1. Cole Howie
GBA 490: Business Strategies
Chipotle

2. Chipotle Cole Howie
EXECUTIVE SUMMARY
INDUSTRY ANALYSIS
The fast-casual industry features a variety of forces that require thorough analysis in
order to better understand its market. As the fastest growing segment of the restaurant industry,
this market is exposed to high environmental forces, mainly weather and climate changes that
can affect company’s supply chain. The market is also subject to moderate economic (including
changes in disposable income for the higher-quality goods) and social trends (changes in
popularity and lifestyles). The fast-casual industry faces stiff competition directly from strong
rivals and a depth of countless substitutes, with growing supplier power. This industry segment
will be driven chiefly by its long-term growth rate, changing consumer lifestyles, product
innovation, and further globalization. Companies in this segment will find success in premier
food quality, product customization, high throughput, and strong employee—and thus skill—
retention. Competitors in the fast-casual market face severe competition from direct competitors
and substitute eateries and options. The ability to deliver high-quality, differentiated products
will allow a company to find unique success above the rest of the market.

3. Chipotle Cole Howie
COMPANY OVERVIEW
Upon the understanding of the fast-casual industry as a whole, we can now focus in on
the major player in the Mexican fast-casual segment: Chipotle. Chipotle is a dominating leader in
the Mexican fast-casual segment, with almost $2 billon more in sales revenue than its closest
competitor. Although Chipotle has impeccable revenues and gross, operating, and net profits,
there is concern for a few profitability ratios. Chipotle shows strong growth in its cost of goods
sold, with relatively small (if not stagnant) gross, operating, and net margins. This could be a
sign of high costs that need to be reigned in. Nonetheless, Chipotle is in a suitable position to
take on and pay off any debt it may wish to, shown in their strong sustainability indicators.
Chipotle controls a great deal of valuable resources and capabilities, but none of which
that cannot be imitated with enough financial support, and few that are exploitable by the
restaurant chain. Compared to competitors, Chipotle does lead the pack with an 8.0 in the
weighted competitive strength analysis. Its lead is, however, thin with its two closest competitors
within 0.4 points of Chipotle. This is most likely attributable to the excessive similarities the top
three share with each other. These qualities include high quality ingredients and customization,
which have led to not only Chipotle’s, but its competitor’s, success.
Chipotle’s large target customer base and high quality products direct its broad,
differentiated approach in the Mexican fast-casual market. Although Chipotle has seen great, fast
success in its limited yet customizable Mexican menu, its competition has taken away the
uniqueness of the Chipotle model while also featuring high-quality ingredients, customization,
and cafeteria-style assembly lines. Due to competitive parallels, it may be time for Chipotle to
introduce a new product to its market to further differentiate itself and grow. Being a part of the
fastest growing segment in the restaurant industry, Chipotle is in a perfect position to exploit
growth opportunities with strategies that promote further profitability and sustainability.

4. Chipotle Cole Howie
STRATEGIC ISSUES
There are two major issues Chipotle faces as a player in the Mexican fast-casual market
segment: volatile supply costs and deficient product differentiation. Through the company’s
dedication to “Food with Integrity”, Chipotle commits itself to working with organic suppliers
who can supply “raw material” meeting Chipotle’s high standards. Organic suppliers have to
incur higher costs by growing and raising animals naturally that are accompanied with lower
yields, lower weight gains, and longer growth periods. Organic suppliers also are faced with
increased demands not only from Chipotle, but from competitors and substitutes (i.e.
supermarkets and fine-dining establishments). While Chipotle cannot directly lower a supplier’s
operating costs, Chipotle expects the price volatility to be controlled in the long term as the
demand for organic suppliers will be filled with new farmers entering this supplier market.
The second, and easier, issue Chipotle faces is due to its lack of product differentiation
from its strongest competitors. Chipotle, with its closest competitors Qdoba and Moe’s, all
feature similar product offerings and even identical service styles: walking through a fast-paced
assembly line with workers completing your order before your eyes behind the assembly bar. As
seen in the weighted competitive strength analysis, Chipotle’s leading margin is becoming razor
thin due to fierce competition with rivals and substitutes. No, the tastes of Chipotle and its direct
competitor’s products are not the same, however aside from taste, the three companies seem
virtually the same on paper. With the high potential for growth within the fast-casual segment,
allowing a competitor to pounce on growth opportunities first serves as a major threat to the
sustainability of Chipotle’s current strategy going forward. Addressing this issue promptly will
save Chipotle as the leader in its segment and promise sustainability in the market.

