Individual Case Study – Chipotle
BUSI 690 – Policy and Strategy in Global Competition
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Individual Case Study – Chipotle
Executive Homework help – Summary
Chipotle Mexican Grill, Inc. is one of the leading quick-service restaurant chains in the US and
operates 2,622 restaurants. The company’s existing strategy and business model indicate that it
operates firm-owned restaurants and focuses on delivering high-quality food at low prices
everyday to customers. The company has been successful but faces numerous complaints
regarding food contamination. This report presents a new mission statement appropriate for its
businesses and carries an internal analysis of the company. Based on the internal and financial
analysis, two alternative strategies have been proposed, and projections based on the
recommended strategy to open up new casual dining restaurants in the US are presented in this
report. It is suggested that the new strategy will increase the company’s profitability and generate
a positive net present value.
Existing Mission, Objectives, and Strategies
The company’s existing mission is “food with integrity” [CITATION Chi201 l 1033 ] which
implies that it ensures that its supplies are from sustainable sources without the use of chemicals
that could have harmful effects on humans. The primary goal of the company is to “focus on safe
and delicious food made with better ingredients” [CITATION Chi202 l 1033 ]. Its strategy
remained to have a small menu that offers limited choices of healthy, nutritious, and good quality
food items at competitively low prices. Furthermore, its focus is on expanding the network on its
restaurants in the United States until recently, as the company has launched its online and mobile
food ordering systems. It relies on providing efficient customer service and carrying out strong
advertising and marketing programs to communicate with customers and increase its sales.
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A New Mission Statement
The new mission statement of Chipotle is to (1) serve customers (2) healthy and delicious food
(3) without boundaries (4) by using sustainable food production technologies (5) and consistently
growing its business (6) by expanding its network and following ethical practices (7) and
challenging its competitors (8) by giving best quality food and value and services (9) by its
highly trained employees.
Analysis Of the Firm’s Existing Business Model
The existing business model of Chipotle focuses on providing enhanced food experience to its
customers. The key to the company’s business model is that it was not based on the standards of
Quick Service Restaurants (QSR) and offered a new approach to the business that challenged
other companies in the market. The company operates a large network of more than two
thousand restaurants in the United States and thirty restaurants in internal markets. Its business
model is based on a simple menu with a limited number of options available to customers at
comparatively low prices. The reason for this approach is that it aims to deliver high-quality food
quickly and efficiently for its customers rather than giving them greater choices with a lack of
focus on maintaining the level of quality and cleanliness. The company only operates company-
owned restaurants and does not offer franchise opportunities. The model is also based on low-
profit margins and greater sales volume. The company maintains low risk and margins on its
products and also has a low-pricing strategy to attract customers and also gain their loyalty to the
brand. Chipotle also treats its employees differently as it is noted that the company pays them
higher sales and wages as compared to other companies. Moreover, the company has diversified
its point of sale by developing an online ordering website and a mobile app.
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SWOT Analysis
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Internal Factor Evaluation (IFE) Matrix.
External Factor Evaluation (EFE) Matrix.
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SWOT Bivariate Strategy Matrix
Boston Consulting Group (BCG) Matrix
Competitive Forces Analysis, Competitive Profile Matrix (CPM), and Competitor’s Ratio
Analysis
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Competitive forces analysis.
FP
SP
Defensive
Conservative Aggressive
Competitive
CP IP
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-7.0
-5.0
-3.0
-1.0
1.0
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5.0
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Competitive Profile Matrix (CPM).
Competitor’s Ratio Analysis.
The competitor selected for review in this section is McDonald’s Corporation, which is a leading,
global chain of QSR. The key ratios of two years, 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online and 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers are presented in the following
table:
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The profitability ratios indicate that the company operated at healthy profit margins in both
years. The ratio values improved in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers as compared to 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online, which was a positive sign for the
company’s shareholders[CITATION Reu201 l 1033 ]. The net profit margin of 28.8% and 28.5%
in 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online and 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers respectively implied that the company had strong profitability, which was
added to its retained earnings that could be used for further expansion and product development.
