Innovation: The Recipe for Chipotle's Success

Innovation: The Recipe for Chipotle's Success
Case Code: BSTR527
Case Length: 14 Pages
Period: 2001-2017
Pub Date: 2018
Teaching Note: Available
Price: Rs.400
Organization : Chipotle Mexican Grill, Inc.
Industry :Restaurant
Countries : US
Themes: Strategic Management
Innovation: The Recipe for Chipotle's Success
Abstract Case Intro 1 Case Intro 2 Excerpts

Excerpts

"Food with Integrity" - An Innovative Business Model

Chipotle was categorized in the “fast casual dining” section of the restaurant market by analysts, which was a new innovation in the food industry and it was popular due to the preference of millennials . Fast casual dining was a mix between fast food and a sit down restaurant; it had the fast-food convenience aspect of a Taco Bell or Mc Donald’s, the quality of food from a full-service restaurant, and was priced between the two. The target market for this type of industry was millennials who preferred faster service and were willing to pay extra money for good quality food...

Starbucks had segmented its market by geography and demography by locating its stores in areas where it could find young urban adults with relatively high incomes (See Exhibit III). It established its business with a more resilient and less price-sensitive customer base, who perceived these coffee beverages as an affordable luxury. The competitive high pricing strategy of the company separated it from the pack and demonstrated its premium image. Right from customer service to employee benefits, Starbucks’ business model focused on people....

Innovative Promotion

During the early days of its operation, Chipotle banked mainly on outdoor advertising like billboards, radio ads, and word-of mouth to reach its target customers. It followed conventional promotional strategies like giving out free burritos on special occasions like new store openings and holidays. In a way, Chipotle’s marketing strategy was a deviation from the regular norms but based on its scale of operations. As Ad Age pointed out, the company had often invested in minimal cost marketing, relying on in-store campaigning and word-of-mouth among consumers to build and sustain its brand story. An important occasion on which burritos were given free of cost to consumers was Halloween...

Successful Run

Chipotle targeted college students and younger professionals aged 18–28 in the US. Many of these people usually cooked their meals at home as they were health conscious. When their time schedules were hectic, they ate outside but preferred a healthy substitute for homemade food. According to analysts, many of them preferred Chipotle as an alternative for healthy and homely food. Chipotle had shown considerable development in 2013. In 2013, Chipotle opened 185 new restaurants, bringing the total to 1,595 outlets. In the same year, it also opened a fast-food pizza chain in Denver in partnership with a local full-service restaurant called Pizzeria. Chipotle’s comparative sales figures were 16.8% in 2014, 5.6% in 2013, and 7.1% in 2012...

Troubles Faced

In 2015, Chipotle faced a crisis when there were cases of food poisoning reported from among its customers. In August 2015, 234 customers were down with the Norovirus after eating at a Chipotle outlet in Simi Valley, California over a number of days. 64 customers who ate at 22 outlets in Minnesota were affected in August and September of 2015 and nine of them had to be hospitalized...

Challenges

The competitors in the fast-casual dining industry were few in US but dominant. Chipotle was facing direct competition mainly from many other companies apart from fast-casual restaurants. These included Taco Bell, McDonald’s, Qdoba, Fresh Enterprises, LLC aided Baja Fresh Mexican Grills (Baja Fresh), Shake Shock , Panera Bread Company (Panera), Moe’s Southwest Grill (Moe’s) and Rubio’s Coastal Grill (Rubio’s). Taco Bell, operating around 6,200 restaurants throughout the US was posing tough competition for Chipotle. Taco Bell was owned by Yum! Brands, Inc. the global leader in fast food chains, which owned Pizza Hut and KFC, as well...

The Bumpy Road Ahead

Analysts felt that Chipotle had distinguished itself from competitors by promoting awareness and concern among consumers about what they ate and how it was prepared. They also pointed out that Chipotle adopted innovative techniques like using classic cooking techniques where machines were used for processing of food like cutting to prepare food and sourcing high-quality whole ingredients using...

Exhibits

Exhibit I:Key Financial Data of Chipotle Mexican Grill, Inc..
Exhibit II: US Restaurant Industry Sales Projection - 2017
Exhibit III: Chipotle’s Growth per Store
Exhibit IV: Chipotle Stock Price after E. coli Virus Outbreak
Exhibit V: Chipotle’s Same Store Growth
Exhibit VI: Fast Casual Restaurants’ Revenue Growth

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