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Is Chipotle Mexican Grill Successfully Recovering from Its Food-Related Incidents?

Strategy with a Higher Mission or Farmed and Dangerous?

Human Resource Management

Business Strategy is the means from which the organisation can easily achieve their desired goals. It can be described as a long-term business planning to achieve the success in the market for long-term survival. Strategies also help to reduce the issues which are faced by the company during the achievement of success in the market. The same has been seen in the case of “Chipotle Mexican Grill, Inc.: Disrupting the Fast-food Business”. In this report, the Chipotle case study has been taken into consideration to analyse the business strategies and issues which are face by the restaurant. Chipotle Mexican Grill is an American chain of fast food restaurants in the United States, Canada, Germany and France. It is the first chain of fast casual dining establishment which was founded in July 1993. It earned a net income of US $475.6 million with the help of 45000 employees (Chipotle, 2018).

In the starting of report, the issues faced by the restaurant will be discussed which is mentioned in the case study. After that, current situation of the restaurant will be analysed with the strategies that are followed by the restaurant to reduce the issues. In the end of report, issues faced by the restaurant due to adopting the changes in strategy will be analysed.

Lack of Fresh Talent

In this case, it has been analysed that the employees of the restaurant interact with the customer to entertain them during the preparation of the order. Chipotle gives the training to employees for providing better services to the customer. It provides the opportunity to employees to run the business as a manager. It did not hire the person from outside the organisation (Rothaermel, 2015). There are many restaurants who hire the professional managers to run the restaurants but Chipotle promote the employees for the post of general manager. Although it motivates the existing employees when they are given additional responsibilities but there are drawbacks of this Human Resource Management Strategy. The company can get new ideas of management and client servicing if it is hiring professional from outside the organization. While promoting the existing employees; it can face the issue of lack of fresh talent and skill. The existing employees have the old ideas which are used by the restaurant. Fresh talent is necessary for the organisation to achieve the higher growth in the market. Existing employees have existing and old ideas of marketing which seems to be common for the customer. Customer attracts towards the attractive ideas of promotion, this needs to be implemented in Chipotle (Jogaratnam, 2017).

Marketing

Social media

As per the case study, the restaurant faced the issue of traditional marketing. Chipotle follows traditional marketing to promote the product and services. Its presence on social media is less as compare to the other competitors (Ruths, and Pfeffer, 2014). Nowadays, social media is a source which is used by the people at a greater extent. The customer whom Chipotle targets that is the target segment of Chipotle is Social Media friendly. Youth of age between 18 – 24 years spent too much time on social media and hence Chipotle needs to be more active on Social Media. It has been seen that the organisations also uses the social media to expand or to promote the product in the market, but in this case, the restaurant believes on traditional marketing which affects the sale of the restaurant. Less presence on social media is an issue of the organisation (Blau, 2017).

Threat from competitors

In this case, it has been seen that the restaurant face the competition in the market. The restaurants established itself among the leading fast food chains in the US; it has good brand image in the market due to which the restaurant faces the competition in the market. Taco Bell’s introduced the new upscale menu to beat the Chipotle. It also launched the new chain of casual dining restaurant with the name of Taco Company. Due to this the share price of Chipotle fell down by 7%. The sale and brand image of Chipotle is affected due to high competition in the market (Bierbach, Sommer-Trembo, Hanisch, Wolf, and Plath, 2015).

Chipotle Mexican Grill is the most successful restaurant chain with the strong top-line and bottom line growth rate. It earned the high amount of revenue with the growth rate of 22% annually and net income by 26% annually (Robert, 2016). The high revenue makes Chipotle the best-performing stock in its food sector. It has been seen that the Chipotle is still a small player as compare to the other popular industry leader such as McDonald and yum Brands. The other brands such as Pizza Hut, KFC and Taco Bell generating sale $34 billion in a year but the Chipotle market capitalisation was $ 21 billion (Doz, 2017). It comes in the leading companies of US but as compare to the other restaurants, it comes in the last in the context of total outlet. Below image presents the exact current situation of the company in the US Market. The data shown in the table is for the year 2015.

Challenges

In this scenario, it has been seen that the restaurant is continuously growing in the market with the increasing rate of sale. Due to increasing sale and net income of the restaurant; the shareholders are attracted towards the restaurant and holding the shares of the company. The share price of restaurant is high due to high dividend pay by the restaurant to the shareholders. Although, the restaurant achieves success but as compare to the other restaurant it has less brand value. Nowadays, it has around 2000 restaurants in the market which is less as compare to the Yum Brands Inc. and Taco Bell (Gilliard, Hoffman, and Baalbaki, 2017). Below image presents the financial performance of the company and its standing in terms of number of restaurant in USA in the year 2014. The statistics clearly says that Chipotle is far behind Yum! Brands.