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The DuPont analysis indicates that the company’s asset turnover declined in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers, which implies
that the company only generated $0.52 in sales in that year as compared to $0.63 in 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online from
the use of its assets. The liquidity position of the company weakened in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers as its current ratio,
and quick ratio values fell below 1. However, the cash cycle of McDonald’s reduced from 2.3 in
2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online to 2.0 in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers. Moreover, the times interest earned also reduced as the company’s interest
obligations increased more than proportional to the increase in its operating income. The
company’s long-term borrowing increased as a proportion to its equity. It implies that the
solvency position of McDonald’s was weak in both years, with a further decline in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers. The
receivables turnover of the company also reduced in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers, which is the reason it took a long time
to receive cash from its credit sales. On the other hand, the inventory turnover of McDonald’s
was significantly high, as in the case of the QSR business, and it only held inventory for less than
two days. The payable turnover had a similar trend as receivables. The ROIC of the company
also declined from 19.8% in 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online to 16.5% in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers, which implies that its investment capital
increases but did not generate a high return as compared to the previous year.
Historical Financial Statements
This section of the report performs trend analysis of Chipotle’s financial statements for the last
three years and also calculates deltas between those years.
Income Statement
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Note. Annual standardized in millions of U.S. dollars.
It is noted that the company;’s revenue increased by 14.83% in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers as compared to 8.68% in
2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online. On the other hand, its cost of sales increased by 12.61% in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers as compared to 6.34% in
2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online. There was a significant increase in the company’s selling, general, and administrative
expenses in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers. Furthermore, there was a 5.35% increase in unusual income generated from
restructuring, impairment, and gain on sale of operating assets in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers. The company did not
have any debt-related interest expense, and its interest income from investments increased by
41.58% in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers. The net profit of the company increased by $173.6 million in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers as compared
to just $0.3 million in 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online[ CITATION Chi204 l 1033 ].
Balance Sheet
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Note. Annual standardized in millions of U.S. dollars.
The trend analysis of the company’s balance sheet indicates that its total assets increased by
$2.83901 billion in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers as compared to $219.8 million in 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online. It shows that the company
significantly invested in the expansion of its restaurant’s network. Moreover, the company’s cash
and cash equivalents increased by 92.24% in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers due to the sharp increase in its operating
income. As the company’s sales increased in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers, the value of its receivables also soared by
73.84% in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers. The company did not have any debt, and its total liabilities increased by
315.14% in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers as compared to just 20.99% in 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online. The significant increase in its liabilities
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was due to the other liabilities related to the purchase of properties for new restaurants. Finally, it
is noted that the company’s total equity increased by 16.77% in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers as compared to 5.64% in
2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online. The company bought back treasury stocks, and this is the reason that its retained earnings
only increased by 13.51% in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers as compared to 7.36% in 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online [ CITATION Chi204 l 1033 ].
Cash Flow
Note. Annual standardized in millions of U.S. dollars.
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The cash flow statement analysis indicates that the cash from operating activities increased by
$100 million in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers, but the increase in 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online was higher at $154.5 million. The reason for this
difference was due to the increase in the company’s working capital in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers, which meant that a
significant amount of its cash was stuck in non-cash generating activities. In the last two years,
the company had made significant investments in buying new properties, which are now
managed by a separate entity, in expanding its sales network. The company had already repaid its
debt and was also buying back its stocks, which led to a cash outflow of $190.6 million, $160.9
million, and $285.9 million in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers, 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online, and 2017 respectively. The company’s free cash flow
has improved over the last three years. In 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers, it increased by 16.01% and rose by 33.52% in
2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online [ CITATION Chi204 l 1033 ].
Ratio Analysis
Chipotle’s key financial ratios and their values for the last three years are provided in the
following table:
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The profitability analysis of the company indicates that its profitability improved in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers as
compared to 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online[ CITATION Reu0a l 1033 ]. The operating margin of the company had
declined in 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online due to the case of food contamination. However, it has taken major steps to get
back the confidence of its customers by making improvements in its food management processes
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and also dealing with the issue effectively through media, including social media. The net profit
margin of the company increased by 2.8% in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers after it fell by 0.4% in 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online. The company’s
ROE was 22.4% in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers as compared to 12.1% and 12.7% in 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online and 2017, respectively. It
indicates that the company’s asset turnover and net profit margin increased substantially in the
last year. The liquidity position weakened in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers as the values of both the current ratio and
quick ratio gradually declined over the last three years but remained above the value of one. It is
noted that the company did not have external borrowing, and its assets were financed by internal
equity and capital raised from the stock market. The receivable turnover of Chipotle declined in
the last three years as its sales increased. The inventory turnover also reduced in those years, but
it had a high value similar to McDonald’s. Chipotle paid its suppliers in almost 36 days in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers,
and this strategy was the same in 2017 and 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online as well. The ROIC increased by 1.60% in 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers
as compared to a 0.60% decline in 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online.
