Porter’s Five Forces Analysis of Chipotle
|Name||Chipotle Mexican Grill, Inc.|
|Industry||Hotels, Restaurants & Leisure.|
|Founded||July 13, 1993.|
|Headquarters||Newport Beach, California, United States.|
|CEO||Brian R. Niccol.|
|Revenues||US $7.55 billion,2021(audited) and US $6.454 billion for 3rd quarter 2022(unaudited).|
|Profit||US $0.653 billion, 2021(audited) and 0.675 billion for 3rd quarter 2022(unaudited).|
|Competitors||McDonald’s, KFC, Starbucks, Burger King,Taco Bell|
Chipotle Mexican Grill is a fast-casual Mexican restaurant chain founded by Steve Ells in 1993. The first Chipotle restaurant was opened in Denver, Colorado, where the company was headquartered before relocating to Southern California in 2018. In 2021, the brand operated 2,966 eateries worldwide, serving international customers in Canada, France, Germany, and the United Kingdom. In the U.S., Chipotle also remains the second-largest fast-casual restaurant chain based on unit count. The average restaurant sales of Chipotle Mexican Grill reached 2.6 million U.S. dollars in 2021, an increase over the previous year. Meanwhile, Chipotle’s worldwide revenue reached 7.55 billion U.S. dollars and net profit of U.S. dollars 0.653 billion in 2021,the company’s highest recorded revenue ever.
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is a widely used model to evaluate companies’ strategies in reference to its industry for neutralizing the competition and increase the margins, it is developed by Professor Michael E. Porter in 1979, at Harvard Business School.
Chipotle Rivalry among Existing Competitor
- Chipotle Business Segments: Chipotle Mexican Grill, Inc. engages in the development and operation of fast-casual, fresh Mexican food restaurants throughout the U.S. It offers focused menu of burritos, tacos, burrito bowls, and salads prepared using classic cooking methods.In 2021, As of December 31, 2021, they owned and operated 2,918 Chipotle restaurants throughout the United States, 44 international Chipotle restaurants, andfour non-Chipotle restaurants. The company manage their operations based on eight regions.
Their revenue is derived from sales by company-owned restaurants in Canada, France, Germany, and the United Kingdom. In the U.S., Chipotle also remains the second-largest fast-casual restaurant chain based on unit count.
- Chipotle Global Operations Year 2022Digital sales, which includes delivery and customer pick-up, represented 45.6% of the total revenue in 2021, compared to 46.2% of total revenuefor 2022 till third quarter September, 2022. Total revenue in the third quarter was $2.2 billion, an increase of 13.7% compared to the third quarter of 2021. The increase in total revenue was driven by a 7.6% increase in comparable restaurant sales and new restaurant openings. The in-restaurant sales increased 22.1% in the three months ended September 30, 2022, as compared to the three months ended September 30, 2021, while digital sales represented 37.2% of total food and beverage revenue.They opened 43 new restaurants during the third quarter with 38 locations including a Chipotlane. Restaurant level operating margin was 25.3%, an increase from 23.5% in the third quarter of 2021.
- McDonaldis also proved to be one of key players by giving a record sale of US $ 22.223 billion and a net profit ofUS $7.545 billion for 2021. In 2021, global comparable sales increased 17%. Comparable sales in the US increased 13.8%. Comparable sales in the international operated segments increased 21.6%, reflecting positive comparable sales across all markets, primarily driven by the UK and France. The company operates and franchises restaurants including, Australia, Canada, France, Germany, Italy, the Netherlands, Russia, Spain and the UK.
In 2021, the company had over 40 thousand restaurants all over the globe. In 2021, there were 13,438 McDonald’s restaurants located in the United States. The number of McDonald’s stores in Russia exceeded 850 as of February 2022, steadily increasing over the observed period. McDonald’s was present in the country since January 1990.
In a 2022 ranking of brands by their value, McDonald’s placed sixth, at nearly 197 billion U.S. dollars, with an increase in value by 27 percent compared to previous year.
- Starbucks gave tough competition to Chipotle by generating a record sales of US$32.25 billion , with a net income of US$ 3.282 billion in 2022.Beverages accounted for the highest share of Starbucks’ retail sales from its company-operated stores worldwide. Over the years, this segment represented 74 percent of the company’s total retail sales globally. In comparison, food accounted for 22 percent of Starbuck’s retail sales distribution in 2022.They have three reportable operating segments: first is North America, which is inclusive of the U.S. and Canada; second is International, which is inclusive of China,Japan, Asia Pacific, Europe, Middle East and Africa, Latin America and the Caribbean; and third is Channel Development.There were 35,711 thousand Starbucks stores worldwide in 2022. This figure also included other segments owned by the coffee-chain such as Siren Retail. Countries the company has expanded to include Germany, Indonesia, and the United Arab Emirates.With over 35 thousand Starbucks stores worldwide in 2022, the company has established itself as one of the world’s leading coffeehouse chains. During that same year, Starbucks’ total assets amounted to approximately 27.98 billion U.S. dollars.
