BACKGROUND Chipotle Mexican grill Vision Statement “Give the company’s actual vision statement. (Author’s last name, Year)” Mission Statement “Give the company’s actual mission statement. (Author’s last name, Year)” Evaluate the mission using David’s (2005) nine components of an effective mission statement. (Indicate the “present” components only!) Component 1 2 3 4 5 6 7 8 9 Company History/Timeline (approximately 12 years) 1950: The company was founded by _____ in _____. (Additional information wraps to the second line.) 1970: The company introduced the _____. (Additional information wraps to the second line.) 1985: The company became the industry leader with _____% market share. Industry Present an overview of your company’s industry (product market). For example, if it is the food and beverage industry, you would indicate the two primary divisions—full service and fast food. You would distinguish between the two and then elaborate on the features or components of your specific sector. You must indicate market share and growth rate information for the industry. (This information will determine the company’s position in the Grand Strategy Matrix.) You must also indicate the industry’s total revenue. Company Overview Provide an overview of the company. Identify the company’s objectives and strategies. Specifically, what is the company’s business-level strategy? If corporate-level and internationallevel strategies are applicable, what are they? List the company’s competitors to identify its strategic group. List and/or describe the items sold by your company to differentiate it from its competitors. A Progressive Digital Media business COMPANY PROFILE Chipotle Mexican Grill, Inc. REFERENCE CODE: C745E1D6-1B87-4232-AAB6-2AF99A19F65C PUBLICATION DATE: 31 Dec 2015 www.marketline.com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED. Chipotle Mexican Grill, Inc. TABLE OF CONTENTS TABLE OF CONTENTS Company Overview..............................................................................................3 Key Facts...............................................................................................................3 Business Description...........................................................................................4 History...................................................................................................................5 Key Employees.....................................................................................................7 Key Employee Biographies..................................................................................8 Major Products and Services............................................................................12 Revenue Analysis...............................................................................................13 SWOT Analysis...................................................................................................14 Top Competitors.................................................................................................19 Company View.....................................................................................................20 Locations and Subsidiaries...............................................................................23 Chipotle Mexican Grill, Inc. © MarketLine Page 2 Chipotle Mexican Grill, Inc. Company Overview COMPANY OVERVIEW Chipotle Mexican Grill, Inc. (Chipotle or 'the company') is a restaurant company that offers a menu of burritos, tacos, burrito bowls (a burrito without the tortilla), and salads, made from fresh ingredients. As of December 31, 2014, the company operated 1,783 restaurants across the US, Canada and Europe. It is headquartered in Denver, Colorado and employed about 53,090 people as of December 31, 2014. The company recorded revenues of $4,108.3 million in the financial year ended December 2014 (FY2014), an increase of 27.8% over FY2013. The operating profit of the company was $710.8 million in FY2014, an increase of 33.4% over FY2013. The net profit was $445.4 million in FY2014, an increase of 36% over FY2013. KEY FACTS Head Office Chipotle Mexican Grill, Inc. 1401 Wynkoop Street Suite 500 Denver Colorado 80202 USA Phone 1 303 595 4000 Fax Web Address http://www.chipotle.com Revenue / turnover 4,108.3 (USD Mn) Financial Year End December Employees 53,090 New York Ticker CMG Chipotle Mexican Grill, Inc. © MarketLine Page 3 Chipotle Mexican Grill, Inc. Business Description BUSINESS DESCRIPTION Chipotle operates fast-casual, fresh Mexican food restaurants. At the end of FY2014, the company had 1,783 restaurants, including 1,755 in the US, seven in Canada, six in England, three in France, one in Germany, nine ShopHouse Southeast Asian Kitchen restaurants, and two Pizzeria