- Crafting And Executing Strategy Case Study Examples
- Porter’s five forces analysis of Chipotle
- Supplier power
- Barriers to entry
- Threat of substitutes
- Financial analysis
- Current liability to turnover: chipotle 197% industry average 165%
- Average collection period Chipotle 27 days industry average 15 days
- Industry analysis average of 7%
Crafting And Executing Strategy Case Study Examples
Business performance emanates from the comprehension of the diverse issues that may impede on their operational mandate. As such, through an inclusive approach towards analysis of both the internal and external environment, successful outcomes are bound to prevail. Thus, from the analysis of Chipotle, it has been highly frontward within the fast food sector in regards to profitability and the business operational model. Accordingly, through investment into distinctive performance approach, the company has sustained market reach and growth both in US and other countries. Elle’s visionary leadership approach has been pivotal for Chipotle. Nonetheless, there are various challengesthat pose a daunting environment for the company to sustain profitability and extensive performance. Thus, this paper will undertake Porter five forces analysis of Chipotle’s business environment, make recommendations and a financial analysis of the company.
Porter’s five forces analysis of Chipotle
First and foremost, the porter five forces is a tool that is used towards evaluation of the external environment that a business operates. Admittedly the inculcation of the porter five forces which comprise buyers, rivals, purchasing power, suppliers and entrants to the market, an organization invests into proper measures to tackle the competitive challenges evidenced. Chipotle exudes a highly successful business model that has been profitable in their operational environment. Thus, a clear analysis of the porter five forces of the company is as follows:
Chipotle has been operating within the fast food industry that is highly lucrative in US and across the globe. The colossal consumer market is extensive with major emphasis on cost effective pricing of the various commodities (Cole 2011). Thus, from the analysis of the fast food industry, there prevails a fairly low buyer power in the sector. Admittedly, no business or franchise has a controlling stake win the local or US market.
Suppliers are the most fundamental stakeholders at Chipotle. The business vision and mission statement at the organization is towards providing health products within an organic mandate to the diverse customers. Through its business objectives, Chipotle has had to inculcate strict guidelines to its suppliers in regards to supplying of agricultural products. The stipulations to the suppliers have posed an environment in which the suppliers exude extensive power. A highly regulated environment towards the production of agricultural products has led to the various suppliers exuding power due to the option to undertake partnerships with other organizations in the fast food sector.
Barriers to entry
The fast food industry is highly competitive both within US and the global environment. As such, within US, it is quite easy in regards for new entrants to venture into the market. As evident from Chipotle, the company begun as a small business that grew highly into a highly profitable large fast food business despite the many competitors in offering the Mexican quinine or foods. Thus, the barriers of entry within the fast food sector are low. (Cole 2011) asserts that the majority of the global sales emanate from small sat food businesses.
Threat of substitutes
The prevailing threat of substitute is high for Chipotle and other fast food businesses. Accordingly, there are various options to foods that an individual can choose. As such, an individual can opt to eat at home or go to a restraint and dine. Thus, the evident threat of substitute’s calls for proper investment into differentiation in regards to fast foods and the performance strategy.
There are various rivals that pose a daunting environment for Chipotle in its operational mandate. However, Taco Bell forms the most significant competitor in regards to organizational success. The aforesaid organization has been investing highly into franchising with a revenue of over $ billion which is higher as compared to Chipotle (Cole 2011).
Business operations emanate from the inculcation of diverse approaches towards sustenance of successful operations. Thus, from the analysis of Chipotle, its plausible performance has been as a result of venture into a profitable business model that is highly successful. However, the challenges of evident substitutes and high competition require the inculcation of various strategies to sustain profitability. Thus, the various approaches that Chipotle can incorporate include:
– Embark in an aggressive internationalization
Internationalization denotes ventures into new markets that are emergent and exude profitability for organizations. Thus, from the analysis of Chipotle, the BRIC (Brazil, India and china) pose lucrative markets for the organization to venture into. As developing economies, Chipotle should venture into the markets since there are evident reduced costs of production and sourcing of agricultural products. Additionally, Chipotle will generate a buzz within the markets due to the evident Mexican cuisine thus enabling generation of sales for the organization (Cole 2011).
– Invest into convenience offering of its products
The consumer market has been highly demanding convenience offering of fast foods at the comfort of their homes. Though not a highly new strategy, Chipotle should venture into a delivery of its Mexican cuisines to the various customers at the comfort of their homes. Through the convenience approach towards fast food delivery, the company is bound to sustain profitable outcomes and enhancement of sales (Cole 2011).
Business operations emanate from extensive comprehension of the environment of operation. Through an environmental analysis a business manages to analyze its various shortfalls. An avenue of analysis, as evident from the five porter analysis, Chipotle will manage to lay forth an effective approach towards successful outcomes. As such, from the above analysis, there prevail diverse challenges that the company faces such as high threats of substitutes and evident extensive rivalry within the sector. However, investment into convenience offering of its fast food products and internationalization into the emerging markets is bound to generate profitable outcomes for the organization.
Financial analysis of an organization requires the use of various benchmarking tools. Thus, a formidable benchmarking tool in evaluating the performance of Chipotle is the use of the various financial ratios. There are various ratios that are significant towards the determination of organizational performance. Thus, the three main ratios that a company can use include
– Liquidity ratios: organizations are highly dependent on financial injection to generate successful operations. Thus, liquidity ratios are important towards determination of organizational ability to meet its debt obligations through an analysis of the current assets and liabilities. Thus, an increased liquidity ratio denotes a strong company towards meeting its debt obligations (Berger 2012). Hence a proper analysis of Chipotle’s liquidity is through the use of current ratios.
Current ratio =current assetscurrent liabilities501192157453=3.18:1 industry average 2.54
Quick ratio = Chipotle 2.37 industry average 1.84
Current liability to turnover: chipotle 197% industry average 165%
Total liability to turnover: chipotle 279% industry average 253%
– Efficiency ratio: efficiency ratios are used by an organization towards determining its effectiveness in the use of current and non-current assets towards the generation of revenues (Berger 2012). Hence, through an analysis of the returns evident from the company can determine the performance mandate of the organization.
Efficiency ratio = salestotal assets ×100=20130001425308×100=141%
Average collection period Chipotle 27 days industry average 15 days
Sales to inventory Chipotle 28 time’s industry average 47 times
Assets to sales Chipotle 24.3% industry average 46%
Accounts payables to sales: Chipotle 8% industry average 5.83%
The company is highly efficient in its use of assets to generate revenue as evident from its high percentage in efficiency. Industry analysis exudes a high level of efficiency as evident from the average 39%. Thus, the company should maintain the higher level of profitability and efficiency to sustain performance.
– Profitability ratio: profitability ratios determine the level of returns that a company accrues from the sales evident. A higher profitability ratio denotes higher profitability of the organization in regards to the sales evident (Berger 2012). The profitability ratio is crucial towards determining the level of profits accrued from the sales made
Gross profit margin = gross profittotal sales×1003497052013000x 100 = 17.37%
Industry analysis average of 7%
Return on sales: chipotle 9% industry average 5%
Return on assets: chipotle 16% industry average = 13.7%
Return on net working capital: Chipotle = 17.9% industry average 13%
The profitability ratio of Chipotle is not extensive thus the need to increase the performance mandate. accordingly, the company has a higher level of profitability that is plausible towards extensive performance.
Berger, S. 2012. Strategic Marketing and Finance Decision Analysis. London: GRIN Verlag
Cole, G. (2011). Strategic management. London: Cengage Learning.