Chipotle Mexican Grill Inc.: Conscious Capitalism by Serving ‘Food With Integrity’

Abstract

Founded by Steve Ells in 1993, Chipotle Mexican Grill quickly became one of the fastest growing restaurant chains in US history. People loved Chipotle because of the tasty and healthy food as well as its edgy, trendy, cool brand image. Chipotle established itself as a successful company practicing “conscious capitalism” by serving “food with integrity” – its supply chain and corporate culture were closely integrated from the time that ingredients were farmed, raised, harvested, and shipped to stores to the time the final product was placed on a customer’s serving tray.

By 2014, the fast-casual food market in the US became increasingly competitive and crowded with many new entrants, especially traditional fast food players who were attracted by the double-digit revenue growth. Being a public listed company, Chipotle had to meet Wall Street’s high expectations of growth and earnings. Living up to analysts’ expectations was becoming increasingly difficult for Chipotle.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

Resources

Exhibit 1: Change in Customer Traffic

Heading of the bar graph reads “Change in customer traffic.” Years are plotted along the x-axis from 2009 to 2013 with a gap of 1 year. Percentage of customer traffic is plotted along the y-axis scaled from −4% to 10% with a gap of 2%. A table below the graph in the image with appropriate values is as follows:

Years

2009

2010

2011

2012

2013

Fast Casual

4%

6%

6%

9%

8%

QSR

−3%

−1%

0%

1%

0%

A vertical bar graph shows the percentage of customer traffic in fast casual restaurants and quick service restaurants for years 2009 to 2013.

http://seekingalpha.com/article/2031641-chipotle-mexican-grill-explosive-growth-is-expected-to-continue

Exhibit 2: Survey US Participants Identified Their Favorite Cuisine as Follows:

American

31%

Italian

23%

Mexican

16%

Chinese

14%

Japanese

5%

Middle-Eastern

3%

Indian

2%

http://www.rkma.com/bentley/rfb14/

Exhibit 3: Fast Casual Industry Segment Perception Map

Logos of various food brands are classified in a 2x2 matrix. The matrix in the image with the logos is tabulated as follows:

Healthy Natural Perceptions/Price

Unhealthy

Healthy

Low

Taco John’s

Taco Bell

Hungry Man

Trader Joe’s

High

Panda

ElPollo Loco

Chilis

Olive Garden

Pancheros

Qdoba Mexican Grill

Five Guys Burgers and Fries

Baja Fresh Mexican Grill

Moe’s Southwest grill

Fiesta

Chipotle Mexican Grill

Panera Breads

Whole Foods

An illustration of food truck labeled “FOOD TRUCKS” is on the line seperating the high and low priced unhealthy foods.

An image shows a matrix of various food brands in the fast casual restaurant industry based on the perception of health and price.

Exhibit 4: Fast Food Restaurant Market Leaders

Market Leaders (July 2013)

Annual Sales (USD)

Market Leader

Bakery Café

3.7 billion

Panera Bread

Mexican

2.7 billion

Chipotle Mexican Grill

Asian/noodle

1.8 billion

Panda Express

Sandwich

1.3 billion

Jimmy John’s Gourmet Sandwich

Better burger

1.1 billion

Five Guys Burgers and Fries

Chicken

979 million

Zaxby’s

Pizza

157 million

Donatos Pizza

http://www.rkma.com/bentley/rfb14/

Exhibit 5: Revenue and Operating Market

Heading of the image reads “Revenue & Operating Margin.” Years are plotted along the x-axis from 2004 to 2013 with a gap of 1 year. Operating margin percentages are plotted along the right side of the y-axis scaled from 0% to 18% with a gap of 2%. Revenue (in million USD) is plotted along the left side of the y-axis, scaled from 0 to 3500 with a gap of 500. Approximate values from the graph are tabulated below:

Years

Operating Margin (%)

Revenue (in million USD)

2004

1.5

490

2005

5

610

2006

6.7

790

2007

10

1100

2008

9.5

1250

2009

13.7

1500

2010

15.8

1850

2011

15.6

2250

2012

16.4

2600

2013

16.6

3150

A line graph shows the operating margin percentages and a vertical bar graph shows the revenue of Chipotle Mexican Grill for the years 2004 to 2013.

Source: Analysis from Chipotle Annual Report.

Exhibit 6: Historical Stock Performance for CMG

Two rectangular boxes on the top left corner of the image read “Panera Bread Co (Image: A circle with cross mark sign),” and “Yum! Brands Inc. (Image: A circle with cross mark sign).” Years are plotted along the x-axis from 2009 to 2014 with a gap of 1 year. A line graph with three curves is on top and a vertical bar graph is below the curves in the plot area of the graph. Percentage values are plotted along the y-axis scaled from −200% to +600% with a gap of 200%. An overall percentage value is in the x-axis above each the year. Approximate values from the graph are tabulated below:

Years

Stock performance of brands (%)

Overall percentages (%)

Panera Bread Co

Yum! Brands Inc.

