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Group 2: Chipotle Mexican Grill case

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Nguyễn Thị Minh Anh - B06 – ID student: 11160299 Nguyễn Vương Thuỳ Anh - B07 - ID student: 11160360 Trần Mỹ Anh - B08 - ID student: 11160415 Hoàng Văn Dũng - B09 - ID student: 11161018 Nguyễn Trường giang - B10 - ID student: 11161238 Trần Ngọc Kim Chi - A06 - ID student: 11160692 Nguyễn Đức Cường - A07 - ID student: 11160764 Nguyễn Gia Đức - A08 - ID student: 11160923 Cao Trần Anh Dũng - A09 - ID student: 11161009 Phạm Hoàng Giang - A10 - ID student: 11161243

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Group 2: Chipotle Mexican Grill case

TABLE OF CONTENT

EXECUTIVE SUMARRY.........................................................................................................3 INTRODUCTION AND BACKGROUND...............................................................................5 CASE ANALYSIS AND ANSWERING QUESTIONS............................................................7 Question 1...................................................................................................................................7 Question 2...................................................................................................................................8 Question 3...................................................................................................................................10 Question 4...................................................................................................................................12 Question 5...................................................................................................................................12 Question 6...................................................................................................................................13 Question 7...................................................................................................................................14 Question 8...................................................................................................................................14 Question 9...................................................................................................................................16 Question 10.................................................................................................................................19

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Group 2: Chipotle Mexican Grill case

EXECUTIVE SUMMARY This report provides an analysis and general evaluation about Chipotle Mexican Grill restaurant chain. This company has been especially successful since its inception in the early 90s. Along with the mission named as food with integrity, Chipotle has been a leader in the fast-casual food industry for the past decade, spearheading the movement of quality organic food at reasonable prices. However, according to recent studies, the Chipotle restaurant chain is suffering from the most challenging problems in the company’s history caused by multiple health scandals that have made customers think twice to keep going frequently to the company's restaurants. The company’s financial statements performed some alarming numbers about the decline in sales profits and revenues, especially the net loss of $26.4 million in the first quarter of 2016. 1. Problems: The main problem of Chipotle Mexican Grill company is having to face with a series of health scandals in over five months in the last 2015. A large number of people in the USA, who had eaten at Chipotle restaurants, became ill after using food. The state’s Department of Health and medical authorities attributed that main reasons caused the illness of those people were a salmonella, norovirus, and E. coli bacteria – all of them associated with contaminated food served at the Chipotle Mexican Grill restaurants. The fourth quarter of 2015 was the most challenging period in Chipotle’s history. The Chipotle’s executive managements tried their best to identify a cause for the outbreaks, work in close consultation and collaboration with state and federal health and food safety officials throughout their investigation of the incidents, and also launch a massive list of internal actions to deal with the problem. In spite of their efforts, the customers still had another viewpoint about the quality of food in Chipotle restaurant chain and its reputation. This problem was the main reason for the serious decline in sales of Chipotle in 2016. 2. Alternative solutions: The main problem of the company associated with contaminated food need to solve as soon as possible to get the customers’ belief again. However, faced with the challenge of decreasing sales Page | 3

Group 2: Chipotle Mexican Grill case in 2016, Chipotle did not have the current financial capability to immediately solve this problem. Therefore, we offer some choices of actions which Chipotle Mexican Grill company might need to solve their problems efficiently in a long-term period: -

Establishing long-term relationships with suppliers

If the company find more suppliers who are approved with its quality standards, more suppliers with more sustainable supplies will help Chipotle to control its ingredient resources. We already know the quality of ingredients was one of the most challenges of Chipotle. If the Chipotle has more reliable suppliers, they can prepare better for any sudden changes like the health scandals in 2015. -

Entering the Western European market

In order to expand the customer base, entering a new potential market is a good choice for every company especially the fast-casual dining restaurants like Chipotle Mexican Grill. -

Expanding brand at Shophouse

Shophouse is a popular commercial form today and its potential advantages might help Chipotle company enable to deal with their financial problems in the near future. -

Promoting the company’s strengths

“Food with Integrity” is the slogan created great values of Chipotle. A brand food with ingredients’ freshness and good quality is the greatest strength of the company that we need to re-establish in consumers’ minds. To make it more visible to the public, the company can create promotions on social media with the hashtag #foodwithintegrity or even just making the slogan a bigger part of existing advertisements and brand imagery. -

Expanding current menu selection to include healthier options

To attract more customers, creating a diverse menu also is a good choice for Chipotle restaurant chains. It is not only the opportunity, but also the challenge of the Chipotle because of their simple traditional menu included burritos, tacos, and drinks. -

Creating a rewards program to incentivize customers to eat more frequently at Chipotle.

