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Marketing Strategy Team Project Chipotle Matt McCarthy, Kathy O’Donnell, Chris Regan, Laura Watters, Ben Wilson, Chris Donohue Marketing 240 Professor Lindsay Comodore Part 1 II. Introduction Chipotle Mexican Grill is an unconventional fast food restaurant which has been gaining popularity in recent years, especially among its target market, millennials. It has been rapidly expanding for over a decade, which has led to gigantic increases in sales revenue (Appendix 2). Chipotle’s history, according to the official website, began in 1993 with “One young chef, a former Dolly Madison ice cream shop, and the dream of creating a gourmet burrito.” A few years after opening the first restaurant, Chipotle began expanding through the Denver area, and in 1999 it opened restaurants in several states. However, Steve Ells, Chipotle’s founder and CEO, soon learned about how most pork is raised in the U.S., which caused him to drastically change the way he does business. Ever since Ells’ eye-opening discovery, the mission of Chipotle has been to “Serve the very best sustainably-raised food possible with an eye to great taste, great nutrition, and great value; support and sustain family farmers who respect the land and the animals in their care; and whenever possible use meat from animals raised without the use of antibiotics or added hormones.” This mission statement, better known as “Food with Integrity,” has proved to double as a unique yet effective marketing campaign. This campaign has expanded into a web series titled “Farmed and Dangerous” with the hopes of grabbing the attention of new potential customers. Additionally, Chipotle has recently added tofu to the menu as a substitute to chicken or steak in an attempt to appeal to vegans and vegetarians (Appendix 1). Chipotle makes the vast majority of its sales through its most recognizable product, the burrito. In this paper, we will detail and analyze the marketing strategies that Chipotle uses to sell this product. III. External Environment - Situation Analysis Chipotle’s direct competitors are domestic fast-food Mexican restaurants such as, Moe’s Southwest Grill, Qdoba, Baja Fresh, and Taco Bell. Chipotle has more competition though with its indirect competitors. These competitors are domestic fast-casual restaurant. These restaurants include Panera Bread, Buffalo Wild Wings, Panda Restaurant Group, Starbucks, and even McDonalds as it is making its menu healthier. Of all of these competitors though, Panda Restaurant Group, Qdoba, and Taco Bell are its biggest competitors. Of these competitors, although its sales revenue was not the largest, in 2013 Chipotle had the largest net profit margin. (Appendix 3) Chipotle is able to have such a large net profit through its marketing strategy. Through its cultural environment, Chipotle targets people who are “going green” and therefore grow their food locally and use organic products. Americans demand healthier foods as they are more aware about the importance of healthy foods and Chipotle caters to these people’s demands. Americans today also are beginning to eat out more opposed to cooking at home, so Chipotle provides these people with a quick, healthy, and delicious option. Chipotle also works with the International Rescue Committee and teaches the transplants English and helps them get a new start. Chipotle is attempting to erase the linguistic gap and helping to empower their workers in America. The unemployment rate is still very high today, therefore Americans desire meal that is not expensive so Chipotle supplies people with meals that are customizable, healthy, and range from eight to twelve dollars. Chipotle provides customers with on-line ordering through its mobile app or website as Americans are very comfortable with technology. Chipotle also easily interacts with its customers through its twitter account. Chipotle has also used technology to produce their food faster as they started using new heating machines that will heat tortillas faster and more evenly. Chipotle is part of a fast and casual restaurant industry that is in a rapidly growing market segment. The company’s main competitors are Qdoba, Panchero’s, Moe’s, California Tortilla, and Baja Fresh which are all restaurants that serve a similar quick Mexican grill cuisine. Amongst its competitors, Chipotle has competitive strength because of its recognition for the high quality food that its restaurants have to offer. With Chipotle’s high quality food comes steeper prices and a more limited menu than that of its rivals which creates a high intensity of competition. Also, there is a pretty high threat of new entrants to this industry because anybody can start up their own restaurant at any time and compete with Chipotle. The company has moderate bargaining power because it has so many suppliers with great food integrity, but maintains high costs which is seen as a draw back With the way that the market is currently going, the SWOT analysis depicts how one of Chipotle’s main targets right now is to expand their market. One of the company’s biggest opportunities available would be to broaden the menu it offers. By expanding the menu, Chipotle would be able to reach more consumers and expand its customer base. Another good strategy that Chipotle could undertake would be to find another affordable high quality ingredient to offer. It would not be a good idea for Chipotle to decrease the quality of their food because they are known to offer such high quality of food. As shown in the SWOT analysis (Appendix 5), this is one of their greatest strengths which appeals to a large amount of their current consumers. Therefore