Chipotle Mexican Grill Inc

2009

0

0

0

+17.77

2010

0

+50

+51

+141.22

2011

+70

+100

+200

+58.82

2012

+95

+190

+380

−11.12

2013

+110

+220

+300

+77.00

2014

+145

+240

+610

An image shows a line graph and a vertical bar graph with stock values of Chipotle Mexican Grill Inc, Panera Bread Co, and Yum! Brands Inc for the years 2009 to 2014.

Source: Yahoo Finance.

Exhibit 7: Financial Data

Item 6. Selected Financial Data

Our selected consolidated financial data shown below should be read together with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and respective notes included in Item 8, “Financial Statements and Supplementary Data.” The data shown below are not necessarily indicative of results to be expected for any future period (in thousands, except per share data).

For the years ended December 31

2013

2012

2011

2010

2009

Statement of Income:

Revenue

$3,214,591

$2,731,224

$2,269,548

$1,835,922

$1,518,417

Food, beverage and packaging costs

1,073,514

891,003

738,720

561,107

466,027

Labor costs

739,800

641,836

543,119

453,573

385,072

Occupancy costs

199,107

171,435

147,274

128,933

114,218

Other operating costs

347,401

286,610

251,208

202,904

174,581

General and administrative expenses

203,733

183,409

149,426

118,590

99,149

Depreciation and amortization

96,054

84,130

74,938

68,921

61,308

Pre-opening costs

15,511

11,909

8,495

7,767

8,401

Loss on disposal of assets

6,751

5,027

5,806

6,296

5,956

Total operating expenses

2,681,871

2,275,359

1,918,986

1,548,091

1,314,712

Income from operations

532,720

455,865

350,562

287,831

203,705

Interest and other income (expense), net

1,751

1,820

(857)

1,230

520

Income before income taxes

534,471

457,685

349,705

289,061

204,225

Provision for income taxes

(207,033)

(179,685)

(134,760)

(110,080)

(77,380)

Net income

$327,438

$278,000

$214,945

$178,981

$126,845

Earnings per share

Basic

$10.58

$8.82

$6.89

$5.73

$3.99

Diluted

$10.47

$8.75

$6.76

$5.64

$3.95

Weighted average common shares outstanding

Basic

30,957

31,513

31,217

31,234

31,766

Diluted

31,281

31,783

31,775

31,735

32,102

As of December 31

2013

2012

2011

2010

2009

Balance Sheet Data:

Total current assets

$666,307

$546,607

$501,192

$406,221

$297,454

Total assets

$2,009,280

$1,668,667

$1,425,308

$1,121,605

$961,505

Total current liabilities

$199,228

$186,852

$157,453

$123,054

$102,153

Total liabilities

$470,992

$422,741

$381,082

$310,732

$258,044

Total shareholders’ equity

$1,538,288

$1,245,926

$1,044,226

$810,873

$703,461

Income Statement (Common Size)

Industry (Large Cap)

Chipotle

Net Sales

100.00%

100.00%

Gross Margin

63.70%

26.59%

Operating Income

3.40%

16.63%

Net Income

1.50%

10.19%

Balance Sheet (Common Size)

Cash

10.20%

28.78%

Accounts Receivable

5.40%

1.38%

Inventory

2.50%

0.65%

Total Current Assets

23.70%

33.16%

Property, Plant & Equipment

50.40%

47.94%

Other Non-Current Assets

25.90%

17.81%

Total Assets

100.00%

100.00%

Accounts Payable

4.80%

2.94%

Total Current Liabilities

15.40%

9.92%

Total Long Term Liabilities

34.40%

13.53%

Financial Ratios

Quick Ratio

1.05

3.04

Current Ratio

1.54

3.34

Inventory Turnover

×26.65

×195.51

Reference: Morning Star Inc. and Hoovers Online.

Exhibit 8: CMG Growth Comparison

Various growth parameters are plotted along the x-axis and the percentage of growth is plotted along the y-axis scaled from −5.00% to 25.00% with a gap of 5.00%. Values from the graph are tabulated below:

Growth parameters

CMG (%)

Industry (%)

S&P 500 (%)

Revenue growth

24.41

4.30

1.79

Gross profit growth

22.34

5

1.94

Op. profit growth

13

1.82

0.52

Net income growth

8.47

-2.53

−2.53

EPS growth

7.76

-2.03

−2.14

A three-dimensional vertical bar graph shows the percentage of growth in revenue, profit, and income of the Chipotle Mexican Grill company.

Source: CSI Market.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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