Chipotle’s SWOT 2024 | SWOT Analysis of Chipotle

Company: Chipotle Mexican Grill, Inc.
CEO: Brian Niccol
Founders: Steve Ells
Year founded: 1993
Headquarter: Newport Beach, California, U.S.
Number of Employees (FY21): 97,660
Type: Public
Ticker Symbol: CMG
Market Cap (Jul 2022): $37.6 Billion
Annual Revenue (FY21): $7.55 Billion
Profit | Net income (FY21): $652.98 Million

Fun Fact:

On Halloween, Chipotle offers a discount on any entrée on their menu if you dress in a costume.

Table of Contents

Introduction

Chipotle Mexican Grill is a reputed American restaurant that was founded by Steve Elles in 1993 in Denver, Colorado. Chipotle is known for serving Tex-Mex (Mexican American) cuisine to more than one million customers daily. Chipotle operates 2724 restaurant, mostly in the USA and in a few international locations i.e., Canada, France, Germany, and the United Kingdom.

The reputation of the company is strongly associated with providing fresh meal items, while its marketing and branding based on “food with integrity” focus towards sourcing its ingredient from ethically minded suppliers.

As a result, Chipotle Mexican Grill has been able to facilitate a casual dining experience with its premium ethos. It can be further reflected from assembly line service and approach towards the preparation of fresh food.

In this SWOT analysis of Chipotle, we will evaluate the latest dynamics of Chipotle Mexican Grill to gain insights with respect to its competitive advantages that allowed the company to attain dominance in the industry.

Chipotle’s Strengths (Internal Strategic Factors)

Provision of Tasty Food – Chipotle Mexican Grill is widely famous for providing a simple regular menu for its customers that comprises of salad, tacos, burrito bowls, and burritos.
Classic Method of Cooking – The restaurant adopts classic methods of cooking in preparing their food that involves fresh ingredients, cutting knives, pots and pans, and stoves and grills.
High Quality Food – Chipotle is known for using fresh ingredients in the preparation of their food, often promoted as “Food with Integrity.”
Fresh Food – Chipotle doesn’t carry a microwave or freezer in its restaurant. They have walk-in refrigerators stocked with fresh ingredients, herbs, spices, and rice, etc. And they hand-make fresh food such as guacamole, lime rice, salsa, meat every day from scratch.
Reasonable Prices – To make sure that the customers are satisfied, Chipotle Mexican Grill provides high-quality food, yet ensuring that the price being charged is reasonable for their customers. The prices for their menu ranges from $1.40 to $8.00.
Large Network of Restaurant Chain- In 2020, Chipotle operated 2,724 restaurants worldwide, with most being located in the US and 40 locations outside of the United States spread across Canada, the UK, France, and Germany.
Responsibly-Sourced Meat – With an immense focus towards sustainability and animal welfare, Chipotle Mexican Grill insists on using animals that are grown with care, “Responsibly Raised,” without the use of non-therapeutic antibiotics, or hormones, etc.
Maintaining Close Relationship with Suppliers – The focus of Chipotle lies clearly upon acquisition of high-quality fresh ingredients, which is necessary to ensure high levels of safety and quality at the restaurants. It is made possible through close relationships with their reliable suppliers.
Digital Friendly – Chipotle is very digital-friendly, and they have introduced an ordering app to help customers avoid long wait lines during lunch or dinner peak hours. You can order food on Chipotle’s app a few minutes before coming to the restaurant. It means that you can cut the entire line and pay for your food in a matter of seconds. Chipotle’s effective adoption of e-commerce increased the company’s revenue in 2020 by 7.1% from $5.6B in 2019 to $5.98B in 2020, when other restaurants were struggling to stay afloat. Most of Chipotle’s restaurants stayed open for to-go orders thanks to the robust digital platform it built since 2017. Its digital sales contributed 46.2% of total sales revenue in 2020. [2]

Source: Apple App Store | Chipotle’s App Screenshot

Chipotle’s Weaknesses (Internal Strategic Factors)

Dependence on the limited number of suppliers – For its main ingredients, which comprises of chicken, pork, and beef, Chipotle Mexican Grill depends upon a limited number of suppliers. When it comes to quality, the focus of the entity lies upon integrity, yet it led to major controversies, such as the outbreak of E.Coli in 2015.
High Sodium Content – Chipotle is known to have high sodium content in its food, which can lead to high blood pressure.

Limited food items on the menu – Chipotle’s menu lacks a wide range of food items as it is limited to mainly burritos and tacos. As a result, their customers spend relatively high at their competitors’ outlets, such as Panera Bread.
Unfavorable Pricing – In this trying time, consumers are more concerned about getting value for their money. Unfortunately, Chipotle decide to raise the price on its delivery menu by an average of 9% across 20 of its largest markets. For example, it costs $8.95 for pick up verses $10.10 for delivery. Analysis of 25 chains in July 2020 revealed that Chipotle increased the delivery price of popular orders. Similarly other restaurants such as Chick-fil-A increased delivery menu price by 29.8% compared to a 20.3% hike by Starbucks and 19.6% by McDonald’s. Chipotle’s pricing strategy is unfavorable and can force loyal customers to go to its competitors. [3]
Poor Food Safety – In 2018, more than 1,000 people become sick after eating at Chipotle’s burrito restaurants. Chipotle was sued for violating food safety and agreed to pay $25 million in April 2020 to resolve charges. It is the largest fine ever handed out by the U.S. Justice Department in a food safety case. This is a major weakness since customers are hesitant to eat in restaurants linked to outbreaks of food-borne illness. [4]
Over Reliance on the US Market – Chipotle has 2,724 restaurants in total. Most are located in the US, with only 40 restaurants outside of the United States, including 19 in Canada, 6 locations in the UK, and others in France and Germany. Depending mostly on the North American market is risky. Any challenges in the market can have a significant impact on the company’s bottom line. [5]