a decrease in quality would not be beneficial to the company. Along with expanding the menu, it would be favorable for Chipotle to expand internationally. Currently the company only has restaurants located in the U.S, Canada, and the UK, but with expansion, Chipotle can target different markets that they have not targeted before. IV. Marketing Segmentation Chipotle’s target market is intended to be millennials, or people born in between 1976 and 2000. The average annual income of the buyers in this category is about $54,000. With 1600 restaurants and an expansion rate of almost 200 new restaurants a year, customers don’t need to travel very far to find a Chipotle which means that each location serves primarily the local market. Other target markets include commuting workers and tourists, as well as commercial events (Appendix 6). Their reputation for freshness and healthier options is appealing to that age group in today’s society. The fact that they prefer to use family farms and meat without added hormones or antibiotics shows that they are humanely conscious. They are associated with a “fast casual” tag, which is the fastest growing segment of the restaurant industry. The company is growing at about 20% annually in terms of total revenue. In the last 5 years, their gross income has been rising at a rate of 24.5% annually (Appendix 7). Their earnings growth is expected to decline in the coming years with a projected drop of 10% in comparison to the 5-year average coming by December of 2017 (Appendix 8). V. Marketing Mix a) Product Strategy The Product Strategy of Chipotle is unique compared to other fast food chain restaurants. Chipotle is known for their “Food with Integrity” program, a mission to remove as many genetically modified organism foods (GMOs) from their menu as possible. Chipotle gathers their food supplies from local farm producers that treat their animals as humanely as possible unlike many other food corporations. The Food with Integrity program is used as a deterrent to animal cruelty and also a call for the most excellent food for their customers to consume. For example, Chipotle requests that all their dairy products come from dairy cows not treated with rBGH, a chemical that makes cows produce more milk than usual. All food is grown within three hundred fifty miles of the Chipotle you are eating in at whatever moment. Chipotle has used the packaging of their products to further distinguish their brand from competitors. Much of the material used to hold food after purchase is environmentally friendly. For example, the burrito bowl containers are made from 93% recycled materials and the lids of the drinks are made from 95% recycled materials. Using these materials rather than plastic ones reduce energy production by 96%. By using packaging that is better for the environment, Chipotle is able to keep their brand aligned with their slogan, “Food with Integrity.” Not only is the food at Chipotle more humane to animals and healthier for people than that of their competitors, but the material the food is given to the customer in more beneficial for the planet. The labeling that Chipotle uses is unconventional and sets them apart from their competitors on an intellectual level. On May 15, 2014 Chipotle launched their “cultivating thought author series” on their food labels. This new packaging displays short, impactful stories surrounded by elaborate illustrations. They are written by anyone from professors at Harvard, to comedians, to writers of the New York Times. The authors are given the freedom to write whatever they want, so these stories usually have nothing to do with food or sustainability, which are themes Chipotle usually emphasizes. These short essays fit on whatever label they are placed on, whether it be a cup or a bag, and are meant to be read in around two minutes. By adding these stories to their products, Chipotle is changing the way customers view their food. While their product may be fast-food, Chipotle is no longer a place to just eat as quickly as you can and leave. The stories displayed on their packaging makes customers stop and contemplate life for a few minutes in the middle of a maybe busy day. This changes the way many think about food, engaging the customer in something intellectual; Chipotle is handing out free knowledge with their products. This allows Chipotle to be seen as a smarter, more intellectual brand than their competitors. Chipotle differentiates itself from the competition based on their healthier food and commitment to excellence. While it may be a little more pricy than a burger at McDonald’s, it’s the quality of the food that you’re paying for; all naturally raised products rather than genetically modified items. McDonald’s has been known to genetically modify their products; a recent study showed how if a McDonald’s burger was kept out in the open for thirty days after ordering, the look of the burger would not change even in the slightest; it would not decay. Fast food restaurants have been portrayed in such a negative way for the quality of their products, the treatment of their livestock, the genetic modification of their fruits and vegetables, and the negative stereotypes associated by eating in one of those restaurants. Because of this, Chipotle has created for itself a more positive image than the competing fast food chains. It has even become more of a cultural phenomenon, especially in university communities. While it still may be more expensive than other fast food, it’s much cheaper than a sit down type of restaurant, but still has better quality food. b) Promotional Strategy Chipotle uses a very non traditional advertising strategy