Locale restaurants. The company manages its operations based on eight regions that aggregate into one reportable segment. The company's restaurants serve a menu of burritos, tacos, burrito bowl (a burrito without the tortilla) and salads. ShopHouse serves a focused menu comprising main dishes such as rice or noodle bowls made with steak, chicken, meatballs made with pork and chicken, or tofu. These restaurants are classified into end-caps (at the end of a line of retail outlets), in-lines (in a line of retail outlets), free-standing or other. At the end of FY2014, the company operated 1,081 end-cap locations, 283 in-line locations, 315 free-standing units, and 104 other restaurants. The average restaurant size is about 2,550 square feet. Most of these restaurants also feature outdoor patio space. The company delivers ingredients and other supplies to its restaurants from 22 independently owned and operated regional distribution centers. Chipotle Mexican Grill, Inc. © MarketLine Page 4 Chipotle Mexican Grill, Inc. History HISTORY Chipotle's predecessor, World Foods, was founded in 1993. In the same year, the company opened its first restaurant at a former Dolly Madison ice cream location. In 1995, the second and third locations were added to Chipotle. In 1996, the company opened five more restaurants in Denver area. McDonald's Corporation made an equity investment in the company in 1998, and thus became its majority shareholder. In 1999, the first Chipotles were opened outside of Colorado, in Minneapolis and Columbus. The company began serving naturally raised pork in its restaurants in 2000 and naturally raised chicken in 2002. Chipotle started using zero trans fat frying oil in 2004. In 2006, McDonald's divested all its investment in the company. In the same year, Chipotle completed its initial public offering and was listed on the New York Stock Exchange under the symbol 'CMG'. The company opened 'green' restaurant in Gurnee, Illinois with a six-kilowatt wind turbine on-site that generated a portion of the restaurant's electrical needs, in 2008. In 2009, Chipotle was awarded Platinum level Leadership in Energy and Environmental Design (LEED) certification by the US Green Building Council for its Gurnee, Illinois restaurant. In the same year, the company reached an agreement with East Coast Farms (one of Florida's largest tomato growers) to increase wages for its farm workers by 64%. Also in 2009, Chipotle partnered with Houston-based Standard Renewable Energy to install solar panels on approximately 75 Chipotle restaurants. By the end of 2009, the company operated more than 900 restaurants in a category called 'fast-casual', where customers expect food quality that's more in line with full-service restaurants, coupled with the speed and convenience of fast food. Chipotle opened its first European restaurant in London in 2010. In the same year, the company opened its 1,000th restaurant at Flower Mound, Texas. In 2011, Chipotle launched a new restaurant concept, ShopHouse Southeast Asian Kitchen, which was inspired by the traditional shop houses found throughout Thailand, Malaysia and Vietnam. In the same year, the company created the 'Chipotle Cultivate Foundation' to support organizations and people working to improve individual family farms, animals and the environment, and youth and education programs. In mid-2012, Chipotle opened its first restaurant in Spokane, Washington. Around the same time, Chipotle began serving sour cream and cheese made with dairy from pasture-raised cattle in its restaurants. The company launched catering service in Colorado in 2013. This service will allow groups of 20 to 200 to customize their own individual meal as they do at Chipotle restaurants. In the same year, ShopHouse Southeast Asian Kitchen opened its first location in Los Angeles. Chipotle Mexican Grill, Inc. © MarketLine Page 5 Chipotle Mexican Grill, Inc. History Further in 2013, Chipotle expanded its menu in the US restaurant by adding premium Patron margaritas. The new margarita is hand-made using Patron Silver tequila, triple sec, a blend of fresh lime and lemon juices, and organic agave nectar. Chipotle, in partnership with restaurateurs Bobby Stuckey and Lachlan Mackinnon-Patterson, launched a fast causal pizza concept called Pizzeria Locale in the same year. The first restaurant is a full-service pizzeria located in Boulder, Colorado opened in partnership with Chipotle. Later in 2013, the company signed leases for additional ShopHouse Southeast Asian Kitchen locations. The new locations will include additional restaurants in Los Angeles and in the Washington DC area. In March 2014, Chipotle entered into a partnership with Major League Soccer (MLS) to become the Official Fast-Casual Mexican Restaurant of MLS