Case Review:

Chipotle Mexican Grill

Opeyemi Obayemi
Questions for Discussion

1. Is CMG a successful company? On what basis do you say this?

2. Is CMG following a differentiation strategy? If so, what is the basis for their
differentiation?

3. How should Steven Ells and Montgomery F. Moran position CMG to respond to
the strategic challenges facing CMG in late 2012?

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Question 1

Is CMG a successful company? On what basis do you say this?

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Is CMG a successful company? On what basis do
you say this? [1/2]

• CMG had arguably fulfilled the founder’s vision of reinventing how Mexican food
was perceived

• As an early stage company, CMG was able to attract investor funding which
helped fuel its growth; increasing number of restaurants from 16 units in 1998 to
500 in 2005

• CMG had a well-known brand and was a market leader in its segment of the
food industry

• CMG’s labour, occupancy and other restaurant operating costs were considerably
lower than those of its competitors, giving CMG a cost leadership edge in this
regard

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Is CMG a successful company? On what basis do
you say this? [2/2]

• CMG’s financials show that:

− Revenues increased YoY between 2009 to 2011 and increased at a rate that at a
minimum matches the rate of expense growth
− CMG had a healthy balance sheet
− CMG had a positive and increasing net cash position

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Question 2

Is CMG following a differentiation strategy? If so, what is the

basis for their differentiation?

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Is CMG following a differentiation strategy? If so,
what is the basis for their differentiation? [1/3]

• A differentiation strategy focuses on making an organisation’s products and

services different from or more attractive than those of competitors. Following from
this definition, we can posit that CMG is following a differentiation strategy.

• The basis for CMG’s differentiation was the desire of the founder, Steven Ells, to
reinvent Mexican food; changing the way people think about and eat fast food in
the process, with a focus on quality and sustainable sourced inputs. More
specifically, CMG’s differentiation strategy is revealed in:

− The look, feel and substance of the food:

• Right from the opening of the first shop in 1993, Steven Ells “wanted layers of bold flavours that
had nuance and depth, not just hot and spicy”. He wanted something that “looked, smelled
and tasted different from traditional fast food”.
• All meals in CMG’s restaurants were prepared with fresh ingredients. None of the company’s
restaurants had freezers, microwave ovens or can openers.
• Increase in local grown sourcing which improved the taste of local food served to customers by
using ingredients during their peak season
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Is CMG following a differentiation strategy? If so,
what is the basis for their differentiation? [2/3]

− CMG’s sustainable sourcing practices and efficiency focus:

• “Food with Integrity”: as part of the Ells’ and CMG’s commitment to finding the very best
ingredients, he decided to source inputs from open-range pork suppliers, naturally raised chicken,
and naturally raised beef in order to obtain meat that tasted better than what was served in most
restaurants.
• Operational efficiency at the restaurant level: CMG operated comparatively smaller restaurants,
kept their menu options limited and used an assembly line system for food preparation
• Design and build of restaurants: CMG sourced for and used more environmentally friendly
building materials and systems to make their restaurants more efficient

− Restaurant ownership: all of CMG’s restaurants were company-owned, positioning CMG

to exercise total control on the quality of operations within each outlet

− The open-kitchen style of operations: CMG’s restaurants are organised like a dinner
party, where everyone in the restaurant is able to see what is cooking. This is contrary to
how other restaurants were organised.

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Is CMG following a differentiation strategy? If so,
what is the basis for their differentiation? [3/3]

− The ordering style within the restaurant: rather than order meals by numbers, customers
placed their orders at the beginning of the “buritto assembly line” and added ingredients
of their choice as they moved along the line.

− Marketing: CMG chose to market their services through the use of loyalty programs
rather than use traditional media like other fast-food companies

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Question 3

How should Steven Ells and Montgomery F. Moran position

CMG to respond to the strategic challenges facing CMG in late
2012?

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How should Steven Ells and Montgomery F. Moran
position CMG to respond to the strategic challenges
facing CMG in late 2012? [1/2]
SN Strategic Challenge Proposed Response
1 A depressed economy, with an The indication that consumers will either curtail eating spend or maintain spend at current levels
indication that customers will suggests that price sensitivity is a factor, particularly in a depressed economy. CMG could
either curtail eating spend or respond by doing a combination of the following:
maintain spend at current levels
 The first step would be to measure how price-sensitive their current and potential
customers are. The outcomes of this exercise will guide further strategic responses

 Where survey outcomes indicate that customers are indeed price-sensitive and will limit or
reduce spend on CMG’s products, CMG could at least maintain customers’ share of
wallet by:

− Emphasizing the quality inherent in their meals

− Focusing on/ educating customers via a blog or other media on the benefits e.g.
health, of eating their meals; and giving them more reasons to purchase CMG’s
products
− Focus on transparency i.e. letting customers know why their products are priced the
way they are
− Improving on factors such as customer service which will help to further project the
CMG brand
− Offer bonuses as a sweetener: CMG should get creative in offering customers in-
store deals which will keep them coming back

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How should Steven Ells and Montgomery F. Moran
position CMG to respond to the strategic challenges
facing CMG in late 2012? [2/2]
SN Strategic Challenge Proposed Response
2 Taco Bell was proving to be a CMG could respond to Taco Bell by:
formidable competitor, having a
 Adopting a defensive stance: CMG should continue to build product differentiation with
large network of outlets within
the aim of reducing direct rivalry
the U.S. and pushing the higher
margin Cantina Bell menu  Seeking to influence the market: CMG could gain leverage over Taco Bell and customers
through aggressive and large- by investing in farms and becoming a major player in the value-chain
scale advertising
2 The expected increase in food CMG should neither reduce or increase its use of sustainable inputs as these would impact on its
costs were bound to affect brand and margins respectively. An option for CMG is to maintain its current level of use of
CMG, both in its margins and in sustainable inputs, while exploring ways of reducing cost in order to maintain or increase
its quest to increase its usage margins. CMG can reduce its costs in the following ways:
of sustainable inputs
 Backward Integration: CMG could go back the value chain to invest in ownership of
farms, which will in turn result in better control on input costs

 Renegotiate prices:

− Enter into forward-pricing agreements to lock in costs for the forecasted period of
economic downturn
− Negotiate volume-purchase contracts to drive down prices
 Cut cost in other areas/ greater focus on efficiency to cushion the effect of increase in
input prices

 Vary cost structure: switch percentage of some cost elements e.g. staff costs from fixed to
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