Alternative Strategies
The two proposed strategies based on the the company analysis are provided in the following
along with their justification and advantages for Chipotle.
Investment in Casual Dinning Restaurants
This strategy is recommended on the basis that the company keeps its focus on the US market
and diversifies its revenue channels by opening up casual dining restaurants that have a different
theme and menu from its QSR restaurants. The company has tested this strategy already by
opening up Tasty Made burger restaurant and has opened up more than 200 restaurants. Further
expansion of similarly casual dining restaurants can help the company to overcome its
weaknesses of targeting a small customer segment and also avoid disruptions in its revenue that
are commonly caused by complaints about food contamination in its Chipotle restaurants. The
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management will be able to pursue this strategy based on its experience and keep the risk of
failure low as compared to the other strategy proposed.
Expansion of International Business
The company does not have a significant international presence other than 30 restaurants
opening in Canada, the United Kingdom, France, and Germany. Chipotle can globally expand its
network of restaurants and target emerging markets like China and India that have more
significant potential for international brands. Although this strategy will increase the risk level of
business and the company will have to invest in R&D to develop products that suit consumer
tastes in those countries, the potential increase in its revenue and profitability is significantly
high. It will also assist the company to be less dependent on the US market and also benefit from
the localization of its strategy in international markets.
Pro-Forma Financial Statements
The projected income statement with and without the new strategy is provided in the following.
The ‘without strategy’ projections are based on the company’s recent quarterly report and the
‘with strategy’ projectsions are developed using the estimated increase in revenue of 3%.
Income Statement
Note. Annual standardized in millions of U.S. dollars.
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Balance Sheet
Note. Annual standardized in millions of U.S. dollars.
Cash Flow
Note. Annual standardized in millions of U.S. dollars.
Ratio Analysis
Net Present Value Analysis
Based on the estimated invement of $300 million and the expected increase in the company’s
EBIT between with and without strategy estimations, the Net Present Value (NPV) is calculated
in the following:
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The proposed strategy is expected to have a positive NPV. Therefore, the company should accept
it and go ahead with expanding its network by opening new casual dinning restaurants in the US.
EPS/EBIT Analysis
Specific Recommended Strategy and Long Term Objectives
Based on the current strategy and practices of Chipotle, it is recommended that the company
expands its network in the US by opening up casual dining restaurants. The justification of
proposing this strategy is that the company has no significant experience of the international
markets, and it has halted its franchise policy, which means that its risk level will phenomenally
increase if it decides to own and operate its restaurants in different countries. The management of
operations will become challenging, and this could lead to a significant financial loss and also
negatively affect its position in the US market. The company can develop new brands and offer a
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healthy casual dining experience to US customers by innovating its products and give better
choices to customers in the US. The company can invest $300 million in opening 100 new
locations, which will allow the company to experience an increase of three percent in its revenue.
The new strategy can be implemented over the next three years, as depicted below.
Proposed New Business Model
The proposed business model is based on the creation of different segments and a flatter
organizational structure. The company can hire key personnel to manage different brands and
restaurant chains. The new business model will allow significant investment in research and
development of new products that will increase the scope of operations and target different
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groups of customers other than low-income earners who are mainly served at Chipotle
restaurants. The company will have different teams to work on the marketing and advertising
strategies for its new brands and restaurants. The focus on the company will be expanding its
network and diversify its revenue channels. The company will have stricter controls over its
supplies and food preparation and hold its employees accountable after giving them the
necessary training.
References
Chipotle. (2020a). Day after day we’re committed. Retrieved from
https://www.chipotle.com/food-with-integrity
Chipotle. (2020b). Chipotle – Food sategy overview. Retrieved from
https://www.chipotle.com/foodsafety
Chipotle. (2020c). Chipotle Announces First Quarter 2020 Results. Retrieved from
https://ir.chipotle.com/2020-04-21-Chipotle-Announces-First-Quarter-2020-Results
Chipotle Mexican Grill. (2020). Chipotle Mexican Grill, Inc. – SEC Form 10K . Retrieved from
https://ir.chipotle.com/sec-filings
Reuters. (2020a). Chipotle Mexican Grill. Retrieved from Reuters
Reuters. (2020b). McDonald’s Corp. Retrieved from Reuters
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References