5. Chipotle Cole Howie
ROBUST OPTIONS
1. Market Penetration
All three major players of the Mexican fast-casual market most likely face the same cost
issues from organic farmers that Chipotle faces. To grab more of the market share in the current
market, Chipotle could engage in different supply chain practices with more futures contracts
with farmers to hedge against unfavorable, volatile supply costs. With this practice, Chipotle
should then offer value discounts for certain products, or implement a value menu such as those
found in quick-service restaurants. This allows for the fast-casual chain to better compete with
not only direct competitors, but with substitutes.
2. Product Development
As mentioned before, it is vital for Chipotle to begin to differentiate its brand from its
closest and most similar competitors. Chipotle can do this by developing new product lines, such
as vegetarian options among other countless opportunities, to serve to its current customer base.
This could potentially even attract new customers and build upon Chipotle’s existing market
share.
3. Market Development
Chipotle has experienced unprecedented and fast growth and success in its fast-casual
model. While the restaurant can be found in 43 states and 4 different countries, Chipotle could
begin expanding its geographic presence in existing territories and new ones. Globalization is a
key driving force of the restaurant industry that can help Chipotle sustain its leadership in its
market segment while gaining new consumer.

6. Chipotle Cole Howie
RECOMMENDATION
It is recommended that Chipotle practice the product development growth option by
differentiating its base product offering from its excessively similar competitors. Even though
Chipotle has the most favorable revenues of the three Mexican fast-casual leaders, a neutral and
rational consumer may find no differences in the three competitors, hurting the brand awareness
of all companies. It is vital that Chipotle be the first-mover with this strategy because, if Qoba
for example launches a new product line that separates itself from Chipotle, this could attract
many of Chipotle’s once-loyal customers to experience Qdoba’s new venture (as seen through
Taco Bell’s product innovation). It is extremely important for Chipotle to begin differentiating
itself through the implementation of new innovative products. Offering a product that is more
diverse could allow the new product to be more immune to the forces that plague the existing
products (i.e. dairy products are affected in different ways than produce products) thus allowing
a decrease in risk through product diversity.

7. Chipotle Cole Howie
IMPLEMENTATION STRATEGY
Chipotle should first and foremost spend adequate time in research and development
before launching a product it believes will show differentiated success. This R&D would include
studies of sustainable mass production and distribution as well as favorability among focus group
consumers. Once a favorable product is decided on and developed sufficiently, it should be
tested out at select locations domestically. If the new product is show to have success among its
audiences and is believed to show similar success nation-wide, it should be implemented at all
domestic locations. Prior to the mass product launch, the new product should be marketed
nationally to build hype and attract consumers. Advertisements have the opportunity not only to
market the new product, but to remind consumers of Chipotle’s superior quality over all other
competitors. After a national launch, the company can decide of this is a product that will be
limited, seasonal, or can be sustained as a permanent menu fixture based on its performance.