In order to understand the current situation of the restaurant in the market, the concept of industry life cycle can be used. Below diagram present the current situation of the company on the curve of industry life cycle:

According to this diagram, the restaurant is in the growth stage because it is continuously developing its techniques to improve the performance in the market. It is observed that the restaurant achieved success in the market but due to high competition in the market; the brand image goes down (Simpson, 2015). The sale of restaurant is increasing with good growth rate which states that the company will grow in a continuous manner. The sale of the restaurant is increased due to increasing demand of customer for the best quality of services and food. The restaurant maintains their brand image by developing the new techniques and strategies which help in enhancing the performance of the restaurant. That is why the Chipotle is in the position of growth in the market (Mihailovi?, 2017).

In this scenario, it has been seen that the restaurant learns from its mistakes. The restaurant improves the strategies to improve the performance. From the table A 1 it has been seen that the revenue is increasing with the increasing rate due to decreasing the operating expenses. The restaurant has higher output with the lower cost per unit. The experience curve of the restaurant is rising that means the restaurant has high output at low cost (Peppers, and Rogers, 2016).     

Cost leadership strategy

The restaurant can use the cost leadership strategy to attract the large number of customers towards the services of the restaurant. From the above analysis, it has been seen that the cost per unit is decreasing due to strong relations with the supplier. As discussed in the case, the restaurant learns from doing due to which the cost per unit is decreasing and the output is increasing. Due to decreasing cost, the restaurant can offer the services and food in low prices to attracts the customer towards there services. This low cost strategy will help the restaurant in competing with the competitors. Increasing demand of the restaurant has a positive impact on the brand image in the market. The challenge faced by the restaurant is reduced with this strategy. This strategy helps in taking the competitive advantage and increasing the sale of the restaurant (Wheelen, Hunger,  Hoffman,  and Bamford,  2017).

Current Situation

As discussed above the restaurant needs to utilise the potential of social media. It is already active on social media but it needs to make its presence stronger.  Earlier, the restaurant uses the traditional marketing but now it increases its presence in social media to promote the services. Nowadays, people use the social sites for their entertainment and there are many organisations that start their business on Social Media. The use of promotion strategy through social media by the restaurant will help the restaurant to improve their image in the market. The restaurant can post the videos, and music on the social sites; it also take participation in the festivals and music programs to promote the services. Social media is stronger advertisement as compare to the traditional marketing. It can help the company in making the emotional connection with the customer. With developing the presence of social media, Chipotle will be widely considered as the most engaged and responsive of fast food companies (Allegranzi, and Pittet, 2017).

It has been seen that the restaurant can use more resources to improve the services. The restaurant uses the high quality ingredients due to which the services of the restaurant are improved which is highly attractive for the consumers. As discussed above, the Taco Bell introduced the new upscale menu to compete the restaurant and the result is the share price of the restaurant fell down in the market. Due to which the restaurant started using the variety of ingredients that is selected by the restaurant very carefully. It purchases the ingredients with the selected supplier from which the restaurants get discounts on the ingredients. It also helps in decreasing the cost per unit (Sykes, Comley,  and Kelly, 2016). By increasing the variety of ingredients the consumer can have many options in choosing the fast food. The restaurant can also target the health conscious consumers by using the natural and organic ingredients. The restaurant always plans to keep the simple menu with the sensible additions. This strategy of the restaurant helps to attract the customer towards the variety of product which has positive impact on the sale of the restaurant (Camisón, et al., 2016).

Customer Service

From the above analysis, it has been seen that the restaurant get the services at the lower cost. It is beneficial for the restaurant but sometimes it becomes a big risk for the restaurant. It is necessary for the restaurant to deliver the best quality of services to consumers but it consumes the high cost. If the services are bad then the consumer will remember the mistakes and give the negative feedback which is not good for the restaurant’s brand image. The way the restaurant handles the customer or the every step of dining experience has a positive impact on the brand image of the restaurant. It is difficult for the restaurant to provide the quality of services to the customer in low cost (Hyun, and Perdue, 2017).

Industry Life Cycle

It has been seen that the high quality of services is essential for the restaurant because the customer is main component for the restaurant. That is why; it is the responsibility of the restaurants to satisfy the consumer needs and demand and makes them happy. To provide the best services; the restaurants has to train the employees. Training is the cost and time consuming process which directly impact on the performance of the restaurant. It will change the curve due the high cost and less output.

Capitalisation

It has been seen that the restaurant can face the issue of the capital due to high cost of services. To satisfy the consumer needs and demand the restaurant requires the high cost to deliver the high quality of services. There are many restaurants that face the issues of the capital which is a big problem. Restaurants require the enough capital to run their business so that it can fully establish itself and can easily provide the quality of services to customer. As discussed, the restaurant has strong relation with the suppliers so that the cost of ingredients is reduces but the other expenses is high. The restaurant has to maintain the tables, floor and seating arrangement which consume high cost. Promotion and resources strategy of the restaurant consumes high cost which is difficult for the restaurant to afford all the expenses with the quality of services. The restaurant requires the enough capital to cope with the unexpected cost (Bartsch, Asti, Nyathi, Spiker, and Lee, 2018).

