Organizational Analysis of Chipotle Mexican Grill - Example

Organizational analysis of Chipotle Mexican Grill Section s Chipotle Mexican Grill (CMG) focuses on a food culture where there customers are served with integrity and they use best quality ingredients. For instance, the company appeals to the group of customers who are against the use of GMO products. In order to develop a unique strategy, CMG offers its customers grass fed beef as an alternative to industrial beef. However, as a result of shortages in grass fed beef supply in recent times, the company has temporarily opted to conventional sources. This has not impact on their integrity because CMG has informed its esteemed costumers regarding the shift from its food culture. As a result of the awareness created by posting the changes in its restaurants, customers are in a position to make informed choices regarding what to consume from the available menu (Czaplewski, Olson & Mcnulty, 2014). From the onset, CMG has insisted on raising standards to improve the quality of its ingredients. While raising the quality of its ingredients, the company also acknowledges the importance of respecting animal rights, their customers and the environment. Since consumers are becoming more aware regarding the products they purchase, such a strategy ensures the company maintains its pool of conservative customers. As a top fast casual restaurant, CMG is taking advantage of the increasing demand for customized, fresh and high quality food. In order to attract more customers, the company combines the services common in fast food restaurants and casual dining restaurants. On another note, the target customer demographics are 18 to 34 year olds. Most of these customers come from the upper middle class who are mostly graduates and earn respectable income. Further, by embracing sustainability, Chipotle illustrates its customers the importance of corporate social responsibility within the food industry and the business world in general (Petrak, 2007). Fig 1: Chipotle Mexican Grill restaurant Source: Duluth News Tribune Business level strategies CMG focuses on a differentiation strategy to gain competitive advantage over other fast casual restaurants. Further, the food that CMG serve is premium priced in order to counter competition from fast casual restaurants such as Panera Bread and Qdoba, for instance. Further, the company maintains a focus on organic ingredients despite their high cost because of establishing a loyal customer base that is willing to pay higher costs for healthier food. Its mission of serving food with integrity and emphasizing quality ingredients provides competitive advantage over other companies in the food industry as a result of meeting customer demand for healthy food (Brown, 2014). Business level strategy and industry cycle i. Introductory stage Chipotle Mexican Grill entered the market in 1993 after the founder, identified an opportunity in the organic and natural food market. In order to test the market for organic and natural food, Chipotle begun by serving naturally raised pork instead of purchasing pork from industrial farms. Over the years, the increased consumer awareness has created market opportunity for serving healthy food diets. As such, CMG stood a better chance of succeeding in its business strategy of serving organic and natural food (Jennings, 2014). ii. Early growth The company became popular due to its emphasis on healthy food and by 1995; additional $1.5million was invested to open up more outlets. This led to the emergence of the fast-casual sector in the United States that rivaled other fast food restaurants such as Taco Bell, for example. During this period of early growth, each CMG outlet generated $1million annually in terms of sales. Further, the company also identified its target customer demographic who were mostly 18-49 year olds (Jennings, 2014). iii. Stage of late growth As a result of the need to expand due to increased demand for the CMG products, additional outlets were opened. In addition, the company decided to table an unsolicited plan to McDonald’s Corporation. During this time, domestic sales were flattening at McDonald’s Corporation and there was a need to jump start growth, which led to the buying of minority shares at CMG. As a result of McDonald’s infusion, CMG expanded beyond Colorado to Kansas City and other several new markets. In order to develop a differentiation strategy, the company shifted its focus entirely on organic ingredients. In addition, due to increased demand and customer loyalty, the company raised the price for pork burritos. Further, in order to attract more customers and increase sales, the company decided to hire the services of outside advertising agency (Kaplan, 2011). iv. Maturity stage By 2004, Chipotle products had already penetrated most of the market in the United States with expansion to the Pacific Northwest. However, due to the expansion, the company has to deal with extra costs such as advertisement costs and this to an extent affects profits. Further, despite penetrating the fast food market in America, the company has faced struggles in the past few years due to the economic recession of 2008 that affected consumer spending. The economy has since recovered and more customers are buying CMG products thus improving sales and profitability (Kaplan, 2011). v. Industry decline Due to the increasing shortage in the supply of grass fed beef, for instance, companies such as CMG are forced to shift to the conventional sources. However, this will affect sales and profits due to a decline in the number of customers visiting fast casual restaurant. In addition, consumers are increasingly shifting to homemade food other than relying on the fast casual sector. As a result, the future of this sector appears glim due to the shifting trends (Kaplan, 2011). Competitive dynamics The company faces competition from other fast casual restaurants such as Rubio’s, Qdoba and Moe’s Southwest Grill, for example. As a result, it is necessary for CMG to develop a differentiation strategy to counter the stiff competition in the fast casual sector. For example, maintaining a competitive advantage may involve a focus on effective marketing and serving unique products. On the other hand, the company further needs to take not of the strategy adopted by its competitors in the fast casual sector. For example, Taco Bell has enlisted the service of a celebrity chef to launch its Cantina Bell menu 31 as a way of countering competition from Chipotle. Further, other fast casual restaurants are also in the process of modernizing their restaurant interiors to improve dining experience. There are also enhancements from quick service restaurants meant to attract fast casual customers (Kaplan, 2011). Section 2 Corporate -Level strategies As a single business, CMG focuses on strategies such as market penetration and market development. As such, the extent of its diversification is low despite the launching of ShopHouse Kitchen for instance, because, a significant