Chipotle’s Commitment To Food
Chipotle may seem like a free-for-all, but the restaurant has a precise method to ensure that food stays fresh and the costs are kept to a minimum. Customers are satisfied for additional requests for rice, beans and salsa. However, the staff is quite stingy when it comes to the “critical seven”. The “critical seven” are expensive foods comprising steak, carnitas, pork, barbacoa (braised beef), chicken, cheese, guacamole and sour cream. A full scoop of meat is delivered at an extra charge. The great thing about Chipotle is that it is handmade and the food is put together right in front of the customer.
Chipotle’s “food with integrity” promise has given it a top reputation as a vendor of sustainably sourced meals. Investors have been won over with the sustainable-sourcing policy despite the sales drop. Chipotle scores high marks for four of the nine key attributes that Fortune uses to measure admiration. They are long-term investment value, social responsibility to the community and environment, quality of products and innovativeness.
“Food with integrity” keeps Chipotle focused on higher quality, sustainably raised ingredients and classic cooking methods. Even with food cost increases, Chipotle has time and again proven to stay the course as it relates to serving food that upholds its policy.
In January of 2015, Chipotle displayed its commitment to good food when it suspended a major pork supplier after seeing to it that animal-welfare protocols weren’t being followed. Despite the financial hit, co-CEO and founder Steve Ells has stated that customers were very happy with the restaurant chain’s policy. “For more than 15 years, we’ve been working hard to change the way people think about and eat fast food,” Ells says. Apparently investors approve.
In a bold move, Chipotle had released its recipe for guacamole on its website and a lot of the health conscious customers are pleased with the ingredients and how it is served. Two ripe Hass avocados have to be broken down in the recipe. In the restaurant, this is done multiple times per day. It is definitely appetizing with two spoon lime juice, quarter cup of red onion and some jalapeno and kosher salt.
"Four Pillars of Throughput"
The restaurant's aces. In a Chipotle restaurant, the aces are the top servers who work on the "front lines". Chipotle co-CEO Steve Ells said "don’t need to do anything other than look you in the eye, communicate with you, and serve you".
The Linebacker. This person stays in the background and ensures that the food is replenished and the area is clean and organized. The linebacker allows for the servers to make great eye contact, communicate well and that the orders run smoothly.
The expediter. This role is crucial to preventing bottlenecks at the cash register. The customers’ orders are bundled by the expeditor and any food and chips lying around are retrieved.
Mise en place. This is a French term meaning "everything in its place." At Chipotle, all ingredients and utensils should be ready for use prior to busy meal hours. Even the cooks who prepare the food are vital.
As Chipotle focuses on core strengths like food culture, it must be mentioned that analysts believe that there is room for ‘thousands and thousands’ more restaurants. Management feels that new concepts and geographies are still attractive. The growth of restaurants isn’t expected to accelerate dramatically as demand is currently outpacing supply. Pizzeria Locale is a new concept that is gaining acceptance with more familiarity in the category.
Pizzeria Locale and Chipotle Partnership
Pizza is a big deal in America as it is the fifth most popular food item consumed at dinner. The partnership between Pizzeria Locale and Chipotle goes back to the summer of 2011. It was kept under wraps and the partnership is really a great fit for both sides. At Chipotle, there is some actual cooking being done. Moreover, the company uses some serious kitchen equipment. The relationship between Chipotle and Pizzeria Locale is very hands-free and allows for a lot of flexibility. It was difficult for Chipotle to let loose on the whole affair as it would affect stock prices.
With Pizzeria Local and Shophouse as offshoots, Chipotle is intent on keeping the robust culture of its core concept. It has been learned that the “first mover” advantage will not help keep an economic moat going for Pizzeria Locale, according to Chipotle management.
Adding more stores in Europe
Europe is a destination that Chipotle should do well even given the higher price for real estate. Of the 1600 restaurants, there are 9 in Europe. The stores may be opened mostly in urban settings with the mall concept being the best strategy.
Conclusion – Chipotle fundamentals and valuations are attractive
After doing an assessment, Chipotle is fairly valued and should perform in line with comparable companies within its sector. The valuations and fundamentals are becoming more attractive.