The fast casual craze is a relatively new phenomenon. As consumers are demanding higher standards for food quality and freshness in their ingredients, the fast food channel (McDonald’s, Taco Bell etc.) has experienced only slight growth while fast casual (Chipotle, Shake Shack etc.) has grown over 550% since 1999. Since its inception in 1993, Chipotle has served as the trailblazer in this space with many competitors trying to replicate the business and operating model that seem to be in perfect alignment with one another.
Chipotle’s founder, Steve Ells, sought to revolutionize the fast food dining experience by offering its customers an extremely unique value proposition.
Food With Integrity: Unlike its lower quality competitors, Chipotle only serves its customers the freshest and highest quality ingredients. It creates value to its consumers because they trust the ingredients in their meal have never been frozen along the delivery process and its employees have spent several hours preparing and chopping that day to ensure maximum freshness. The company is able to capture value by charging its consumers a slight premium to the average price point in a fast food joint.
A Few Things, Thousands of Ways: Chipotle has a very short list of ingredients (~20) that it offers its consumers. As a consumer, the buying process is extremely simplified as you are only given the option to buy “burritos, burrito bowls, tacos and salads” with the opportunity for variation with meat preference and toppings.
Food Served Fast… So That Customers Can Enjoy It Slowly: In addition to offering high-quality food in a simplified ordering experience, the customers gain much of their value from the speed in which they are served. In the busiest locations, Chipotle can serve upwards of 300 customers in one hour. Like most fast casual restaurants, Chipotle has a more upscale dining ambiance with fine wood and metal as opposed to fast food’s “Formica counters and fluorescent lighting”. While the environment is extremely inviting to the customers who want to dine at the restaurant, the speedy service caters to the majority of Chipotle customers who want to grab and go.
Close Relationships with Suppliers: With a limited number of ingredients, Chipotle can afford to source its ingredients from a short-list of suppliers. Each supplier is heavily inspected by the company to ensure high-quality food product and best farming practices. The suppliers must align with the overall mission of the company or lose the business of their largest customer. Unlike most fast food joints, Chipotle is at great risk of severe spoilage costs because their ingredients are never frozen. Having such a dedicated group of suppliers allows Chipotle to receive fresh delivery of ingredients every morning and minimize their inventory in the restaurant.
Culture of Top Performers: Just as Chipotle is willing to pay a slight premium for its high-quality ingredients, the company also believes in hiring and developing the best talent at a premium salary. Each employee must understand and buy-in to the vision of the company and provide best-in-class customer service to add even further to the dining experience. With over 98% of hourly management being promoted from within Chipotle, the company has successfully aligned the incentive structure with the overall strategy of the business.
The Four Pillars of Throughput: As mentioned above, the main objective of the Chipotle staff is to serve its customers as quickly as possible. To minimize this wait time, Chipotle has perfected its assembly line service in what it calls “the four pillars of throughput.” The first set of tasks in the assembly line is called the “mise en place”. It is their job to create the actual food from ingredients (meats, guacamole etc.) to end product (burrito, bowls, salads etc.). The “mise en place” only functions at maximum capacity if the dedicated “linebacker” constantly stocks the ingredients to prevent bottlenecks. Next, they have a dedicated expeditor who is in charge of managing drink and chip orders before reaching the final employee in the process: the cashier. While each employee is cross-trained to serve all different steps in the assembly line, Chipotle encourages its managers to put their “aces in their places” to maximize production. With the assembly line, each customer can experience a cycle time of under one minute as long as there is not a line.
In conclusion, Chipotle will continue to outpace its competitors as long as it can continue to align its business and operating model. As new players continue to enter this attractive space of fast casual, Chipotle must differentiate itself by delivering on its value proposition of high-quality food served quickly in an upscale environment.
- Chipotle 2014 Annual Report