8. Chipotle Cole Howie
JUSTIFICATION
Chipotle and its closest competitors (Qdoba and Moe’s) all feature similar product
offerings. All three offer customization of burritos, burrito bowls, tacos, and salads through
choices of meats, vegetables, and extras (i.e. sour cream).
Taco Bell, a once failing Mexican quick-service chain, was able to revitalize its brand
through the addition of new, innovative product lines. Where the chain once saw declining sales
and was forced to shut down many of its doors, the introduction of bold ideas –the Doritos Locos
Taco, the Cantina Bell menu, and breakfast expansion– allowed Taco Bell to become the leader
in the domestic Mexican quick-service market segment. Taco Bell’s product development
resulted in increased customer traffic and sales, and promised a better outlook for the company
with expected sales growth of 6.8% in 2012. This, compared to the previous 1.5% sales growth
with a 0.7% compound annual growth rate, sends a rather encouraging message to companies
seeking to regenerate their brands.
For example, if Chipotle wanted to introduce an ice cream line, it could work out
contracts with organic dairy farmers to buy milk and cream from the suppliers at fixed rates in
futures contracts. If Chipotle was able to produce one gallon of fresh ice cream for $3.00, with
the average ice cream purchase being one scoop (0.5 cups, or 3/100ths of a gallon) selling for
$2.60 per scoop, Chipotle can earn ~$82.5 per gallon of ice cream. The net profit from a gallon
of ice cream will be $79.5. If one store is able to sell at least 2 gallons of ice cream per day, each
store will net $159 a day in ice cream sales. If this is accomplished at all 1,595 chains, the
company as a whole will net $92,565,825/year in ice cream sales (this being a conservative
projection). Although this would be a small fraction compared to the rest of its existing operating
profits, it presents a great area for growth with potential for a single store to sell many more
gallons of ice cream a day with enough marketing and product awareness. This again allows
Chipotle to establish a new product line different from its competitors and attract new consumers
to the newly differentiated leader of the Mexican fast-casual market segment.

9. Chipotle Cole Howie
A. Dominant Economic Characteristics
Industry Size
The restaurant industry as a whole was projected to become a $683 billion industry by
2014 with roughly 990,000 restaurants in the country. This broad market would also feature a
compound average growth rate of 3.9% since 2010. Many American restaurant chains push for
globalization, where the global restaurant industry, and its individual markets, is logically much
larger. Within the fast-casual segment of this industry, this market represents less than 2% of the
restaurants in the country, yet make up 5% of the industry’s sales. This segment is the fast-
growing the industry, with increased sales and traffic through these establishments. The
restaurants typically are perceived to have an enhanced quality of food and service than quick-
service competitors. The more-specific Mexican fast-casual establishments are controlled mostly
by three restaurant leaders and may be saturated with other local and independent diners.
Competition
Regardless of specific segment, everyone in the restaurant industry will face intense
competition no matter where they are. Studies show that 85% of consumers eat at fast-casual
places at least once a month. This segment is expected to grow and exhibit more competition
over time, especially as consumers trend towards healthier, yet reasonably priced, options.
Expansion
Restaurants in Mexican fast-casual (and general fast casual) are in a race to expand the
furthest in grabbing as many customers as possible, turning them into brand-loyal ambassadors.
Companies hope to operate in as many regions as possible domestically, in hopes that their
popularity can carry them abroad (most popularly beginning in Europe).
Opportunities
• Opportunity lies in establishing a company in this fast-growing market segment
Threats:
• The room for great growth in this segment leaves a void that competitors may fill faster
and better than you
This industry will find increased competition as it continues to grow. This growth
presents itself as both an opportunity for companies and a threat for those that are lagging behind
in the industry.

10. Chipotle Cole Howie
B. PESTEL Analysis
Political Minimum – Affected by typical factors any industry faces; those with a
global presence are subject to international policy.
Economic Moderate – As a normal good in an industry with great inferior good
competition, sales in the fast-casual market may see decline in unfavorable
economic conditions.
Sociocultural High – Many companies in this market seek to get consumers thinking about
the quality of ingredients in foods made and sold to them. If consumers catch
onto the trend of being conscious of quality, this may bolster the fast-casual’s
position of offering better quality food.
Technology Minimum – The only technology that could help this market is in online
sales.
Environmental High – Restaurants depend on farmer’s and rancher’s supply of produce and
livestock to serve their customers. These farmers in turn rely on favorable
weather conditions to get maximum yields to sell.
Legal Moderate – Companies may see changes in regulations and standards set by
different agencies, such as the FDA.
Opportunities:
• Exploit the consumer trend of seeking local, natural, and/or organic food
Threats:
• Economic downturns may result in lower sales
• Unfavorable weather/climate can temporarily hurt company costs
The PESTEL Analysis does not reveal many strong, negative factors that can affect the
normal goods in this industry’s macro-environment. The most concerning external factor here
lies in environmental issues (mainly weather).

