Case Analysis 2
Chipotle

Executive Summary In 1993, a new take on fast food emerged out of the Denver area. The restaurant had a vision of locally sourced food with a unique way of ordering that revolutionized the industry and actually pioneered the idea of fast casual dining (2). Chipotle Mexican Grill was founded by Steve Ells and has carried the mission statement, “Food with Integrity”, since the genesis of the chain (2). After its founding, Chipotle has seen wild success and now has 1,700 locations, even some overseas (2). The chain grossed over $327 million and employs 45,000 people (2). It is a true success story and it even considered the most sustainable restaurant chain. They only use naturally raised meat and organic ingredients that meet their guidelines. Chipotle has grown exponentially since their founding, and that is a part of the problem. Even though Chipotle has had massive success, they are starting to run into some trouble with their sustainable model. The chain has become so big, it is hard for them to essentially sustain sustainability. Their organic ingredients and naturally raised meat are at the root of the dilemma. They are expensive and it is hard to maintain the flow and volume of organics and naturally raised meat that Chipotle constantly craves (4). It seems as though they have become too big for sustainability and it is very worrisome. Chipotle might just be the test subject to see if substantial sustainability is possible on a large scale. Chipotle needs to buy their own farms so they

can streamline the process. If they vertically integrate the company so they can run their farms in a manner that is compatible with their mission statement. They would also be able to save more money this way. They would be even more sustainable than before while making more money.

Statement of the Problem Chipotle’s success has been unmatched in terms of intertwining sustainability and profits. The chain has ushered the food industry into the fast casual dining era and many restaurants have followed suit (5). However, Chipotle is starting to run into problems when it comes to running a sustainable company all while remaining profitable. Their standards for their meats and ingredients are expensive to maintain when operating at such a high quantity. Earlier this year, Chipotle had to pull “carnitas” (pork) meat from their menus at many of their locations due to their supplier (1). Chipotle’s pork supplier did not pass Chipotle’s standards when it comes to naturally raised meat (1). They believed that the supplier was not taking the animals’ welfare seriously and the living conditions were not up to par (1). This just opens up the flood gates for Chipotle. It is just an appetizer for what is to come if Chipotle keeps growing. Failed inspections will eventually become a regular occurrence and it will severely affect Chipotle if they do not find a solution soon. This is Chipotle’s long term problem. If they do not figure out how to continue to grow their business while being sustainable, they will need to make serious structural changes or they will fail (3). Another problem that Chipotle is encountering is that a lot of people just do not care that Chipotle uses sustainable ingredients. They come in because they like the food, not because they appreciate Chipotle’s commitment to sustainability (5). Most people are not going to come in and be patrons just because they are sustainable. This begs the question, is it worth it financially to go fully green because people might not care or even know. However, this is a short term problem for the chain because society is moving towards being a lot more environmentally conscious (3). Chipotle will be applauded for being ahead of its time and will be the model of sustainability on the casual dining arena. The big decision facing Chipotle is whether or not they should continue down the path of sustainability without compromise or if they should change some of their standards for the sake of the company.

Causes of the Problem There are a few reasons why Chipotle is having problems or has the potential to have problems with their model. First of all, Chipotle is just beginning to show symptoms of a problem. They are not in trouble yet, however, they need to be proactive about it before it becomes a much larger issue. The first hint at the problem is that Chipotle had to stop selling their pork because their pork supplier failed the inspection that Chipotle mandates in order to ensure their standards are being upheld (4). The reason was that they were worried about how the animals were treated. “This is fundamentally an animal welfare decision and it’s rooted in our unwillingness to compromise our standards where animal welfare is concerned,” said Chris Arnold,