These potential alternative solutions that could help fuel Chipotle’s growth, increase profitability, and help it retain its industry leadership position. We believe these offered choices could be the missing pieces Chipotle needs to regain their customers’ trust and keep developing in the food safety industry. Page | 4

Group 2: Chipotle Mexican Grill case

INTRODUCTION AND BACKGROUND 1. Introduction: Chipotle Mexican Grill is an American fast food company, founded in 1993 by Steve Ells, specializing in tacos and burritos. The first Chipotle restaurant opened in Denver and became an instant hit. Over the several next years, Ells opened more Chipotle restaurants in Denver and other Colorado locations. The vision of the company is “to change the way people think about and eat fast food”, and its mission statement is called “Food with Integrity”. Ells had been owned 16 Chipotle restaurants in Colorado since 1998 when McDonald’s started becoming the main investor of the company. After a short period of time, that investment allowed Chipotle to expand from 16 to 489 restaurants by year-end 2005. In the first month of 2016, Chipotle held an initial public offering of shares, and Steve Ells was publicized as Chipotle’s CEO and board chairman. When Chipotle became an independent company in 2006, Steve Ells kept the company on a path of rapid expansion and gained a lot of success. He functioned as the company’s principal driving force for ongoing innovation and instant development. During 2011-2015, the Chipotle’s revenues grew quickly with an average rate of 18.7 percent. According to CNN Money, 2015’s syndicated report, Chipotle Mexican Grill currently has over 2,000 restaurants in North America, Paris, London, and Frankfurt and employs more than 45,000 Americans. 2. Background: The Chipotle strategy was predicted on six elements: -

Serving a focused menu of burritos, tacos, burrito bowls, and salads. Using high-quality, fresh ingredients and classic cooking methods to create great-tasting, reasonably-priced dished prepared to order and ready to be served one to two minutes after they were ordered.

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Enabling customers to select the ingredients they want in each dish by speaking directly to the employees assembling the dish on the serving line.

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Creating an operationally efficient restaurant with an aesthetically pleasing interior.

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Group 2: Chipotle Mexican Grill case -

Building a special people culture that consisted of friendly, high-performing people motivated to take good care of each customer and empowered to achieve high standards.

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Doing all of this with increasing awareness and respect for the environment and with the use of organically grown fresh produce and meats from animals raised in a humane manner without hormones and antibiotics.1

After the food contamination incidents in the fourth quarter of 2015, Chipotle had a new industry-leading food safety program included: -

DNA-based testing of many ingredients to evaluate their quality and safety before they were shifting to Chipotle restaurants.

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Changes to food preparation and food handling practices, including washing and cutting some produce items in the central kitchen.

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Blanching of some produce items in each restaurant before cutting them.

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New protocols for marinating meats.

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Utilizing the Food and Drug Administration’s HACCP management system to enhance internal controls relating to food safety.

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Instituting internal training programs to ensure that all employees thoroughly understand the company’s newly imposed standards for food safety and food handling.

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Offering paid sick leave to employees to reduce incentives for employees to work while sick.

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Implementing stricter standards for food preparation, cleanliness, and food safety at all of the company’s restaurants.

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Strengthening efforts to ensure that the company remained in full compliance with all applicable federal, state, and local food safety regulations.2

1 Thompson, Case in Crafting and Executing Strategy 2 Thompson, Case in Crafting and Executing Strategy

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Group 2: Chipotle Mexican Grill case

CASE ANALYSIS AND ANSWERING QUESTIONS 1. What is your assessment of the ways in which Chipotle has responded to the food poisoning incidents in some of its restaurants? During the last five months of the year 2015, Chipotle Mexican Grill had faced a series of food poisoning events that dramatically impaired its business and publicity. The company reported its sales fell nearly 15% in the fourth quarter, which caused a revenue drop of 6.8% for the period. The stock has clearly suffered due to the food safety problem, plummeting during December and early January before bouncing back from those lows a bit. On a positive side, Chipotle has clearly solved the issue seriously and has made a huge attempt not only stop it from happening again but also to reassure the public. At the beginning of the first outbreak, Chipotle has been closed stores in affected markets for deep cleaning, and it moved quickly to implement new food safety procedures. Chipotle even did something that few restaurants ever voluntarily do. On 8 th February, it closed every store across the United States in the lunch rush to hold a company-wide meeting to discuss the changes. The company is proud of its new food safety program as "the product of a comprehensive reassessment of its food safety practices." Chipotle had worked with food experts to assess the safety risks of every ingredient on its menu "with an eye toward establishing the highest standards for safety." Employees have been working on implementing the new system in every store already, but they learned about it in more detail during that meeting. The components included: -

DNA-based testing of many ingredients before they are shipped to Chipotle locations which "far exceeds requirements of state and federal regulatory agencies, as well as industry standards" according to the company.

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Changes to food preparation and handling practices, including changing how some items are washed, as well as shredding cheese before its reaches the stores. In addition, some produce items will now be blanched (dipped quickly into boiling water), and there are new rules for marinating chicken and steak.

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New internal training for all staff on safety standards.