11. Chipotle Cole Howie
C. Five Force Analysis
Rivals Moderate – Competition among rivals is certainly present, and will strengthen
in time as the fast-casual market continues to grow. Mexican fast-casual
exhibits concentrated power among a select few, non-differentiated places.
Potential
Entrants
Moderate – Becoming a national competitor in fast-casual is difficult, yet not
impossible, due to high entry costs. This segment has a lot of growth
potential, leaving room for competition. Within Mexican fast-casual, the
chances of a new competitor to rise are extremely low, with power vested in
several established brands.
Substitutes Strong – There are countless substitutes to eating fast-casual, such as quick-
service, full-service, and even eating at home.
Supplier
Power
Moderate – Many organic suppliers are finding their produce in high demand
and see constraints in their supply chain. Further demand pressures will give
suppliers more power until the demand for organic farmers is filled with new
entrants.
Buyer
Power
Moderate – Depending on how peculiar a restaurant wants to be with who it
will buy from, it could give itself less power if it limits itself to certain
suppliers with certain standards. If it is able to be versatile, it can gain
bargaining power threatening to take business elsewhere.
Opportunities:
• N/A
Threats:
• Room for increased competition
• Variety of substitutes
• Limited buying power due to organic suppliers in high demand
Currently the organic farmers necessary for fast-casual restaurants are facing higher
demand, with already-high costs for their supplies. It is possible that other farmers see
opportunities in organic farming, and saturate this market to drive down supply costs for
restaurants. Restaurants in the fast-casual segment face stiff competition from many substitutes
and rivals.

12. Chipotle Cole Howie
D. Driving Forces
Changes in Industry
Long-Term Growth Rate
As this industry segment continues to grow, it will put pressure on
the suppliers, causing growth in the supplier’s markets to meet the
demands of the fast-casual market. The growth of this market will
affect many factors both internally and externally.
Changing Lifestyles Consumers are drifting towards healthier options. Fast-casuals are
depending on this to sustain their growth, hoping their products
becoming more enticing.
Product Innovation The industry has proven that innovation in products can help
rejuvenate and strengthen a hurting company. Innovation will help
differentiate one restaurant from the other and attract neutral
customers.
Increasing Globalization Established companies continue to seek global power of their
segment, promoting a trend for restaurants to continue to grow
outside of their domestic limits.
Opportunities:
• Take advantage of the continued growth and lifestyle shifts
• Continuously research innovative opportunities that may attract new consumers
• Enter new global markets where feasible
Threats:
• Competitors that lead new innovation have better advantages
This growing market is built on consumers seeking healthier quality foods where
restaurants must differentiate themselves from their competitors. Established restaurants will
take advantage of the room for growth in this market and success will be found in expansion
domestically and internationally.

13. Chipotle Cole Howie
Value (Quality/Price) E. Strategic Map
Opportunities:
• N/A
Threats:
• Lack of differentiation
• Substitutes beginning to blur the lines of restaurant segments by offering products with
similar quality
There are three traditional players in the Mexican fast-casual segment: Chipotle, Qdoba,
and Moe’s Southwest Grill. Taco Bell has been included in the study because of their product
innovation and inclusion of higher quality products. This traditional substitute changes the game
becoming a direct competitor in the fast-casual market.
Geographic Coverage

