Chipotle Mexican Grill was founded in 1993, entering the extremely mature fast food space in the United States. Goliath-esque forty year old incumbents like McDonalds, Burger King & Dunkin Donuts were instead looking for growth and expansion abroad. Chipotle capitalized on the weaknesses in the existing model – food quality and health, sourcing ethics and restaurant experience – to carve a new niche for itself, fast-casual.
Chipotles business model has three pillars – food ethics, healthy ingredients and an expedited & intuitive restaurant experience.
- Food Ethics – The company has consistently created and cultivated an image of ethically sourced, Genetically Modified Organism (GMO) free ingredients along with a motto “Food with Integrity”. Each restaurant location has signage informing customers of this promise and the company spends marketing dollars on the same across channels. Chipotle has proven adherence to this model, in early 2015 it suspended pork sales at one third of its restaurants over concerns that a supplier did not adhere to animal welfare standards. There were no problems with the quality or healthiness of the ingredients, but the company still chose to forsake millions of dollars in sales on principle.
- Healthy – Within the above context of ethics, the company contends that food prepared from fresh, ethically sourced ingredients and made in front of consumers is inherently healthier than traditional fast food.
- Restaurant Experience – Restaurant experience is based on a now ubiquitous process of ingredients laid out in front of customers, allowing them complete customization while still ticking them forward in an assembly line fashion. Apart from the operational aspects of this, discussed below, this method of dispensing fast food has become unique associated with Chipotle.
- Franchising – Chipotle’s operations integrate with the above business model by employing a non-traditional zero franchising model. Its strict adherence to zero franchising is unique in this space. All its major competitors franchise out many stores, allowing exponential store growth by outsourcing store management and real estate investment. By taking on the challenges of a capital intensive, own-and-operate model Chipotle is able to control the quality and supply of ingredients as well as customer experience and employee satisfaction. Preventing franchising is also profitable if complemented with a suitable business model. Chipotle finished 2014 with a per-store profit of $250,000 vs $131,000 for McDonalds. The only catch is that franchising is capital intensive and makes store opening more cumbersome – Chipotle has 1,800 stores to McDonald’s 36,000. The company employs extensive, centralized employee training and video surveillance at all locations. This translates to a dramatically superior restaurant experience and efficiency. Video surveillance is routinely used to assess the speed of service and movement of people and employee performance, something unlikely to be permitted in a franchise outlet.
- Restaurant Experience – Operations The roughly 25 ingredient menu items are physically displayed with individual prices for each. Between three and five people operate separate workstations on the line. Each employee is almost entirely flexible in usage across the line allowing for movement to address bottlenecks. Stores also have one to two separate cashiers. Anecdotal evidence suggests that there is some cross-operability between the line server and cashier role as well. Furthermore, each operator is trained on issues like time food can stay outside and quantities to be served, emphasizing both the core values of the firm and efficiency.
Both these operating model principles work hand in hand. With a franchise model, it is extremely difficult for the company to prevent an individual store from serving food that does not comply with its ethics framework in order to lower costs. A franchisee or group of franchisees often source certain ingredients themselves. Individual franchisees are also well capable of compromising on store employee numbers and training, dramatically reducing both costs and often efficiency. While this may be acceptable at a McDonald’s, overtly cost conscious franchisees can undermine the two core tenets of Chipotle’s business model, high cost, high quality ingredients and a fast, enjoyable restaurant experience. One or two bad apples can severely undermine this case.
Note: The recent health scares from Chipotle foods affecting students in Boston with Norovirus are not within the scope of this assignment as they have just occurred.