and 12 MLS Clubs.The sponsorship will be Chipotle's largest single sports partnership and will feature promotional programs with 12 teams, individual players, and programs across the entire league. The company, in partnership with New York Times best-selling author Jonathan Safran Foer, launched ‘Cultivating Thought’ author series, a new program that features original essays written by thought-leaders, authors, actors and comedians, on its restaurant packaging such as cups and bags, in May 2014. In January 2015, Chipotle announced the second installment of its ‘Cultivating Thought’ author series with 10 new and original essays written by well-known writers, authors and thought-leaders to be featured on its cups and bags. Chipotle announced a new partnership with (RED) during the month of June to support the fight against AIDS, in June 2015. In November 2015, the company planned to reopen all 43 restaurants in the Seattle and Portland. Chipotle Mexican Grill, Inc. © MarketLine Page 6 Chipotle Mexican Grill, Inc. Key Employees KEY EMPLOYEES Name Job Title Board Steve Ells Chairman and Co-Chief Executive Officer Executive Board 28924270 USD Montgomery F. Moran Co-Chief Executive Officer Executive Board 28153203 USD Neil W. Flanzraich Lead Director Non Executive Board 216513 USD Albert S. Baldocchi Director Non Executive Board 236513 USD John S. Charlesworth Director Non Executive Board 216513 USD Patrick J. Flynn Director Non Executive Board 226513 USD Darlene J. Friedman Director Non Executive Board 231513 USD Kimbal Musk Director Non Executive Board 203013 USD Stephen Gillett Director Non Executive Board John R. Hartung Chief Financial Officer Senior Management 10245842 USD Mark Crumpacker Chief Creative and Development Officer Senior Management 5335191 USD Chipotle Mexican Grill, Inc. © MarketLine Compensation Page 7 Chipotle Mexican Grill, Inc. Key Employee Biographies KEY EMPLOYEE BIOGRAPHIES Steve Ells Board: Executive Board Job Title: Chairman and Co-Chief Executive Officer Age: 49 Mr. Ells is the Chairman and Co-Chief Executive Officer at Chipotle. He has been the Chairman at the company since 2005 and a Director since 1996. Mr. Ells founded Chipotle in 1993. Prior to launching Chipotle, he worked for two years at Stars restaurant in San Francisco. Montgomery F. Moran Board: Executive Board Job Title: Co-Chief Executive Officer Since: 2009 Age: 48 Mr. Moran has been the Co-Chief Executive Officer at Chipotle since 2009. He has also been a Director at the company since 2006. Mr. Moran previously served as the President and Chief Operating Officer at the company from 2005 to 2009. He served as the Chief Executive Officer at Messner & Reeves from 1996. Neil W. Flanzraich Board: Non Executive Board Job Title: Lead Director Age: 71 Mr. Flanzraich is currently the Lead Director at Chipotle. He has been a Director at the company since 2007. Mr. Flanzraich has also been a private investor since 2006. From 1998 through its sale in 2006 to TEVA Pharmaceuticals Industries, he served as the Vice Chairman and President at IVAX Corporation. From 1995 to 1998, Mr. Flanzraich served as the Chairman of the Life Sciences Legal Practice Group at Heller Ehrman. He also served as the Senior Vice President and Chief Counsel at Syntex Corporation from 1981 to 1994. Mr. Flanzraich is also a Director at Equity One. He was a Director at BELLUS Health, Continucare Corporation, Javelin Pharmaceuticals and RAE Systems in the past. Albert S. Baldocchi Board: Non Executive Board Chipotle Mexican Grill, Inc. © MarketLine Page 8 Chipotle Mexican Grill, Inc. Key Employee Biographies Job Title: Director Since: 1997 Age: 60 Mr. Baldocchi has been a Director at Chipotle since 1997. He has been self-employed since 2000 as a Financial Consultant and Strategic Advisor at various privately-held companies. Mr. Baldocchi served as a Senior Investment Banker at a number of institutions, including Morgan Stanley, Solomon Brothers and Montgomery Securities. John S. Charlesworth Board: Non Executive Board Job Title: Director Since: 1999 Age: 68 Mr. Charlesworth has been a Director at Chipotle since 1999. He is currently the sole owner/member of Hunt Business Enterprises and EZ Street, which own commercial properties as well as own and operate car care facilities. Before retiring in 2000, Mr. Charlesworth served at McDonald's for 26 years. He served as the Senior Vice President in Southeast Asia from 1995 to 1997. Most recently, Mr. Charlesworth served as the President of the Midwest Division at McDonald's USA from 1997 to 2000. Patrick J. Flynn Board: Non Executive Board Job Title: Director Since: 1998 Age: 72 Mr. Flynn has been a Director at Chipotle since 1998. Before retiring in 2001, he served at McDonald's for 39 years, where Mr. Flynn held various