It has been analysed that the restaurant has to adopt the new strategies to overcome the above mentioned challenges. The restaurant has to take care of the customer services which are the main component to improve the brand image in the market. Promotion, cost leadership and availability of variety of resources strategy will help the restaurant to improve the quality of customer services but to provide the services it requires the high cost (Trusov, Bucklin, and Pauwels, 2009). Capitalisation and customer service are the issues which are faced by the restaurant while adopting the strategies. But adoption of strategy is the right decision for the restaurant to earn the high revenue and increase the brand value. Brand value of services will be enhanced due to its cost leadership strategy and promotion strategy. The restaurant should carry out these strategies to achieve the high growth in the market (Jiang, and Ma, 2018).

Chipotle Mexican Grill, Inc.

Conclusion

From the above analysis, it has been concluded that Chipotle Mexican Grill, Inc. is a restaurant which is in the stage of development. In this stage, the restaurant faced many issues such as lack of fresh talent, high competition and social media. The restaurant encourages the employees towards the work by appreciating them for their performance. The restaurant gives the promotion to employees due to which it has lack of fresh talent. The restaurant has high threat of competition in the market because competitors beat the restaurant which has negative impact on brand image. To reduce these issues the restaurant can take the steps such as promoting the services through social media, cost leadership strategy and many others. The restaurant can use the low cost strategy to attract the customer towards the services as compare to the other competitors. The restaurant uses the variety of ingredients to increase the sale and enhance the brand value. The strategies adopted by the restaurant is beneficial but due to adopting these strategies it can suffer with some issues such as high capital requirements, high cost, and many others. Although the restaurant is reducing there issues by developing the new techniques and procedure but it has to take care about the services and cost per unit. By following the strategies in a proper manner and adapting the new techniques and procedure the restaurant will get success in the market.

References

Allegranzi, B. and Pittet, D., 2017. Promotion Strategy. Hand hygiene: a handbook for medical professionals, 9, p.230.

Bartsch, S.M., Asti, L., Nyathi, S., Spiker, M.L. and Lee, B.Y., 2018. Estimated Cost to a Restaurant of a Foodborne Illness Outbreak. Public Health Reports, 133(3), pp.274-286.

Bierbach, D., Sommer-Trembo, C., Hanisch, J., Wolf, M. and Plath, M., 2015. Personality affects mate choice: bolder males show stronger audience effects under high competition. Behavioral Ecology, 26(5), pp.1314-1325.

Blau, P., 2017. Exchange and power in social life. Routledge.

Camisón, C., Puig?Denia, A., Forés, B., Fabra, M.E., Muñoz, A. and Muñoz Martínez, C. 2016. The importance of internal resources and capabilities and destination resources to explain firm competitive position in the Spanish tourism industry. International Journal of Tourism Research, 18(4), pp.341-356.

Chipotle. 2018. Our Company. [online] Available from: https://www.chipotle.com/company [Accessed 29/10/18].

Doz, Y.L., 2017. Strategic management in multinational companies. In International Business (pp. 229-248). Routledge.

Gilliard, D.J., Hoffman, D.L. and Baalbaki, S., 2017. Is Chipotle Mexican Grill Successfully Recovering from Its Food-Related Incidents?. Journal of Marketing Development and Competitiveness, 11(4), pp.34-48.

Hyun, S.S. and Perdue, R.R., 2017. Understanding the dimensions of customer relationships in the hotel and restaurant industries. International Journal of Hospitality Management, 64, pp.73-84.

Jiang, H. and Ma, J., 2018. Effects of Internet Sales Promotion on a Differential Advertising Model. Discrete Dynamics in Nature and Society, 2018.

Jogaratnam, G., 2017. The effect of market orientation, entrepreneurial orientation and human capital on positional advantage: Evidence from the restaurant industry. International Journal of Hospitality Management, 60, pp.104-113.

Mihailovi?, B., 2017. Marketing services the hotel and resturant. Ekonomika, 63(1), pp.19-30.

Peppers, D. and Rogers, M., 2016. Managing customer experience and relationships: A strategic framework. John Wiley & Sons.

Robert, M. G. 2016. Contemporary strategy analysis. US: John Wiley & Sons.

Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.

Ruths, D. and Pfeffer, J., 2014. Social media for large studies of behavior. Science, 346(6213), pp.1063-1064.

Simpson, S., 2015. Chipotle Mexican Grill Inc.: Strategy with a Higher Mission or Farmed and Dangerous?. Journal of Case Studies, 33(2), pp.38-59.

Sykes, L.M., Comley, M. and Kelly, L., 2016. Availability, indications for use and main ingredients of mouthwashes in six major supermarkets in Gauteng. South African Dental Journal, 71(7), pp.308-313.

Trusov, M., Bucklin, R.E. and Pauwels, K., 2009. Effects of word-of-mouth versus traditional marketing: findings from an internet social networking site. Journal of marketing, 73(5), pp.90-102.

Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2017. Strategic management and business policy. pearson.

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