amount of its revenues emanate from Chipotle Mexican Grill. While there is more emphasis on expanding CMG domestically and internationally, the company can improve its diversification by investing in other businesses that it owns, for instance or introducing their food for integrity concept to other cuisines (Stevens & Lunsford, 2014). Market Power As a result of developing a powerful brand, CMG has placed itself in a strategic position to maintain pricing power. Further, as a result of the establishment of customer loyalty, the company does not experience a decline in customer base. This is because; the customers are attracted to CMG’s quality ingredients. As a result, the company is not affected by the lowering of prices from the competition. In addition, the CMG appears to have a higher market capitalization compared to rival companies in the fast casual sector. The company also does not have debts and this contributes to more revenue and bargaining power in the fast casual sector (Jennings, 2014). Resources and diversification Key resources for the CMG include corporate employees whose experience and capabilities contributes to the rapid growth. In terms of financial resources, CMG maintains zero debt and since it is a publicly traded company, it can issue new equity if needed. While the company leases most of the stores it occupies in different locations, it also boasts of intellectual resources that include various trademarks, for instance “Chipotle”. However, its brand name is the most valuable intangible resource. In terms of capabilities, the company has built its brand based on a focus on high quality ingredients. As such, CMG is in a position to appeal to more customers thus improving sales and profits (Stevens & Lunsford, 2014). In addition, the company has expanded its outlets across the United States and this helps to increase sales revenue. As a result, the company is also in a position to invest in other businesses as a way of spreading risks. Further, Chipotle has managed to establish a good relationship with suppliers and this help the Company to minimize supply shortages. With regard to diversification, Chipotle has managed to launch other concepts that focus on Asian food, for instance. In this sense, the company uses its business model to ensure that new restaurant concepts achieve success. The company further acknowledges the importance of expanding as a way of mitigating potential risks. As a result of the economic conditions in the United States, introducing Asian food into its concept can help to position CMG for long term growth and brand development. Further, CMG also has potential to expand to Europe and Asia; however, it is necessary for the company to develop a new model that appeals to Europe and Asia respectively (Kaplan, 2011). Merger and Acquisition strategies At present, there are no mergers or acquisition for CMG; however, the company can consider other strategies to improve its competitiveness in the market. Such strategies include, for instance, horizontal integration where the company can use its financial muscle to acquire rival companies in the fast casual sector. On the other hand, CMG maintains a focus on backwards integration, but now, it has not physically acquired its suppliers. Currently, the company is collaborating up with various farmers that specialize in sustainable food sources (Stevens & Lunsford, 2014). Restructuring In its restructuring process, the company has endeavored to remove GMO ingredients from its menu thus becoming the first major restaurant chain to do so in the U.S. In addition, the company has also added new menu items such as “sofritas” to increase sales. As part of its restructuring process, the company also plans to team up with Post mates to enhance the delivery of burrito across U.S (Jennnings, 2014). Downsizing Since the company is embracing expansion, there is need for more human capital. However, in 2011, CMG was forced to sack hundreds of its workers. This was mainly contributed by the immigration audit for undocumented workers. In addition, due to the economic conditions in U.S that may affect consumer spending, for instance, the company can consider downsizing as a way of minimizing extra costs (Jennings, 2013) Section 3 Cooperative strategy CMG maintains a focus on vertical complementary alliance with its suppliers. In addition, the company also maintains a close relationship with supplier to ensure continual supply fresh ingredients to its restaurants. The company also has an equity strategic alliance with Pizzeria Locale, for example, and Pizzeria Locale intends to expand with the help of Chipotle (Brown, 2014). Organizational structure and controls At the helm of the company includes the top management (co-CEOs) and the board of directors. While the co-CEOs are in charge of managing Chipotle’s businesses, the board of directors is responsible for safeguarding the interest of shareholders in the company. Further, the company does not franchise, but whenever it expands to new locations, there is a field team in charge of hiring a new general manager. The field team includes, for example, apprentice team leaders, area managers and regional directors (Jennings, 2013). Strategic leadership With regard to strategic leadership, the company has developed a staffing structure that is intended to improve opportunities for hourly workers such as moving to management positions. Consequently, the company benefits in terms of minimizing additional costs, time and resources that is spent on hiring new managers. Further, the company emphasizes a participatory leadership style and this helps to improve employee involvement (Jennings, 2014). Strategic entrepreneurship and innovation As a company that started with one outlet, Chipotle has expanded its restaurants to different locations in the U.S and Canada. This is due to a focus on high quality ingredients as a way of establishing a differentiation strategy and gaining competitive advantage in the fast casual sector. Further, the company also engages in process innovation as a way of enhancing dining experiences and luring more customers to its menu (Petrak, 2007). References Brown, D. (2014). A winning recipe. Marketing Magazine, 119(9), 31-33. Czaplewski, A.J., Olson, E.M., & Mcnulty, P. (2014).Going green puts Chipotle in the black. Marketing News, 48(3), 30-37. Duluth News Tribune. (2014).Duluths new Chipotle Mexican Grill holds soft opening. Duluth news tribune. Retrieved from http://www.duluthnewstribune.com/content/duluths-new-chipotle-mexican-grill-holds-soft-opening Jennings, L. (2013). Chipotle Mexican Grill. Nation’s Restaurant News, 47(9), 44. Jennings, L. (2014). Success story. Nation’s Restaurant News, 48(4), 34. Kaplan, D.A. (2011). Chipotle’s growth machine. Fortune, 164(5), 134-144. Petrak, L. (2007). Food with integrity.National Provisioner, 221(9), 22-26. Stevens, N.L., & Lunsford, R. (2014). Beyond the burrito: Chipotle Mexican Grills brand extension. Journal of Business Cases and Applications, 2, 1-44. Read More