executive and management positions, most recently as the Executive Vice President responsible for Strategic Planning and Acquisitions. Darlene J. Friedman Board: Non Executive Board Job Title: Director Since: 1995 Age: 72 Ms. Friedman has been a Director at Chipotle since 1995. Before retiring in 1995, she served at Syntex Corporation for 19 years, where Ms. Friedman held various management positions, most recently as the Senior Vice President of Human Resources. Chipotle Mexican Grill, Inc. © MarketLine Page 9 Chipotle Mexican Grill, Inc. Key Employee Biographies Kimbal Musk Board: Non Executive Board Job Title: Director Since: 2013 Age: 43 Mr. Musk has been a Director at Chipotle since 2013. He is an entrepreneur and a restaurateur who founded and advised several companies and non-profits, including The Kitchen Restaurant Group, The Kitchen Community, Zip2 Corporation, PayPal, Everdream Corporation, Tesla Motors, Space Exploration Technologies, OneRiot and SolarCity Corporation. Mr. Musk has been the Chief Executive Officer at The Kitchen Restaurant Group since 2004, and Executive Director at The Kitchen Community since 2010. He is also a Director at Tesla Motors and number of privately-held companies and charitable organizations. Stephen Gillett Board: Non Executive Board Job Title: Director Since: 2015 Age: 39 Mr. Gillett has been a Director at Chipotle since March 2015. He served as an Executive Vice President and the Chief Operating Officer at Symantec Corporation. Mr. Gillett also served as a Director at Symantec Corporation in 2012. Previously, he served as an Executive Vice President and the President, Best Buy Digital, Global Marketing and Strategy at Best Buy in 2012; as the Executive Vice President of Digital Ventures and Chief Information Officer at Starbuck from 2008 to 2012; and the Chief Information Officer at Corbis Corporation from 2006 to 2008. Prior to his role at Corbis, Mr. Gillett held senior technology positions at Yahoo, and CNET Networks and Sun Microsystems. John R. Hartung Board: Senior Management Job Title: Chief Financial Officer Since: 2002 Age: 57 Mr. Hartung has been the Chief Financial Officer at Chipotle since 2002. Prior to joining the company, he served at McDonald's for 18 years, where Mr. Hartung held various management positions, most recently as a Vice President and the Chief Financial Officer of its Partner Brands Group. Mark Crumpacker Chipotle Mexican Grill, Inc. © MarketLine Page 10 Chipotle Mexican Grill, Inc. Key Employee Biographies Board: Senior Management Job Title: Chief Creative and Development Officer Since: 2015 Age: 52 Mr. Crumpacker has been the Chief Creative and Development Officer at Chipotle since March 2015. Prior to this position, he served as the Chief Marketing Officer and Chief Development Officer at the company. From 2002 to 2008, Mr. Crumpacker served as the Creative Director at Sequence, a strategic design and marketing consulting firm that Mr. Crumpacker co-founded in 2002. He also served as the Creative Director and held other leadership roles at various design and media companies. Chipotle Mexican Grill, Inc. © MarketLine Page 11 Chipotle Mexican Grill, Inc. Major Products and Services MAJOR PRODUCTS AND SERVICES Chipotle is a restaurant company that offers a menu of burritos, tacos, burrito bowls (a burrito without the tortilla), and salads, made from fresh ingredients. The company's key products and services include the following: Products: Burritos Burrito bowls (a burrito without the tortilla) Tacos Salads Guacamole Salsas Tortilla chips Soda Fruit drinks Organic milk Beer Margaritas Pizza Services: Catering services Chipotle Mexican Grill, Inc. © MarketLine Page 12 Chipotle Mexican Grill, Inc. Revenue Analysis REVENUE ANALYSIS Chipotle recorded revenues of $4,108.3 million in FY2014, an increase of 27.8% over FY2013. The company manages its operations based on eight regions that aggregate into one reportable segment. Chipotle Mexican Grill, Inc. © MarketLine Page 13 Chipotle Mexican Grill, Inc. SWOT Analysis SWOT ANALYSIS Chipotle is a restaurant company that offers a menu of burritos, tacos, burrito bowls (a burrito without the tortilla), and salads, made from fresh ingredients. The company's focus on food made with ingredients from sustainable sources enables it to serve its customers with healthy and non-additive food, which, in turn, would lead to increased sales and enhanced brand image. However, intense competition could negatively impact the company's market share and its profitability. Strengths Weaknesses Focus on food made with ingredients from sustainable sources Marketing programs Fast growth in terms of operations and revenues Higher food cost Limited items on menu Opportunities Threats Focus on international expansion