and show that outbreaks
should not happen again. Having a “bring a friend” aspect is also an incentive for current
customers to bring in new patrons. Even though it would also take time to fix Chipotle’s

23. [22]
reputation, this strategy should quicken the process and also build a larger customer base for
the company.
Sustainability
With this new strategy, Chipotle would move back into the earlier stages of the growth
cycle. By improving the company’s reputation and attracting new customers, Chipotle would
continue to make changes to keep its customer base. For example, Chipotle would have the
opportunity to make changes to its rewards program and find new ways to keep their
customers informed on new company policies.
Limitations of Strategy
One of the biggest limitations of this strategy is that it cannot be implemented
immediately. It would take time for Chipotle to hire a new Public Relations Manager and take
time to develop the membership program. In addition, this strategy must also be incorporated
correctly so it is attractive to new members. If not enough rewards and discounts are offered,
customers may not want to take the time to sign up. Having a membership program that is
slightly different from the competition and offers great benefits is key to this strategy’s success.
Lastly, Chipotle must do a better job publicizing the changes they have made within their
company to prevent more outbreaks. If the company does not correctly use social media or
dedicate enough funding into educating their customers, then this strategy would not be
successful.
Strategy 2: Backward Vertical Integration
Implementing the Backward Vertical Integration strategy would allow Chipotle to
become their own food supplier at all locations. This strategy would allow Chipotle to have
control over their ingredients at every stage of the process. After recognizing that their current
suppliers have made mistakes resulting in bacterial outbreaks, Chipotle would be able to have
better control over their products. By becoming their own supplier, Chipotle would be proving
to their customers that they take safety seriously and are ready to do something substantial
about it. This would help Chipotle repair their tarnished reputation and in the long run would
potentially reduce costs and decrease buyer power.

24. [23]
Adhering to Current Trends
Customers value Chipotle because of their integrity standard, which is directly in line
with the current health trends. Their promises include the use of fresh and local food and
extend to the fair treatment of animals that are not treated with nontherapeutic antibiotics and
synthetic hormones (Chipotle, 2015). In order for Chipotle to maintain their current promise of
fresh and local ingredients, they would need to develop enough farms to serve their 2,010
locations and grow ingredients that are within their 350 mile local promise. Implementing the
Backward Vertical Integration would only be successful if the food with integrity standards are
maintained.
Reducing Pressure From The Five Forces
By implementing the Backward Vertical Integration strategy, Chipotle would address 3
of the 4 forces that The Porter’s Five Forces threat analysis found to be high. The threat from
the power of suppliers would be eliminated and Chipotle would become entirely responsible
for efficiently supplying all of their stores with safe and quality ingredients. By becoming their
own supplier, Chipotle would eventually be able to lower the costs of their food. As a result, the
intensity of competitive rivalry and power of buyers would be reduced in the long run.
Properly Aligning With Our Resources and Capabilities
This strategy addresses both the resource and capability that Chipotle has as key
weaknesses, reputation (R2) and supply chain management (C5). By becoming their own
supplier, Chipotle would eliminate the lack of control they currently have over their suppliers.
In addition, Chipotle’s reputation would be improved because they would be addressing the
previous issues with suppliers by eliminating them. This strategy could move Chipotle’s key
weaknesses into their key strengths and put them at a competitive advantage.
Sustainability
The sustainability of this strategy could move Chipotle back into the growth stage of the
business life cycle. By eliminating the reason for Chipotle’s declining reputation, it’s likely that
they would win back the customers that left Chipotle. In turn, this could result in Chipotle’s
growth, if they are able to sustain being their own supplier. Chipotle would be required to

25. [24]
contribute significant capital and would only be supplying to their stores, creating a challenge
for the company.
Limitations of Strategy
The backward vertical integration strategy presents the highest number of limitations
for Chipotle. These include the following: time, cost, and locations. For Chipotle to successfully
become their own supplier for each location it would require approximately 5-10 years. This
would not be optimal for Chipotle because their tarnished reputation needs to be restored
immediately. In addition, the costs of implementing this strategy would be extensive; a small
farm costs approximately $189,000 to create (Build A Farm, n.d.). Chipotle would need to
develop local farms for all of their locations and then solely incur the overhead costs each year.
Backward vertical integration would address Chipotles main concerns, but not without
tremendous costs and time; therefore, this strategy would not be feasible for Chipotle at this
period in time.
“Commit 2 Consume” (C2C) Recommendation
Commit 2 Consume would be a paid subscription membership program that Chipotle
would offer. The first piece of the “C2C” strategy would be to hire new management that
specializes in public relations and crisis management. This would allow Chipotle to be open with
their customers about the changes that have been made and restore trust in Chipotle. Chipotle
would also implement the subscription model. This model would consist of a $15 monthly
subscription that would be app-based and include 3 meals, a points tracker that rewards
customers with discounts, and the ability to order from their phone. In addition, we would
implement a pick up only lane to save members time when they are picking up the food they
have already ordered. Due to the incentives built into this membership program, it would not
only bring in existing customers, but acquire new customers allowing Chipotle to reconstruct
their customer base. “C2C” would be a great option for people who want to order their food at
the touch of a button, eliminate wait time to dine in or take out, and save money while doing it;
all things our customers would be attracted to.

