Chipotle External Analysis

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Restaurant Industry:
Chipotle Mexican Grille, Inc.

TABLE OF CONTENTS

Chipotle Overview3
Industry Overview3
Key Macro External Forces4
Five Competitive Forces4
Major Factors Causing Fundamental Changes4
External Analysis4
Key (or Critical) Success Factors4
APPENDIX – 14
APPENDIX – 24
External Factor Evaluation (EFE) Matrix4
APPENDIX – 34
Competitive Profile Matrix (CPM)4
APPENDIX – 44
APPENDIX – 54
Content Topics4
Bibliography18

Chipotle Overview

Chipotle Mexican Grill, Inc. is a “fast-food service restaurant” under limited service category. It was formed in 1993 and went public in 2006. It has the largest market share in the Mexican-type food segment with a net income of more than $126M in 2009 (Mergent online, 2010). The company spans over 35 states and has over 1000 restaurants across the U.S. and in parts of Columbia district, Canada and England. Chipotle’s menu consists of burritos, tacos, burrito bowls (a burrito without the tortilla), salads, and a variety of extras such as guacamole, salsas and tortilla chips seasoned with lime and kosher salt, cheese, lettuce. The company claims that with its varieties of extras, it’s able to expand its menu offerings to over 65,000 choices (Hoover, 2010).

Industry Overview

The U.S. fast-food industry is expected to generate total revenues of $184.0 billion in 2010, which is equal to a 0.32% share of the economy. Over the next five years (2010 to 2015), the revenue for the industry is expected to grow at a rate of 2.5% per year to $208.2 billion (Appendix 1 – Table 1). Due to the projected improvement of the domestic economy, the number of establishments and the number of enterprises are forecasted to increase at a rate of 1.7% and 1.3% per year, respectively. This means that new entrants will enter the market at a slower rate than the existing fast-food chains increase their branches (IBISWorld, 2010). The industry concentration, which is the combined market share of the top four chains, is low. The major players are McDonald’s Corporation (12.7% of market share), Yum! Brands, Inc. (9.7% of market share), Wendy’s/Arby’s Group, Inc. (6.6% of market share), and Starbucks Corporation (5.9% of market share) (Appendix 3 – Figure 1). The combined market share of these four firms is 34.9%. Since the industry life cycle is very close to a mature stage in the domestic market, many operators are looking to expand to unsaturated markets such as Asia and the Middle East. As a result, the trend toward globalization is high and is expected to increase over the coming years (IBISWorld, 2010).

A study done by IBISWorld Industry Report found that “Households that make less than $50,000 per year spend 36.6% of their food budget on dining out. Households that make between $50,000 and $75,000 per year spend 42.4% of their food budget on dining out, while households that pull in more than $75,000 per year spend 45.7% of their food budget on dining out” (2010). The same study found that almost half of the food budget is spent on eating out by people who are 18-25 years of age. People who are 25-30 years old spend 44.8%, and those who are 35-50 years old spend 42.3%. The 50-65 years of age category spends 42.8%, and those who are 65 or older spend 37.0% of their food budget dining out. It is true to say that “every age group and income level eats fast-food” (IBISWorld, 2010). (Appendix 4 – Figure 2)

Since the domestic fast-food market is almost saturated, the competition has become intense. Operators are competing based on price, food quality, style/presentation, variety of foods, and quality of service. Moreover, the barriers to entry in this industry are low. This is because new operators can enter the market with low startup cost. Capital outlays can be minimized by leasing premises and equipment rather than buying outright. Franchising is another mechanism that allows new entrants to keep startup costs to a minimum...
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