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Paid sick leave designed to make sure that ill employees stay home when they are sick. Page | 7

Group 2: Chipotle Mexican Grill case Additionally, after those changes and enhancing procedures and training, the company also spent up to $10 million to help local farms meet its food safety standards and to make more local ingredients available over the country. At some point, there is not only Chipotle but nearly every restaurant chain suffers some kind of food-poisoning incident. Starbucks, for example, had an event of sandwiches tainted with E. coli from its store. Even though the coffee chain's action involved over 1,000 stores, fortunately, nobody got sick directly from its sandwiches. Starbucks also avoided the sort of backlash Chipotle received for the same reason that most fast food and casual eateries have emerged largely unscathed in similar situations: It does not tie its brand identity to the sanctity of its ingredients in the same way Chipotle does. Even though the coffee company has a reputation for quality, it does not use that as a pillar of its brand in the same way Chipotle does. Chipotle got some people sick, which garnered it some terrible image in customer and scared consumers to a certain degree. But since then, the company has done everything right. It took the crisis seriously, made profound changes, and ultimately ate a whole lot of humble pie. It may take a while for consumers to forgive the food-poisoning events, the company’s move should be enough to allow it to put its E. coli problems in the past.

2. Does Chipotle Mexican Grill have any core competencies and, if so, what are they? Core competencies are the unique capabilities that a company has when it is established. It's an innate competitive advantage that cannot easily be imitated by competitors. When Chipotle was born, its owner, Steve Ells, targeted it as a fast and healthy snack, meaning its products needed to be fresh and fast delivery. Full service has the highest cost and longest time service, so the service is targeted only to mid-range and high-end consumers with their leisure time consumption. At the same time, fast food restaurants, their goal is to provide fast food regardless of quality. So, Chipotle opened the door by combining both characters with fast food of good quality. Therefore, the combination of fresh and fast delivery should be the core of Chipotle. There is no denying that fast food with good quality strategy is worth in business. Since chipotle is processing food and selling it at the same time, the food must be fresh and healthy for the customer. For food prices, it will be higher than fast food restaurants because of raw materials Page | 8

Group 2: Chipotle Mexican Grill case and food stores. However, compared to full-service restaurants, the cost will be much cheaper because Chipotle does not need staff to serve. So, it's valuable for our customers to have a cheap price with good quality food. Most restaurants, they can only take care of one side is healthy eating or fast food and cheap. It's hard for restaurants to have both healthy food and fast delivery. So, it is a relatively good restaurant that is relatively rare to make a good balance of both scenarios. Because Chipotle was well balanced and won the customer. Other core competencies are: Chipotle falls under the focus difference. It provides an appropriate menu and is considered by the customer to be unique. Chipotle encourages a healthy choice for fast food along with high-quality products. Different company strategies are tracked from the company's 10-K profile. The details of the company provide insight into the various strategies that these companies have taken which they believe will give them an advantage over competitors. Chipotle operates under a single business strategy in that it generates revenue only from restaurants owned by the company. This strategy has worked for the company, as it can run a completely centralized operation that has tremendous growth. Chipotle was able to differentiate itself through word of mouth advertising, focusing on healthy ingredients, preparing food and building a close relationship with its suppliers. Chipotle has benefited from a shift towards healthier food choices and more ethnic food choices. Chipotle's ability to build strong relationships with suppliers and distributors has allowed them to continue to acquire high-quality organic components. Chipotle takes advantage of marketing these differences with both billboards and innovative social media campaigns. As a result, it has experienced high growth with great brand awareness.

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Group 2: Chipotle Mexican Grill case Value analysis illustrates that chipotle has higher cognitive value than Qdoba. This cognitive value is due to Chipotle's brand recognition, storage experience, quality and corporate social responsibility. Chipotle has done a great job in creating brand awareness, educating consumers about the healthier options being offered, and promoting corporate social responsibility on their website. As Chipotle continues to grow, the company will only become more successful in providing added value to its customers. In the context of less value, it is clear that Chipotle is currently doing better in providing value to its existing customers. Chipotle targets customers in urban areas who want fast food, but not fast food. These customers are not looking for the cheapest meal they can buy, but a cheap, worthwhile meal. A young clientele, the hipper is targeted with the cool modern decor of each restaurant, usually located in the fashionable mall. Fresh food and fresh air all help to attract their target customers. In conclusion, Chipotle’s core competencies are: having a small focused menu, high-quality ingredients, creating an efficient method of service and having friendly multi-skilled workers.

3. What does a SWOT analysis reveal about the attractiveness of Chipotle Mexican Grill’s situation and future prospects? How badly has the company been wounded by the food poisoning incidents? Strengths: -

The company has a strong reputation for quality service and efficient management

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Low cost for marketing and advertising

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Effective staff works well

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The company has good financial ability

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The company has a strong brand name thanks to the quality of service

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Wide market coverage operating in 41 states in the US