Therestaurant sector has been growing at an exponential rate, followinga rise in demand for fast foods. However, each restaurant gets itsmarket share depending on how it positions and differentiates itselffrom its competitors (Subramanian, 2013). In this paper, the casestudy of Chipotle will be discussed. The paper will focus onorganizational resources, components of business strategy, andeffects of competitive as well as economic forces.
OrganizationalResources and Chipotle’s Recent Financial Performance
Organizationalresources are important because they facilitate the productionprocess. The resources owned by Chipotle can be classified into fourcategories. The first one is human capital, which is comprised ofabout 28,370 hourly employees and 2,570 workers who get a salary atthe end of the month (Subramanian, 2013). Secondly, Chipotle hascapital resources that include the company-owned restaurants, amongother assets. The third category is comprised the monetary resources.From the consolidated balance sheet, it is evident that Chipotle hada total of cash and cash equivalent assets worth $ 224,838,000 in2010, which increased to $ 401,243,000 in the financial period 2011(Subramanian, 2013). These are important and liquid resourcesindicating the company’s capacity to meet its short-term as well aslong-term obligations. Raw materials are the fourth category ofresources that are available for Chipotle to continue with itsoperations. These resources include the ingredients that the companyuses to prepare organic and healthy foods for its target customers.The ownership of over 22 distribution centers has enabled Chipotle tocontrol the quality of this important resource.
Chipotleis a profit making company, which suggests that a measure of itsperformance should be based on the amount of revenue and net incomethat it has made in the recent financial periods. From theconsolidated income statement, it is clear that both the totalrevenue and the net income after interest as well as taxes increasedcontinuously from 2009 to 2011. The revenue increased by 20.9 % in2010 compared to 2009. It also increased by 23.6 % in 2011 comparedto 2010. Similarly, the net income increased by 41.1 % in 2010 and20.09 % in 2011 (Subramanian, 2013). These are positive financialperformance indicators.
Componentsof Chipotle’s Business Strategies
Thecompany’s business strategy has three major components. The firstand the most significant component is differentiation. Chipotle hasmanaged to position itself as a company that offers organic food thatenhances the health of its customers. This has helped the company todifferentiate itself from the rest of the restaurants that focus onthe delivery of cheap fast foods and with a little concern for theimpact of their products on the health of the consumers.
Secondly,Chipotle has managed to position and market itself as a company thatinvests in quality and sustainability. It has achieved this strategyby establishing its own distribution centers. This approach hashelped the management of Chipotle to control the level of quality ofthe raw materials used to make foods that are offered to customers(Subramanian, 2013). The centers are independent, which suggests thatthey are able to monitor quality without internal or externalinfluences. In addition, these centers partner with suppliers whounderstand the company’s mission, which ensures that allingredients that are supplied to its restaurants are grownorganically.
Thethird component is the company’s investment in sustainability.Chipotle is concerned about the rights of animals and farmers, whichsuggests that it does not only exist to make money. Through theloyalty online program, the company is able to test the farmers’knowledge of organic farming, sustainability, and humane food sources(Subramanian, 2013). Therefore, Chipotle does not take theingredients that are available in the market, but it monitors themethods used to produce them in order to ensure that animal rightsare not violated and crops are grown through organic means.
Influenceof the Analysis on Strategic Direction of the Firm
Theanalysis should indicate the long-term effect of the currentstrategies taken by the company in order to determine the safety ofthe going concern. Based on the previous financial performance, itwill be possible to forecast the potential impacts of the businessstrategies on the Chipotle’s progress in the future. For example,the application of the sustainability and differentiation strategieshas resulted in a continuous growth in the net income as well asrevenue for three consecutive financial periods (Subramanian, 2013).This information will guide the future direction of the organizationby indicating whether it is reasonable to continue investing incurrent line of products. This information will then be included inthe strategic plan.
Effectof Competitive and Economic Forces on Value
AlthoughChipotle made profits in the three years, the net income increased ata declining rate between 2009 and 2011. This is an indication of thenegative effect of economic as well as the competitive forces.Chipotle cannot ignore the effect of the stiff competition that iscaused by the Taco Bell, which offers the same line of products(Subramanian, 2013). This has reduced the number of Chipotle’sloyal customers. In addition, the increase in the cost of supplieswill force Chipotle to raise prices, which will create a possibilitythat the company might lose some customers who can no longer affordthe products. Therefore, the sustainability strategy could reduce thecompany’s value in the long-run.
Chipotleis a company that has distinguished itself from other players in therestaurant business sector by investing in sustainability. Byfocusing more on the interests of other stakeholders (such ascustomers and farmers), Chipotle has managed to position itself as anorganization that pursues other objectives, other than profit making.However, the fact that the net income increased at a declining ratein 2011 suggests that an increase in the cost of supplies, coupledwith stiff competition will reduce Chipotle’s value in the future.
Subramanian,R. (2013). Case8: Chipotle: Mexican Grill, Inc.: Food with integrity.London: Richard Ivey School of Business Foundation.
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