Chipotle Mexican Grill business analysis

Chipotle Mexican Grill is a quick service restaurant focused on Tex-Mex food. The company had sales of $2.269 billion last year and is growing rapidly (MSN Moneycentral, 2012). Chipotle is now the #2 Mexican chain behind Taco Bell and ahead of Del Taco and Qdoba. Chipotle ranks as the #18 quick service chain overall (Oches, 2011). The industry overall is worth around $150 billion, if not more, but is heavily fragmented, with only McDonald's having a market share in double digits. Growth in the industry is relatively slow, as it has reached a point of maturity and saturation in the U.S. There remains strong growth opportunities in other parts of the world, however.

One of the major external influences in the state of the economy, which affects demand. Demographic changes have brought ethnic cuisines to increasing prominence, something that has help Chipotle. Environmental concerns are a social trend that has contributed to changes in the industry as well. Chipotle, for example, is moving towards more ethical suppliers of meat. International growth is a major trend, and Chipotle has now expanded into Canada and the UK.

Firms in the Mexican segment typically focus on burritos and tacos as their primary food offerings. Chipotle's flagship offerings are burritos, and the company also emphasizes its tacos and guacamole. The food is prepared fresh, something that distinguishes Chipotle and its immediate competitors from other Mexican-theme chains like Taco Bell. Among fresh food Mexican restaurants, Chipotle is the largest. Qdoba is the second-largest, at $480 million in sales (around one-quarter the size of Chipotle). Other competitors like Baja Fresh and Moe's Mexican Grill are smaller still. Qdoba ha a menu similar to that of Chipotle, with burritos, tacos, quesadillas and nachos. Baja Fresh also focuses on these core menu items. Moe's Southwest Grill also has a burrito and taco-based lineup.

Of the four competitors, Chipotle is the largest, and arguably has the strongest brand. The company also has more stores than any of the other firms, and has more sales per store, almost double that of Qdoba for example. Chipotle also has a strong balance sheet and is profitable. Thus, Chipotle is well-positioned in relation to its competitors.

The consumers of fresh Mexican food typically view the taste of the food as important, but they also appreciate value, speed and customer service. QSR customers by definition are seeking value and speed, but firms in a competitive industry also must deliver high levels of service, or customers will go elsewhere. In addition, convenience is an important demand driver, as most consumers will not go out of their way for a different restaurant, but will eat wherever is close by.

Consumers of fresh Mexican food tend to be relatively young, urban or suburban, and they tend to be slightly more affluent than consumers of mainstream Mexican (i.e. Taco Bell). As such, Chipotle customers place more value on the quality of their food and are willing to pay more for freshly-prepared foods. For Chipotle, the objective is to have consumers perceive Chipotle as higher quality than its fresh competitors, so emphasis is placed on ethical meats, dairy without growth hormones, and on superior food quality as a distinguishing characteristic.

Right now, Chipotle is expanding by adding new stores in previously untapped areas. All of the firms against which it competes directly are relatively small by QSR standards, so there is something of a race to establish market dominance. The brand, however, is critical to establishing such dominance. Building new stores is a slow, expensive process and while it should remain a focal point for Chipotle's strategy, the company should also look at other means of building brand awareness.

One idea that I had was to sell its nacho chips and guacamole in grocery stores. The company makes its chips and guac a selling point, so it stands to reason that bringing these products to a wider audience will enhance the brand, and it will also generate additional profits that can be used to build stores more rapidly.