Growing foodservice market Intense competition Increasing labor cost Increase in food safety regulations Strengths Focus on food made with ingredients from sustainable sources The company focuses on unique food culture by serving best tasting food made with ingredients from sustainable sources and prepared using classic cooking procedures. Chipotle serves food using naturally raised meat (pork, beef, and chicken) and dairy cattle. In 2014, the company served over 155 million pounds of naturally raised meat. Further, in 2014, the company bought more than 20 million pounds of local produce for its US restaurants, an increase of more than 33% from the previous year. Additionally, the entire dairy (cheese and sour cream) served at the company's restaurants is made with milk from cows that are never administered antibiotics or added hormones, including rBGH (recombinant bovine growth hormone), and the company's entire dairy is made with milk from pasture-raised cows. Chipotle also uses food that is raised organically. In FY2014, the company bought more than six million pounds of organically grown produce. Chipotle also bought more than four million pounds of organic black beans and over 2.5 million pounds of organic pinto beans. Chipotle Mexican Grill, Inc. © MarketLine Page 14 Chipotle Mexican Grill, Inc. SWOT Analysis Therefore, the company's focus on food made with ingredients from sustainable sources enables it to serve its customers with healthy and non-additive food, which, in turn, would lead to increased sales and enhanced brand image. Marketing programs Chipotle markets its brand not only through advertising and promotional campaigns but also in other ways for people to experience the brand. Advertising and promotional programs of the company include in-store communications, and other design elements. Chipotle advertises not only through print, outdoor, transit and radio ads but also online. As part of its promotions, the company is developing 'owned media', including new video and music programs, and a more visible event strategy that includes its 'Cultivate' festivals of food, music and ideas, as well as participating in relevant events in markets around the country. Chipotle also increased the use of digital, mobile, and social media in its overall marketing mix, giving customers greater opportunity to access the company in ways that are convenient for them. All these marketing efforts of the company helped it to create word-of-mouth publicity, with customers learning about Chipotle and telling others. It also allows the company to build awareness with relatively low advertising expenditure, even in a competitive category. Such marketing programs will enable the company to enhance its brand awareness, as well as help it grow through strong connections with customers. Fast growth in terms of operations and revenues Since its inception in 1993, Chipotle's growth in terms of operations and revenues was rapid. The company opened its first restaurant in Denver in 2003. In 2006, Chipotle completed its initial public offering and was listed on the New York Stock Exchange. By the end of FY2006, the company operated over 570 restaurants in 26 US states and the District of Columbia, with an additional eight franchise restaurants. In 2010, Chipotle opened its first European restaurant in London. By the end of FY2014, the company operated 1,755 restaurants in the US, seven in Canada, six in England, three in France, one in Germany, nine ShopHouse Southeast Asian Kitchen restaurants, and two Pizzeria Locale restaurants. Chipotle's average restaurant sales increased from $1.8 million in FY2010 to $2.5 million in FY2014.The company's revenues increased from $1,836 million in FY2010 to $4,108.3 million in FY2014, representing a compound annual growth rate (CAGR) of 22% during FY2010–14. Also, the operating profit and net profit increased at a CAGR of 25% and 26%, respectively, during the same period. Chipotle continued its strong performance in FY2014 as well. The revenues of Chipotle increased 27.8% in FY2014 over FY2013. The factors contributing to increase in revenues include new restaurant openings and increase in comparable restaurant sales. Chipotle's comparable restaurant sales increased 16.8% in FY2014 over FY2013, mainly driven by an increase in customer visits. Also, the operating profit and net profit of Chipotle grew by 33.4% and 36%, respectively, in FY2014 over FY2013. The company's rapid growth in terms of operations and revenues enables it to counter pricing issues and initiate promotion efforts as compared to its bigger peers. Chipotle Mexican Grill, Inc. © MarketLine Page 15 Chipotle Mexican Grill, Inc. SWOT Analysis Weaknesses Higher food cost The company's food cost is higher than that of its