14. Chipotle Cole Howie
F. Key Success Factors
Food Quality Customers in this segment have higher standards of quality compared to the
quick-service market. They also pay more for better quality, as this factor is
the basis of success in this segment.
Customization Even if the menus are limited, the ability to customize your purchase makes
the restaurant more customer-oriented.
Throughput Customers want instant gratification with their food “without the ‘fast-food’
experience”, even if they aren’t in a rush. This keeps customers returning.
Employee
Retention
Having a trained staff does no good if you have big turnover. Programs and
policies that make it hard for employees to leave are crucial in keeping
skilled workers at their stations.
Opportunities
• Improve efficiency to keep customers
• Implement employee-focused programs and policies to deter turnover
Threats:
• High costs with high customization
• Higher quality is the foundation of fast-casual in competing with lower fast-food chains.
Companies that seek to compete with fast-food must be able to match the service time of
the quick-service market in a fresher environment.

15. Chipotle Cole Howie
G. Financial Analysis
Indicator
Fiscal Year
Growth CAGR
2013 2012 2011 2007
Revenues $3,214,519 $2,731,224 $2,269,548 $1,085,782 18% 20%
COGS $1,073,514 $891,003 $738,720 $346,393 20% 21%
Gross Profit $2,141,005 $1,840,221 $1,530,828 $739,389 16% 19%
Gross Margin 67% 67% 67% 68% -1% 0%
Operating Profit $532,720 $455,865 $350,562 $108,183 17% 30%
Operating Margin 17% 17% 15% 10% -1% 9%
Net Income $327,438 $278,000 $214,945 $70,563 18% 29%
Net Margin 10% 10% 9% 6% 0% 8%
Current Ratio 3.344 2.925 3.183 2.754 14% 3%
Debt to Assets 0.234 0.253 0.267 0.222 -7% 1%
Debt to Equity 0.306 0.339 0.365 0.285 -10% 1%
Times Interest
Earned
304.24 250.48 -409.06 18.59 21% 59%
Equity Multiplier 1.306 1.339 1.365 1.285 -2% 0%
EPS $10.58 $8.82 $6.76 $2.13 20% 31%
*$s in 000s
Strengths:
• Strong revenue growth
• Strong growth in gross, operating and net profits
• Decreasing debts
• Strong times interest earned
• Equity multiplier greater than 1
Weaknesses:
• Increasing COGS
• Stagnant gross, operating, and net margins
Chipotle displays great growth in revenue as well as gross, operating and net incomes.
However, their COGS are growing just as strongly with all profit margins relatively small. This
proves Chipotle’s requirement to control all costs to find better margins. Other financial
indicators show declining debts, strong ability to pay them off, and less stockholder control with
higher equity multipliers.

16. Chipotle Cole Howie
H. VRINE Analysis
Valuable Rare Inimitable Nonsubstitutable Exploitable
Customization X X X
High-Caliber
Workspace
X
High
Throughput
X X X
High Quality
Foods
X X
Distribution
Partners
X X
Employee
Promotion
Opportunities
X X
Promotional
Festivals
X X
Film
Marketing
X X
Strengths:
• Several valuable, exploitable, and unique resources
Weaknesses:
• All resources and capabilities can be imitated or substituted, many not exploitable
All of Chipotle’s resources and capabilities are valuable, yet few are exploitable and none
are inimitable. Competitors can do the same things as Chipotle with enough financial support
and desire. Chipotle could benefit from rarer and inimitable resources and capabilities.

17. Chipotle Cole Howie
I. Weighted Competitive Strength Analysis
Indicator Importance
Weight
Chipotle Qdoba Moe’s Taco Bell
Strength Weighted
Score
Strength Weighted
Score
Strength Weighted
Score
Strength Weighted
Score
Food Quality 0.3 8 2.1 7 2.1 7 2.1 5 1.5
Customization 0.3 9 2.7 8 2.4 8 2.4 6 1.8
Throughput 0.3 8 2.4 8 2.4 8 2.4 9 2.7
Employee
Retention
0.1 8 0.8 8 0.8 7 0.7 3 0.3
Totals 1.0 8.0 7.7 7.6 6.3
Strengths:
• Leading in all key success factors
Weaknesses:
• Margin of victory in KSF is thin
Although Chipotle is a leader in all key success factors, its margin of victory is thin. This
close race gives competitors a fighting chance to take the lead and cut into some of Chipotle’s
market share.

