{"id":7166,"date":"2015-12-09T23:25:50","date_gmt":"2015-12-10T04:25:50","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/chipotle-mexican-grill-the-creation-of-fast-casual\/"},"modified":"2015-12-09T23:25:50","modified_gmt":"2015-12-10T04:25:50","slug":"chipotle-mexican-grill-the-creation-of-fast-casual","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/chipotle-mexican-grill-the-creation-of-fast-casual\/","title":{"rendered":"Chipotle Mexican Grill \u2013 The creation of \u201cFast-Casual\u201d"},"content":{"rendered":"<p><iframe loading=\"lazy\" title=\"Inside Chipotle: The Precision of the Burrito Line\" width=\"640\" height=\"360\" src=\"https:\/\/www.youtube.com\/embed\/F6CCAPTnz1s?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" referrerpolicy=\"strict-origin-when-cross-origin\" allowfullscreen><\/iframe><\/p>\n<p><strong>Introduction<\/strong><\/p>\n<p>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 &amp; Dunkin Donuts were instead looking for growth and expansion abroad. Chipotle capitalized on the weaknesses in the existing model &#8211; food quality and health, sourcing ethics and restaurant experience &#8211; to carve a new niche for itself, fast-casual.<\/p>\n<p><strong>Business Model<\/strong><\/p>\n<p>Chipotles business model\u00a0has\u00a0three pillars &#8211; food ethics, healthy ingredients and an expedited &amp;\u00a0intuitive restaurant experience.<\/p>\n<ol>\n<li><em>Food Ethics<\/em>\u00a0&#8211; The company has consistently\u00a0created and cultivated an image of ethically\u00a0sourced, Genetically Modified Organism (GMO) free ingredients along with a motto &#8220;Food with Integrity&#8221;. Each restaurant location has signage\u00a0informing 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.<\/li>\n<li><em>Healthy &#8211;\u00a0<\/em>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.<\/li>\n<li><em>Restaurant Experience &#8211;\u00a0<\/em>Restaurant experience is based on a now ubiquitous process of ingredients laid out in front of customers, allowing them complete customization\u00a0while still ticking them forward in an assembly line fashion. Apart from the operational aspects of this, discussed below, this\u00a0method of dispensing fast food has become unique associated with Chipotle.<\/li>\n<\/ol>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-7280\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/CMG-FWI-300x101.jpg\" alt=\"CMG FWI\" width=\"425\" height=\"143\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/CMG-FWI-300x101.jpg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/CMG-FWI-600x203.jpg 600w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/CMG-FWI.jpg 640w\" sizes=\"auto, (max-width: 425px) 100vw, 425px\" \/><\/p>\n<p><strong>Operating Model<\/strong><\/p>\n<ol>\n<li><em>Franchising &#8211;\u00a0<\/em>Chipotle&#8217;s operations\u00a0integrate with the above business model by employing a non-traditional zero franchising model. Its\u00a0strict 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.\u00a0Preventing 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 \u2013 Chipotle has 1,800 stores to McDonald\u2019s 36,000.\u00a0The company\u00a0employs\u00a0extensive, centralized\u00a0employee training and video surveillance at all locations. This translates to a dramatically superior restaurant experience and efficiency.\u00a0Video 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.<\/li>\n<li><em>Restaurant Experience &#8211; Operations\u00a0<\/em>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\u00a0there 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.<\/li>\n<\/ol>\n<p>&nbsp;<\/p>\n<p>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\u2019s, overtly cost conscious franchisees can undermine the\u00a0two core tenets of Chipotle&#8217;s business model, high cost, high quality ingredients and a fast, enjoyable restaurant experience. One or two bad apples can severely undermine this case.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-7281\" src=\"https:\/\/i4tsk12in2b2y7uts14c528g-wpengine.netdna-ssl.com\/wp-content\/uploads\/sites\/4\/2015\/12\/CMG-Notjustburrito-300x203.jpg\" alt=\"CMG Notjustburrito\" width=\"369\" height=\"250\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/CMG-Notjustburrito-300x203.jpg 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/CMG-Notjustburrito-600x407.jpg 600w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2015\/12\/CMG-Notjustburrito.jpg 624w\" sizes=\"auto, (max-width: 369px) 100vw, 369px\" \/><\/p>\n<p>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.<\/p>\n<p><strong>References<\/strong><\/p>\n<ol>\n<li><a href=\"http:\/\/www.wsj.com\/articles\/chipotle-suspends-pork-sales-at-a-third-of-its-restaurants-1421194340\">http:\/\/www.wsj.com\/articles\/chipotle-suspends-pork-sales-at-a-third-of-its-restaurants-1421194340<\/a><\/li>\n<li><a href=\"http:\/\/www.businessinsider.com\/why-chipotle-doesnt-franchise-2014-10\">http:\/\/www.businessinsider.com\/why-chipotle-doesnt-franchise-2014-10<\/a><\/li>\n<li><a href=\"http:\/\/www.fool.com\/investing\/general\/2015\/04\/15\/why-chipotle-mexican-grill-stores-are-more-than-50.aspx\">http:\/\/www.fool.com\/investing\/general\/2015\/04\/15\/why-chipotle-mexican-grill-stores-are-more-than-50.aspx<\/a><\/li>\n<li><a href=\"http:\/\/www.entrepreneur.com\/article\/237252\">http:\/\/www.entrepreneur.com\/article\/237252<\/a><\/li>\n<li><a href=\"http:\/\/uoinvestmentgroup.org\/wp-content\/uploads\/2012\/04\/CMG-Update.pdf\">http:\/\/uoinvestmentgroup.org\/wp-content\/uploads\/2012\/04\/CMG-Update.pdf<\/a><\/li>\n<li><a href=\"http:\/\/ir.chipotle.com\/phoenix.zhtml?c=194775&amp;p=irol-reportsAnnual\">http:\/\/ir.chipotle.com\/phoenix.zhtml?c=194775&amp;p=irol-reportsAnnual<\/a><\/li>\n<li><a href=\"http:\/\/ir.chipotle.com\/phoenix.zhtml?c=194775&amp;p=irol-news&amp;nyo=0\">http:\/\/ir.chipotle.com\/phoenix.zhtml?c=194775&amp;p=irol-news&amp;nyo=0<\/a><\/li>\n<\/ol>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Chipotle &#8211; Ownership allows control and drives efficiency, allowing for consistent delivery of a complex value proposition. Quintessentially TOM-  assembly line service and holistic management of 1,800 wholly owned fast casual outlets.<\/p>\n","protected":false},"author":914,"featured_media":7173,"comment_status":"open","ping_status":"closed","template":"","categories":[492,32],"class_list":["post-7166","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-big-food","category-fast-casual"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/the-tom-challenge-tom-winners-and-losers-assignment\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Chipotle Mexican Grill \u2013 The creation of \u201cFast-Casual\u201d - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/chipotle-mexican-grill-the-creation-of-fast-casual\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Chipotle Mexican Grill \u2013 The creation of \u201cFast-Casual\u201d - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Chipotle - Ownership allows control and drives efficiency, allowing for consistent delivery of a complex value proposition. 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