competitors. The company's food, beverage and packaging cost as a percentage of revenue increased to 34.3% in the quarter ended September 30, 2014 from 33.6% in the quarter ended September 30, 2013. Food, beverage and packaging costs increased as a percentage of revenue as a result of inflation on many of the company's food items, particularly beef, avocados, as well as dairy. Due to higher food cost, the company's food items are priced higher than those of its competitors. For instance, an average meal at Chipotle is in the range of about $8, whereas its competitors such as McDonalds, Taco Bell and KFC have options such as value menus that start from even $1. The company expects food cost to represent a significant amount of its revenue in the future. This may lead to an increase in the prices of food items the company serves in its restaurants. Therefore, the company's high priced products may negatively impact customer traffic in its restaurants and thereby affect its sales. Limited items on menu Chipotle's restaurants serve a menu of burritos, tacos, burrito bowl (a burrito without the tortilla) and salads. However, the company’s menu is mostly limited to burritos and tacos when compared to its competitors which offer a wide range of food items. For instance, Qdoba Mexican Grill (owned by Jack In The Box) has a comparable selection of burrito and bowls as well as quesadillas, nachos, chips and dips, and taco options. Another competitor, Panera Bread offers a wide range of food items, including baked breads, pastries, sweets, bagels, spreads, soups, cheese, salads, broth bowls, pasta, sandwiches, and drinks. Therefore, the limited menu may act as a competitive disadvantage and adversely impact the average customers spending at Chipotle's restaurants. Opportunities Focus on international expansion Apart from the development of new restaurants in the US, the company also plans to open restaurants in Europe. In 2010, Chipotle opened its first European restaurant in London. Further, the company opened its first restaurant in Paris, France in 2012 and in Frankfurt, Germany in 2013. At present, Chipotle has six restaurants in England, three in France, and one in Germany. The restaurants industry in Europe has been growing at a steady rate in the recent times. According to MarketLine, the European restaurants industry grew by 2.6% in 2014 to reach a value of $514.9 billion. Restaurants and cafes was the largest segment of the restaurants industry in Europe, accounting for 48.9% of the industry's total value. By 2019, the European restaurants industry is expected to have a value of $620.3 billion, an increase of 20.5% since 2014. The company's focus Chipotle Mexican Grill, Inc. © MarketLine Page 16 Chipotle Mexican Grill, Inc. SWOT Analysis on international markets such as Europe in terms of opening new restaurants would enable it to accelerate growth in the future. Growing foodservice market The US foodservice industry is expected to continue its steady growth in the future. The restaurant industry has witnessed consistent growth in the past few years. According to industry sources, the restaurant-and-foodservice sales are estimated to surpass $700 billion in 2015, registering an increase of about 4% over 2014. This growth is attributed to stronger economic growth in the US during the year. In the US, nearly half of food expenditure now happens outside the home. According to the US Department of Agriculture, the consumer spending on food away from home was approximately 49.6% of the total food spending in 2013. Chipotle mainly operates in the restaurant industry and offers a range of a menu options, including burritos, tacos, burrito bowls (a burrito without the tortilla), and salads, made from fresh ingredients. A strong growth for the restaurant market in the US is likely to improve the sales of the company. Threats Intense competition The competition is fierce in the fast-casual, quick-service and casual dining segments of the restaurant industry. Competition in the restaurant industry is based primarily on taste, price, food quality and presentation, service, location, and the ambience and condition of each restaurant. Chipotle competes with restaurants including locally-owned restaurants and national and regional chains.The company's main competitors include Rubio's Restaurants, Brinker International, Panda Restaurant Group, Carrols Restaurant Group, BJ's Restaurants, Burger King Worldwide, Yum! Brands, Fiesta Restaurant Group, and Jack in the Box. Some of these competitors have larger resource base and established market presence. Several of its competitors compete by offering menu items that are specifically identified as low in carbohydrates. In fast-casual and quick-service segments of the restaurant industry, many