Chipotle’s business model creates value by providing good quality, fresh food with fast service – ‘fast casual’ dining. Chipotle crafted its image in different ways. Its tagline “food with integrity” which guarantees natural sources of ingredients contributes to its business model. Unlike other fast food chains, chipotle decided to avoid the ‘dollar menus’ which eat into margins, but instead decided to 100% concentrate on providing good quality food and had the faith that it could gain pricing power for its taste and quality. Chipotle also played great emphasis on service, and created this aura around personalization. It tried to provide a better atmosphere than typical fast food chains by its choice of décor, a very contemporary upscale feel and its cleanliness.
Chipotle was also successful in capturing this value through many ways. It had great timing while entering this industry at a time where people in the world are beginning to become more health conscious and have started seeing value in organic food which is not genetically modified. Being an avid Chipotle consumer, I can vouch for the fact that not only does Chipotle provide fresh and good quality food, but also makes sure that every store has the same taste and consistency. This is a big advantage in building loyal customers who know that no matter what location they are at, they can always fall back to this comfort zone and consistent quality and taste.
There are various fascinating things that Chipotle has done in its operating model which is innovative, efficient and goes hand in hand with its business model:
Limited menu: The way all the ingredients are displayed provides an illusion of choice along with customization. Really it is the same ingredients that go into each item – bowl, burrito or salad, and its components of the same ingredients along with chips that make up the sides. This helps margins as it reduces the number of ingredients needed and minimizes wastage. They also made a conscious effort to stick to what they are good at and not introduce coffee and deserts for the sake of it.
Open kitchen: Their open kitchen gives customers confidence in their quality as they can see everything being done in front of them and can see what happens behind the scenes, how things are stored and how they are cooked.
Consistency: Maintaining consistency in the look & feel and the ingredients, taste and menu of every restaurant gives Chipotle a huge advantage of economies of scale. This ties in smoothly to its lean business model of minimal costs, less complication and consistency in user experience.
Throughput: Chipotle is ‘obsessed with throughput’. They have very innovatively achieved a great throughput with the luxury of customization. With breaking up the process into different stages, with the order process moving in an assembly line of different people, it has been able to achieve this amazing throughput. This not only aligns with its business model of fast food that’s customized, but also is a driver in creating efficiencies for high margins.
Taste: Chipotle has been very cognizant of the fact that at the end of the day people will only come to them if they provide all the aspects that they have build their image around and maintain their competitive advantage, taste being one of them. Therefore, the company does not cut corners and lower costs, but tailors its operations to best fit these needs. For example, they initially used to machine cut options, but realized that hand cut onions give better taste and therefore moved to that.
No franchising: Although Chipotle has reached approximately 1600 stores, it has not moved into the franchising model, it owns and operates its own stores. This allows Chipotle to maintain control and consistency run its own business in line with its business model and operating model. The keen interest of the owner, his attention to detail and his great team in the company have generated this success.
Chipotle’s numbers speak to their success, and show implications of effectiveness. Its has had remarkable growth in revenue and rapid increase in number of stores and is one of the highest profit margins in the fast food industry.