- Investment in Research & Development-Marketing Cost and Brand Image: The existing battles among the brands with a challenge of changing trend towards providing the best ambiance with high quality food using fresh ingredients. Chipotle also needs to focus the marketing cost to increase the brand image and better customer loyalty.
Chipotle Threat of New Entrants
- Global Restaurant Industry: The size of the global food service market reached 2.52 billion U.S. dollars in 2021. This figure was forecast to grow to 4.43 billion U.S. dollars in 2028, showing a CAGR of 9.9 percent from 2021 to 2028 as per Statista.
- High Capital Investment: The new entrant will be requiring high capital investment, with extensive requirements to fulfil, regarding quality maintenance, restaurant setup, etc.so it is discouraging barrier for any new entrant.
- Trained Human Resources: As due to the specialized nature of the product only limited human resource can handle such products. In order to maintain standard taste in all its restaurants chefs and other kitchen staff are given extensive training.
- High cost of brand development: It is costly to build a strong brand in the fast-food industry. Many small and medium-sized businesses lack the resources to create a strong brand that rivals the Chipotle’s brand.
Chipotle Bargaining Power of Suppliers
- Large Number of Suppliers: The large population of suppliers weakens the effect of individual suppliers on Chipotle’s Corporation. This weakness is partly based on the lack of strong regional and global alliances among food and beverage suppliers. In relation, most of Chipotle’s suppliers are not vertically integrated. This means that they do not control the distribution network that transports their products to fast-food restaurant firms.
- Suppliers Collaboration: Maintaining the high levels of quality and safety demand in Chipotle’s restaurants depends in part on the ability to acquire high-quality, fresh ingredients and other necessary supplies that meet specifications from reliable suppliers. Chipotle has 25 independently owned and operated regional distribution centers purchase from various suppliers they carefully select based on quality, price, availability, and the suppliers’ understanding of and adherence to their mission.
Chipotle Bargaining Power of Buyers
- Switching Cost:The ease of changing from one restaurant to another (low switching costs) enables consumers to easily influence Chipotle’s business performance also because of market saturation, consumers can choose from many fast-food restaurants other than Chipotle’s. This condition makes the bargaining power of buyers a strong force that affects the fast-food company’s external environment.
- Customer Satisfaction: Customer feedback and customer satisfaction is important to retain the market share. Unlike many of the brand’s competitors like Taco Bell, Chipotle does not franchise its restaurants. This business strategy, among other factors, earned the company an American Customer Satisfaction Index (ACSI) score of 80 in 2020, making it one of the top-ranked limited service restaurant chains in the country. According to a nationwide survey, Chipotle also remains the favorite Mexican restaurant chain in the United States among 61 percent of consumers. In total, 32% of U.S. restaurant chain customers say they like Chipotle Mexican Grill. However, in actuality, among the 84% of U.S. respondents who know Chipotle Mexican Grill, 38% of people like the brand.
Chipotle Threat of Substitute Products or Services
- Pre-Cooked Food: One of the substitutes is pre-cooked foods such as instant noodles, canned soup etc. where people can eat them just by heating or adding boiling water easily because they are easily available without having to wait to order and also cheaper.
- Brand Loyalty: Like every fast food chain Chipotle has its own particular taste that attracts people having a particular taste palette so any substitution can only be replaced at the cost of brand loyalty.Around 19% of restaurant chain customers in the United States say they are likely to use Chipotle Mexican Grill again. Set in relation to the 24% usage share of the brand, this means that 79% of their customers show loyalty to the brand.
- Chipotle Mexican Grill – statistics & facts(Feb 24, 2022)| Available at Statista
- Chipotle Mexican Grill brand awareness, usage, popularity, loyalty, and buzz among restaurant chain customers in the United States in 2022(Dec 13, 2022)| Available at Statista
- Average restaurant sales of Chipotle Mexican Grill worldwide from 2008 to 2021(Jun 9, 2022)| Available at Statista
- American Customer Satisfaction Index scores for leading quick service restaurant chains in the United States in 2022, by restaurant brand(Jul 27, 2022)| Available at Statista
- Market size of the global food service industry in 2021, with a forecast for 2028(Jul 15, 2022)| Available at Statista
- Basic information about Chipotle |Available at Forbes
- Retail sales distribution of company-operated Starbucks stores worldwide from 2005 to 2022(Nov 29, 2022)| Available at Statista
- Revenue distribution of Starbucks from 2009 to 2022, by product type(Nov 29, 2022)| Available at Statista
- Net revenue of Starbucks worldwide from 2003 to 2022(Nov 28, 2022)| Available at Statista
- Number of Starbucks stores worldwide from 2003 to 2022(Nov 28, 2022) | Available at Statista
- McDonald’s global brand value from 2006 to 2022(Jan 6, 2023)| Available at Statista
- Revenue of McDonald’s Corporation worldwide in 2021, by region(Jul 27, 2022) | Available at Statista
- Chipotle third quarter 2022 results|Available at Chipotle
- Chipotle financial report for 2021|Available at Chipotle
- Starbucks financial report for 2022|Available at Starbucks