of the company's competitors emphasize on factors such as lower-cost, and value meal menu options. Intense competition could reduce the sales volume of the company, thereby hampering its market position. Increasing labor cost The company is subject to increasing labor cost as it allocates significant resources to recruit and train its restaurant managers and teams. As a restaurant operator, the company is also relatively subject to high employee turnover rates. Any increase in its turnover rates for managers or teams could be costly.Tight labor markets, increased overtime, government mandated increases in minimum wages and a higher proportion of full-time employees are resulting in an increase in labor costs in the US. The federal minimum wage rate in the US, which remained at $5.15 per hour since 1998, increased to $5.85 per hour in 2008. It further increased to $6.55 per hour in 2009 and to $7.25 per hour in 2010. Many states and municipalities in the country have minimum wage rates even higher Chipotle Mexican Grill, Inc. © MarketLine Page 17 Chipotle Mexican Grill, Inc. SWOT Analysis than the federal minimum wage rate due to the higher cost of living. For instance, the minimum wage rate has increased in the states of Arizona (from $7.9 in 2014 to $8.05 in 2015), Arkansas (from $6.25 in 2014 to $7.5 in 2015), New York (from $8 in 2014 to $8.75 in 2015) and Washington (from $9.32 in 2014 to $9.47 in 2015) in the recent past. Therefore, increase in labor costs due to factors like increased minimum wage requirement, employee benefits and any changes in the company's restaurant staffing structure could adversely impact Chipotle's operating costs. Increase in food safety regulations The company's business operations are subject to regulations by a variety of federal, state and local laws and regulations regarding manufacturing, marketing and distribution of food products. In 2011, the Food and Drug Administration (FDA) Food Safety Modernization Act (FSMA) was passed to ensure the US food supply is safe by shifting the focus from responding to contamination to preventing it. This law gives FDA the authority to issue recalls when there are food safety incidents. In February 2015, the US FDA requested a budget of $4.9 billion for FY2016. Of this, about $1.5 billion would be spent on food safety regulations. Increased food safety measures, although beneficial, will increase the burden of specific compliances for Chipotle and could increase the related expenditure for the company. Chipotle Mexican Grill, Inc. © MarketLine Page 18 Chipotle Mexican Grill, Inc. Top Competitors TOP COMPETITORS The following companies are the major competitors of Chipotle Mexican Grill, Inc. Rubio's Restaurants, Inc. Panda Restaurant Group, Inc. Taco Carrols Restaurant Group, Inc. BJ's Restaurants, Inc. Yum! Brands, Inc. Brinker International, Inc. Fiesta Restaurant Group, Inc. Jack in the Box Inc. Burger King Worldwide, Inc. McDonald’s Corporation Rave Restaurant Group, Inc. Panera Bread Company Chipotle Mexican Grill, Inc. © MarketLine Page 19 Chipotle Mexican Grill, Inc. Company View COMPANY VIEW An excerpt from the 'Management's Discussion and Analysis of Financial Condition and Results of Operations' section is given below. This has been taken from Chipotle’s 10-K filing for FY2014. Results of Operations Revenue In 2014, the significant factors contributing to our increases in sales were comparable restaurant sales and new restaurant openings. Comparable restaurant sales increases contributed $530.0 million of the increase in restaurant sales, due primarily to increases in customer visits, and an increase in average check price, including the benefit from menu price increases. Restaurant sales from restaurants not yet in the comparable base contributed $364.7 million of the increase in sales in 2014, of which $173.9 million was attributable to restaurants opened during the year. In 2013, the significant factors contributing to our increases in sales were new restaurant openings and comparable restaurant sales. Restaurant sales from restaurants not yet in the comparable restaurant base contributed $333.9 million of the increase in sales, of which $156.6 million was attributable to restaurants opened in 2013. Comparable restaurant sales increases contributed $150.3 million of the increase in restaurant sales, due primarily to increases in customer visits. Food, Beverage and Packaging Costs Food, beverage and packaging costs increased as a percentage of revenue in 2014 due to inflation on many food items, primarily beef, avocados, and dairy. The increase was partially offset by the impact of menu price increases. We expect that food costs as a percentage of revenue in 2015 will remain consistent with the full year 2014 or will increase