Chipotle Mexican Grill Harvard Case Solution & Analysis

Chipotle Mexican Grill Case Study Solution

Key Problems/Issues

  • Chipotle Mexican Grill (CMG) has good customer base in market but rising costs of food ingredients has creates complicated situation for the company that how should it respond to the rising costs of food ingredients. If the company increases the price of its menu then it is likely to affect its customers in market. Because, the competitors in the market have been offering substitute of same menu in less prices due to low costs of ingredients they utilize.
  • Lowering costs in such a competitive environment is not justifiable in any sense. Furthermore, two reasons which influences to rise prices of products instead of decreasing. One; increased costs of ingredients, second; ingredients are pure and high quality as compared to competitors. So, it is concern what should company do in order to sustain its position in the market, remain key fast casual player, and ensure growth in such competitive environment.
  • Commercial advertisement is not preferred by the company at all. It has been working on loyalty programs to interact with customers, farmers, and key stakeholders of the company. So, it is concern for the company that could it sustain customer base and that loyalty programs could cultivate what it intend to. As competitors have been investing a huge amount into the advertisement such as TV commercials, newspapers, and magazines.
  • Rising questions over the company’s operations in a report presented byEinhornin value investor conferencehas affected company significantly because its stock price declined by 4% at same day of conference. So, how could it defend such reports that have affected the company?
  • The mission of the CMG is “Food with integrity”, so could it continue its mission given that prices of the ingredients has increased, and that it has been investing in food ingredients to acquire higher quality ingredients that tastes better than competitors. It has been working on concentrated animal feeding operations (CAFO) to improve their product quality and taste, thus making the food cost higher. Soshould it continue this program to increase the quality of food?
  • What should CMG do? Should it continue CAFO’s program, and improve the quality of food, or should it stop it since costs of food increases, and economic conditions, and intense competition might not allow company to increase the prices? Should it sustain such programs to improve quality to differentiate in market?

 

Analysis

External Analysis

Porter Five Forces Analysis

Power of supplier

The power of the supplieris low in the market because company can easily manage to get suppliers into the market. Due to increased competition the suppliers have been increased in the market. Butas far as company’s mission is concerned to provide “Food with Integrity”, there could be some complications for the company to acquire suppliers that work under CAFO’ programs to provide higher quality ingredients. Because, many regulations are imposed on running CAFO programs, and it is observed by the U.S Environmental Protection Agency (EPA). It can be determined that there are many complications in running such programs so suppliers might play monopoly to increase the prices of ingredients due to less suppliers are ready to work under CAFO programs. So, company has low-to-medium power of supplier in general terms and in special terms.

Power of Buyer

The power of buyer is high in food industry, as it was also reported by the research firm that published a report about the CMG’s menus and customer’s opinions over company’s food, and prices. The report also suggests that 23% of CMG’s customers have tried competitor Taco Bell’s Cantina Bell menu that offers burritos and burritos bowls produced with fresh ingredients. But, among these customers only 1/3 of customers indicated in same survey that they would return to CMG. It can be determined that there is high power of buyer because it carries intense competition in the market, so they could influence company to lower the prices of the food.

Threat of substitute

There is high threat of substitute since competition have been increased in the market and customers might be attracted to lower prices of the products, or products of same prices. Large competitors such as Panera Bread, Five Guys Burger, and Qdoba have been operating into the market with different products, and they have experience to produce substitute of company’s products at competitive prices and offering them in the market. Therefore, threat of substitute is high in the market.

Chipotle Mexican Grill Harvard Case Solution & Analysis

 

Threat of new entrant

Threat of new entrant is low in the market because food industry is under intense competition which carries no gap in the industry where new entrant could fit. On the other hand, competitors have been working on improving the quality of products to differentiate their products,and trying to raise the prices due to economic conditions. So, it is very difficult for new entrant to sustain and grow in such an industry. Though, there is low threat of entrant.........................

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