Image Source: Statista | Sales of Fast Casual Food Chain in 2017

Chipotle’s Opportunities (External Strategic Factors)

Expansion into International Markets – Chipotle has a small number of its restaurants outside the U.S. As of Dec 2018, Chipotle operated 2,452 restaurant in US and only 37 in international market. Therefore, it should utilize this opportunity to expand its brand in the international market.

Digital Orders – As of Dec 2020, 46.2% of Chipotle’s annual revenue ($5.98 Billion) comes from digital orders. The shift to digital sales is mostly accelerated due to pandemic. Chipotle expanded its online sales significantly in 2020, which grew 174.1 % in 2020. Still, there is a huge opportunity to further expand its online (mobile, delivery and catering) orders. [6]

Upgrade due to Intense Competition – The restaurant industry of the US is growing rapidly with respect to its casual dining segments, quick, and fast-casual service, thus adding an opportunity for Chipotle to upgrade with respect to its ambiance and condition, brand reputation, location, service, presentation, quality, price, and taste of the food they offer.

Training and retaining top-performing employees – As the restaurant industry of the US is becoming stringent, Chipotle can gain a competitive advantage over its competitors through retentions of its employees. It can be ensured by investment in training new employees, a competitive salary, etc.
Drive-through option (Chipotlane)- Chipotle is planning to expand the drive-through option (also known as Chipotlane) in its restaurants. It will result in convenience and ensure easy access for its customers, resulting in increased sales. In 2020, Chipotle opened 100 restaurants with a Chipotlane.
Adding delivery service in partnership with Doordash, Uber Eats and Grubhub – A delivery program in collaboration with Doordash will allow customers to avail free delivery on orders above $10. Chipotle’s digital sales rose significantly (174% year-over-year) in 2020 thanks to effective e-commerce adoption and new strategic partnerships with Uber Eats and Grubhub. [7]
Introduce healthier options – The number of health-conscious consumers is increasing rapidly. Chipotle reintroduced its “Lifestyle Bowls” in January 2020 that offers healthier diet regimens like paleo and keto. The new menu options enticed more new customers and were among the most popular orders among regular customers. Chipotle has the opportunity to attract more customers by providing options focused on health-and-wellness. [8]

Chipotle’s Threats (External Strategic Factors)

Loss of Customer Trust due to Food-Borne Illness – Chipotle went through a series of health-related incidents, ranging from norovirus to E.Coli to salmonella outbreaks, sickening hundreds of customers in several states. As a result, many customers stopped dining at the Chipotle. The company has been plagued since 2015 from the food safety scandal, which is evident from the decline in their sales in 2015 – 2016 revenue figures.

Image Source: Statista | Decline in Chipotle’s sales after E.Coli incident

Legal Proceedings against Chipotle – The false claim by Chipotle regarding the low calorie count of its food may affect the reputation of the brand.
Challenges attracting and retaining employees – Due to the growing demand for dining in restaurants and further strengthening of the overall economy, the labor market is struggling and is identified as being tightened. As a result, to bring in new workers, a one-day hiring binge was being conducted by Chipotle Mexican Grill.
Supply chain problems – Due to the implication of strict policies associated with feeding and raising of animals, hundreds of Chipotles encountered difficulties in their supply of pork.
Fined due violation of Child Labor Law – In Jan 2020, Chipotle was fined $1.4 million for violation of child labor law in the state of Massachusetts. According to the New York Times, Chipotle allows 16-17-year-old employees to work over 9 hours per day, which is a violation of Massachusetts state law.
Market Uncertainties – In 2020, the food business was adversely affected by uncertainties in the market globally. Chipotle’s sales plunged 16% in March alone, leading to a decline in quarterly profits from $88 million in Q1 2019 to $76.38 million in Q1 that ended March 31, 2020. Even though Chipotle bounced in Q2 and Q3 of 2020, the company requires stability in the market to return to the high profitability and growth it enjoyed before the crisis. [9]
Stronger Unions and Employee Collectives – Stronger workers’ unions and collective is always a threat that hangs over any business that requires a workforce. In April 2020, leaders of Chipotle’s workforce convinced a federal appeals court to revive a collective action lawsuit filed by more than 500 employees. If the court rules in employees’ favor, Chipotle will have to spend millions to cater to their federal overtime requirements. Stronger unions threaten Chipotle’s profitability. [10]
Growing Competition – The growing competition in the Tex Mex business may pressurize Chipotle and have negative implications over its share of the market.