slightly. Food, beverage and packaging costs increased as a percentage of revenue in 2013 due to inflation on many food items, particularly salsa ingredients, as well as dairy, cooking oils, and chicken. Labor Costs Labor costs as a percentage of revenue decreased in 2014 due primarily to the benefit of higher average restaurant sales, including the impact of menu price increases, partially offset by an increased number of managers and crew in our restaurants and normal wage inflation. In 2015, we expect labor costs to increase slightly as a percentage of revenue due to the Affordable Care Act and minimum wage increases in a number of jurisdictions. Labor costs as a percentage of revenue decreased in 2013 due primarily to the benefit of higher average restaurant sales. Chipotle Mexican Grill, Inc. © MarketLine Page 20 Chipotle Mexican Grill, Inc. Company View Occupancy Costs Occupancy costs decreased as a percentage of revenue in 2014 and in 2013 primarily due to the benefit of higher average restaurant sales on a partially fixed-cost base. Other Operating Costs Other operating costs include, among other items, marketing and promotional costs, bank and credit card fees, and restaurant utilities and maintenance costs. Other operating costs decreased in 2014 due primarily to the benefit of higher average restaurant sales on a partially fixed-cost base. We expect marketing and promotional spend as a percentage of revenue for 2015 to remain consistent with the full year 2014 or increase slightly. Other operating costs increased as a percentage of revenue in 2013 due primarily to higher spend on marketing and promotions. General and Administrative Expenses The increase in general and administrative expenses in dollar terms in 2014 primarily resulted from increased non-cash stock-based compensation expense, higher payroll and bonus costs as we grew, as well costs from our biennial All Managers’ Conference, or AMC, held in the third quarter of 2014. The increase in general and administrative expenses in dollar terms in 2013 primarily resulted from increased payroll and benefits costs as we grew and increased legal costs, partially offset by costs from our biennial AMC held during 2012, as well as a decrease in 2013 in non-cash stock based compensation expense due to expenses in 2012 related to non-vested stock awards subject to performance conditions. Depreciation and Amortization As a percentage of revenue, depreciation and amortization decreased in 2014 and 2013 as a result of the benefit of higher average restaurant sales on a partially fixed-cost base. Income Tax Provision The 2014 effective tax rate decreased by 1.1% from 2013 due to a decrease in the state tax rate and filing the 2013 tax returns, which included a change in the estimate of usable employer credits. The 2013 effective tax rate decreased by 0.6% from 2012 due primarily to certain federal tax credits that were extended in 2013, for both 2013 and 2012, which benefited the rate by 1.1%.This decrease was partially offset by non-recurring adjustments related to state income taxes. Chipotle Mexican Grill, Inc. © MarketLine Page 21 Chipotle Mexican Grill, Inc. Company View We estimate our 2015 annual effective tax rate will be 39.0%, increasing from 2014 due to the expiration of certain federal tax credits. Chipotle Mexican Grill, Inc. © MarketLine Page 22 Chipotle Mexican Grill, Inc. Locations and Subsidiaries LOCATIONS AND SUBSIDIARIES Head Office Chipotle Mexican Grill, Inc. 1401 Wynkoop Street Suite 500 Denver Colorado 80202 USA P:1 303 595 4000 http://www.chipotle.com Other Locations and Subsidiaries Chipotle Mexican Grill 1800 McFarland Boulevard East Suite 608 Tuscaloosa Alabama 35404 USA Chipotle Mexican Grill 323 Yonge Street Toronto Ontario M5B 1R7 CAN Chipotle Mexican Grill 101-103 Baker Street London W1U 6LN GBR Chipotle Mexican Grill 2849 North Power Road Mesa Arizona 85215 USA Chipotle Mexican Grill 1141 North Dupont Highway Dover Delaware 19901 USA Chipotle Mexican Grill 701 South Main Street Normal Illinois 61761 USA Chipotle Mexican Grill 11525 Cantrell Road Building 1000 Little Rock Arkansas 72212 USA Chipotle Mexican Grill 2241 North Maize Road Wichita Kansas 67205 USA Chipotle Mexican Grill, Inc. © MarketLine Page 23 Chipotle Mexican Grill, Inc. Locations and Subsidiaries Chipotle Mexican Grill 1837 M Street North West Washington 20036 USA Chipotle Mexican Grill, Inc. © MarketLine Chipotle Mexican Grill 281 Broadway New York 10007 New York USA Page 24 A Progressive Digital Media business MARKETLINE | John Carpenter House, John Carpenter Street | LONDON, UNITED KINGDOM, EC4Y 0AN T: +44 (0) 203 377 3042 | F: +44 (0) 870 134 4371 | E: REACHUS@MARKETLINE.COM | W: www.marketline.com
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