to appeal to their target consumers, millenials. While other fast food companies such as McDonald’s spent 650 million dollars on advertising in 2011, Chipotle spent just six million and is continuing to reduce this amount spent every year. The company tends to shy away from advertising in expensive traditional media, such as print and television, because millenials do not relate to and tend to mistrust these forms of advertising. Additionally, Chipotle puts little to no branding on what few advertisements they have in order to further gain millenials' trust. Mark Crumpacker, Chipotle's chief marketing officer, believes that their “marketing has always been based on the belief that the best and most recognizable brands aren’t built through advertising or promotional campaigns alone, but rather through all of the ways people experience the brand.” Rather than focusing on trying to create promotions to draw people into their store, Chipotle's strategy for advertising is to solidify their dedication to fresh food (Appendix 12). The first television ad for Chipotle, called “Back to Start” originated as an animated YouTube video about a farmer who expanded his business by partaking in distasteful, unhealthy raising and growing activities. Chipotle aired this advertisement in full during the 2012 Grammy Awards. Additionally, the ad had been shown in movie theaters across the country before being shown on television. More recently, Chipotle released another advertisement on YouTube called “The Scarecrow,” as well a phone app that goes along with it. “The Scarescrow” is about a farmer attempting to sell local, humanely grown food in a world controlled by evil big business farming companies. The ad contains almost no Chipotle branding. Additionally, Chipotle plans on releasing a four part online video that comically explains the horrors behind big name farming. Rather than trying to promote their business and brand through excessive advertising, Chipotle simply aims to educate people on what matters to them: fresh and humanely grown food. Then the company relies on word of mouth publicity and the power of the internet to spread their message. Through this minimalistic approach to advertising and focus on quality food creates their Unique Selling Point: Chipotle is a fast food restaurant that is committed to making sure their food is not coming from a farm that is harming their animals or the environment. The five elements of the promotional mix are all used in Chipotle's marketing strategy for its burrito (Appendix 13). Chipotle uses minimal and nontraditional advertising to promote their products. They shy away from television and print media and create more modern, online based commercials. The brand name “Chipotle” is rarely seen in the advertisements they do have or on their packaging. To appear more authentic to millenials, Chipotle relies more on word of mouth publicity to spread their message rather than traditional advertising mediums. This relationship and trust that Chipotle has built with millenials is one instance where they use personal selling. Another example of personal selling is how hard Chipotle works to maintain good relationships with the local farmers they buy their ingredients from. Rather than ending a contract with a farm if the farm cannot meet their needs, Chipotle will help fund them and solve their problem. Additionally, Chipotle works hard to use sales promotions to sell their burritos. Chipotle does many fundraisers with groups in the community, offering a “buy one burrito, get one free” offer for clubs and organizations looking to promote themselves. They also cater events, offer customers their Farm Team Loyalty program, and sell an interactive game on the app store called “The Scarecrow.” Chipotle uses public relations to not only respond to and help customers online, but to also sponsor the Cultivate Food and Music Festival each year. Finally, Chipotle uses direct marketing on their interactive website as well as through online videos. c) Pricing Strategy Chipotle offers three different types of meals—tacos, burritos, or burrito bowls—each with a set starting price. Customers can then select as many ingredients as they like under that price. Customers can also choose to pay more for other variations, such as double meat or the addition of guacamole. This pricing strategy appears to be effective towards Chipotle’s target market, millennials, who enjoy a meal with many different options at a reasonable price (Appendix 14). Additionally, they can add even more options to the meal, as long as they are willing to pay an extra dollar or two. Qdoba, one of Chipotle’s competitors, had a very similar business model. In addition to guacamole and extra meat, Qdoba also offered its signature queso sauce for a higher price. However, it recently begun to offer queso and guacamole for the same price as a standard burrito, but slightly increased the price of all burritos, regardless of toppings. This provides a better deal for customers who get these extra ingredients, but ends up costing more money for those who don’t. Based on this, in the near future Qdoba may begin attracting the customers who purchase these additional ingredients, while pushing the customers who prefer a cheaper, simpler meal towards Chipotle. d) Distribution Strategy The distribution strategy of Chipotle is influenced heavily by its Food With Integrity campaign. Since they make such a large point of serving meat from animals with proper care, as well as vegetables that are fresh, Chipotle acquires food from locally sourced farms. They then prepare the food fresh, and sell the finished product to the customer (Appendix 15).