18. Chipotle Cole Howie
J. Go-To-Market Strategy
Chipotle’s strategy in the market is a broad, differentiated approach. The restaurant chain
targets any type of food consumer (everyone) within Chipotle’s geographical ranges. Chipotle is
very benefits-driven, focusing on the quality of their ingredients and phenomenal, quick service.
They try to differentiate themselves with their Mexican offerings through a limited menu with
customization possibilities.
Strengths:
• Broad targets in food industry allow great opportunities for potential new consumers
Weaknesses:
• They must differentiate themselves within the Mexican fast-casual segment
While Chipotle has found great success through it’s current strategy and is a leader in its
segment, there is still room to improve through further differentiation among competitors.

19. Chipotle Cole Howie
K. SWOT Analysis
Strengths:
• Strong revenue growth
• Strong growth in gross, operating and net
profits
• Decreasing debts
• Strong times interest earned
• Equity multiplier greater than 1
• Several valuable, exploitable, and unique
resources
• Leading in all key success factors
• Broad targets in food industry allow great
opportunities for potential new consumers
Weaknesses:
• Increasing COGS
• Stagnant gross, operating, and net margins
• All resources and capabilities can be
imitated or substituted, many not
exploitable
• Margin of victory in KSF is thin
• They must differentiate themselves within
the Mexican fast-casual segment
Opportunities:
• Opportunity lies in establishing a
company in this fast-growing market
segment
• Exploit the consumer trend of seeking
local, natural, and/or organic food.
• Take advantage of the continued growth
and lifestyle shifts
• Continuously research innovative product
opportunities that may attract new
consumers
• Enter new global markets where feasible
• Improve efficiency to keep customers
• Implement employee-focused programs
and policies to deter turnover
Threats:
• The room for great growth in this segment
leaves a void that competitors may fill
faster and better than you.
• Economic downturns may result in lower
sales.
• Unfavorable weather/climate can
temporarily hurt company costs.
• Variety of substitutes
• Limited buying power due to organic
suppliers in high demand
• Competitors that lead new innovation
have better advantages
• Substitutes beginning to blur the lines of
restaurant segments by offering products
with similar quality
• High costs with high customization
• The most debilitating weakness of Chipotle is the increased growth of its costs. Without a
way to reign in these costs, Chipotle may face declining revenues and profits.

20. Chipotle Cole Howie
K. SWOT Analysis (cont.)
• One major threat to Chipotle and the Mexican fast-casual segment is the substitute
markets, specifically as substitute restaurants beginning to match the resources and
qualities of Chipotle (i.e. Taco Bell).
• A second major threat to the whole segment is unfavorable weather and climate affecting
their organic suppliers, who already face pressure with massive demands.
• An opportunity that other companies have taken advantage of is implementing new
innovative food products. This can rejuvenate customers that get weary of the “same,
old” product offerings.
Ø This issue most likely is the greatest issue facing the company’s growth, profitability,
and/or sustainability in the next five years.
• Another opportunity for Chipotle is global expansion.

21. Chipotle Cole Howie
L. Growth Strategy
Chipotle aims to add 180 to 195 new restaurants in 2014, with a large majority of those
being free-standing buildings (opposed to strip center placement). They also plan to completely
remodel many of their oldest existing restaurants in hopes to invigorate the cultures of those stores.
In regards to Chipotle’s CEO’s new ventures with ShopHouse Southeast Asia Kitchen and Pizzeria
Locale, it is not clear how these new companies are structured, nor if Chipotle acts as a parent
company for the two new fast-casual establishments. If true, this would be a great growth
opportunity for the Chipotle company and for the fast-casual segment as a whole. As Chipotle
grows, along with the rest of its market, the company anticipates a dissipation in price volatility
and shortages in the long term, prompting more growth for Chipotle.