Chipotle’s director of communications (1). This shows that Chipotle operates by their mission statement, “Food with Integrity”, and it is not just some phrase they thought sounded good. They truly believe in sustainability. The problem is that if it happened before what is to stop it from happening again. Chipotle has little control over their suppliers and nothings stop them from cutting corners to say money (4). Sure, Chipotle can do what they recently did and not buy but it has little effect on the supplier because someone else will buy their product. While on the other hand, Chipotle is left out in the cold because they will have a much harder time finding someone to buy from that meets their qualifications. The reasons this is beginning to happen is because Chipotle has reached a certain point where they are almost too big to be sustainable, at least with their current model. This is because there are very few meat and ingredient suppliers that operate on the level Chipotle needs, speaking volume, while also maintaining Chipotle’s standards (6). This means Chipotle needs to get their ingredients from multiple suppliers and that makes it more expensive. This is why Chipotle could be in trouble. They will grow until they reach a breaking point and they will no longer be profitable. Sustainability will become a liability. Decision Criteria and Alternative Solutions There are a few different solutions to Chipotle’s problems with a wide range of actions. The first one that came to mind would be very unfavorable to Steve Ells, the founder of Chipotle. Chipotle could scale back their sustainability, so to speak. They could lower their standards on just how naturally raised their meat needs to be. This would save the chain a sizeable amount of money. They would not have to spend so much money on maintaining their standards of how their meat is raised. They would not have to have such thorough inspections of their meat suppliers, thus saving time and money. However, it would go against every principle that Chipotle was founded upon. They were built upon the philosophy of sustainability and it has become synonymous with Chipotle so there is no way Steve Ells will ever let the company stray away from that (2). Chipotle could also attempt to lobby the United States government into giving more tax break to sustainable companies like themselves. They could argue that the government needs to give incentives for companies to become more environmentally responsible and sustainable. Otherwise, companies will not adopt sustainable policies and practices. On the positive side, if it works, Chipotle could still continue their practices and standards while being able to save some more money in the process. They will also be able to say that by their leadership, legislation got passed that promotes sustainability. On the flip side, it might take too long to get something like that passed, if it would even ever get passed at all. Chipotle also might takes some hits in the public relations area because it could be seen as greed trying to pay less in taxes. It also might get too expensive to lobby politicians for that long.

Recommended Solution, Implementation and Justification Of all the possible solutions that Chipotle could use, the best one involves vertical integration. Chipotle needs to be able to control all aspects of production of their meats

and other ingredients. It would be much cheaper in the long run and they would have an easier time maintaining their standards. They should buy as many farms and production facilities that they need, preferably ones that they have already been using. Instead of just having contracts with various farmers, they will be able to run their own farms. This way, they will not have to deal with multiple individual farmers, all of which have their own ideas about what is the best way to handle their livestock or crops. Vertical integration could eliminate all of that. Chipotle could have their own farms and it would make their company much more efficient. In this solution, they would not have to sacrifice their food’s integrity for profits. This is a preemptive plan that would eliminate future problems with their ingredients. It would be a little expensive at first to buy the farms, but they would save a lot more money in the long run. It is the most cost effective plan that does not compromise Chipotle’s standards. Chipotle is a model company for sustainability and they need to find a way to keep having success (5). They are looked up to by other companies as a beacon of sustainability and others will follow if they see that one can be successful while doing so.

References 1. Ferdman, Roberto A. "Why Chipotle’s Pork Problem Is a Bad Sign for Its Future." Washington Post. The Washington Post, n.d. Web. 12 Mar. 2015. 2. "FOOD ." Chipotle: Food With Integrity. N.p., n.d. Web. 15 Mar. 2015. 3. Martin, Diane, and John Schouten. Sustainable Marketing. Upper Saddle River, NJ: Pearson Prentice Hall, 2012. Print. 4. Berman, Jillian. "Chipotle Pork Shortage Is Proof Of A Larger Problem Facing The Food Industry." The Huffington Post. TheHuffingtonPost.com, n.d. Web. 15 Mar. 2015. 5. Nichols, Chris. "Short Seller on Chipotle: Great Company, Dangerous Stock." Yahoo Finance. N.p., n.d. Web. 16 Mar. 2015. 6. Davis, Scott. "Beyond the Burrito: Chipotle's Next Big Move." Forbes. Forbes Magazine, n.d. Web. 17 Mar. 2015.