26. [25]
Adhering to Current Trends
Today, people seem to want to dine out at a restaurant of their choosing, which can be
very expensive. “C2C” would allow customers to pay a monthly fee, receive digital coupons
with a limited number of meals, order online from their smartphone, and receive the benefits
of a points tracker. According to Kate Taylor, a retailer reporter for Business Insider, most of the
food chains have implemented online ordering, and Chipotle can get a sense of what customers
like and do not like (Taylor, 2015). Even though Chipotle’s brand name has been tarnished, the
customer will choose which restaurant to go to, based on the value of the product (Gregory,
2013). The discounts would appeal to the customers who have left Chipotle and have not
returned since the E. Coli incidents in 2015.
Reducing Pressure from The Five Forces
After performing the Porter’s Five Forces analysis we found that the power of buyers
was high due to customers going to a competitor with minimal switching costs. In addition,
customers can easily replicate mexican cuisine at home. This strategy would develop incentives
for customers to remain loyal to Chipotle, thus decreasing buyer power. In addition, the “C2C”
strategy would decrease competitive rivalry because members would be participating in a
subscription that other companies are not offering. By implementing the “C2C” strategy, the
power of buyers, power of suppliers, and the intensity of competitive rivalry will all decrease.
Properly Aligning With Our Resources and Capabilities
The resource that is the most closely related to the implementation of this strategy is
(R2) reputation. Chipotle encountered three separate E. Coli outbreaks in 2015 that affected
their brand and how consumers viewed them. By hiring a public relations expert we would be
able to take the first step in restoring Chipotle's image, by publicizing the changes that have
been made. The capability that closely relates to the implementation of “C2C” is Customer
Service (C1). Not having to physically go into the restaurant to order and by picking up your
order when completed would reduce time. Chipotle is known for providing excellent service to
its customers; by implementing this new strategy, Chipotle would continue to build
relationships with their customers and improve their reputation.

27. [26]
Sustainability
We are hoping that the sustainability of this new strategy would help move Chipotle
back into the growth stage on the business life cycle model instead of continuing further on
into maturity and ultimately into the declining stage. When it comes to who would benefit from
this strategy, there would be benefits for both Chipotle and its customers. Chipotle’s customers
would receive discounts on their food items and in return, Chipotle would develop a larger
customer base. The customers that are loyal to Chipotle visit up to 3 times per week; by
implementing this strategy we would develop loyal customers that would visit more frequently
(Verhage, 2016).
Limitation of Strategy
There is a major limitation when it comes to implementing the “C2C” strategy; initially
being able to get members to join. A current survey asked if customers planned on continuing
to eat at Chipotle after the E. Coli outbreak; 32% of respondents said they planned to eat there
as frequently as they had before, 12% said they would continue to eat there, but less
frequently, and 46% said they currently are not eating there, but will in the future (Verhage,
2016). By implementing a desirable “C2C” strategy we would be likely to attract the 46% of
survey respondents who said they would eat at Chipotle in the future. Although getting
members to join is a limitation, Chipotle would be able to capitalize on the “C2C” if the
incentives to join are high enough.
Conclusion
After analyzing three current trends that could impact Chipotle, we found that Chipotle
is in good standing when it comes to aspects from political/legal, sociocultural, and
demographic segments.
After all of our extensive research we have concluded the following for each of the
Porter’s Five Forces Model:
● Power of Suppliers: High
● Power of Buyers: High
● Threat of New Entrants: Low
● Threat of Substitute Products: High
● Intensity of Competitive Rivalry:
High

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Given these results, we discovered that the areas for concern for Chipotle are power of
suppliers, power of buyers, intensity of competitive rivalry, and threat of substitute products.
Every area of concern is addressed in strategy, except for the power of suppliers.
Next we looked at resources and capabilities that important to the fast-food industry.
Our findings indicate that Chipotle has 4 key strengths, 4 average ratings, and 2 key
weaknesses. The “C2C” strategy addresses both key weaknesses and could potentially move
them to key strengths.
After analyzing the trends, Porter’s Five Forces Model, and Chipotle’s resources and
capabilities, we’ve developed a diagnosis and formulated 3 strategies addressing it. These three
strategies included: Encourage and Educate Customers, Backward Vertical Integration, and the
“C2C” strategy. After careful research and consideration, we’ve come to the decision that the
“C2C” strategy would address the majority of Chipotle’s current concerns. The implementation
of this strategy is going to allow Chipotle to recover and gain loyal customers.