Review of Chipotle Mexican Grill, Inc.
Abstract
For the past two decades, Chipotle Mexican Grill, Incorporated has been quick to rise in popularity as an international fast food restaurant that strives to differentiate themselves from the “typical” experience that one would expect at a short-order restaurant (Chipotle, 2015, para. 1). While Chipotle has been extremely successful through their use of locally grown, classic techniques, and high-quality ingredients (Chipotle, 2015, para. 2), the company has recently been faced with numerous issues with their company’s health practices and a slowing sales growth (Peterson, 2015, para. 3).

Review of Chipotle Mexican Grill, Inc.
Introduction
Chipotle Mexican Grill, Inc. (Chipotle) is a fast-food restaurant that was founded by Steve Ells in 1993 in Denver, Colorado (Fundable, 2016, para. 1-6). According to Fundable, Ells has a degree from both the University of Colorado and the Culinary Institute of America (2016, para. 5). From there, Ells began work as a sous chef before he was able to secure a loan of $85,000 from his father to go towards the purchase of his first fast-food restaurant, Chipotle (Fundable, 2016, para. 1-4). Ells and his company experienced almost instance success. Chipotle grew so popular, that it wasn’t long before investors were looking to capitalize on Chipotle’s success, as well. After just three years of being open, Chipotle had grown to three stores and the well-known fast-food chain, McDonald’s, offered to invest $360 into Chipotle (Fundable, 2016, para. 4). With the funding of a company like McDonald’s, Chipotle was able to expand their brand quickly. In 2006, Ells decided to take Chipotle public which resulted in their stock rising on the first day to 100% (Fundable, 2016, para. 2). By 2015, Chipotle was faced with a very serious concern for not only the health of their business, but the health of their customers. Alba stated the company experienced their first health concern in July of 2015 with the outbreak of E.coli in one of their Seattle, Washington locations (Wired, 2016, para. 4). Though this was a health concern, it remained a minor contraction. The worst was still to come for Chipotle. Within a month, Alba states that “more than 200 customers and employees at a Chipotle in Simi Valley, California, contracted norovirus” (Wired, 2016, para. 5). The Centers for Disease Control and Prevention (CDC) states that norovirus is extremely contagious and can spread when an infected individual’s stool or vomit is accidently swallowed by another individual (2015, para. 4). The most often way norovirus is spread in the food industry is when employees who are already infected prepare raw vegetables and fruits without wearing gloves (CDC, 2015, para. 5-6).
Chipotle’s health issues continued to rise. Within the same month, over 50 individuals contracted salmonella in Minnesota (Alba, 2016, para. 5). The following months proved to only worsen the food borne illnesses that Chipotle was facing. By the end of 2015, approximately 500 individuals were contaminated by food consumed from Chipotle restaurants in 13 states (Alba, 2016, para. 6).
Legal Analysis
It comes as no surprise that the given health concerns that Chipotle has recently been dealing with have led the company to be facing some very real legal issues. Numerous individuals who have contracted a food related illness after eating at Chipotle have sued the company within the past six months. Investors also took note of the situation Chipotle was in. During investigations, it came to light that investors were misled by the fast-food restaurant. Time magazine’s Alter states that individuals who invested in Chipotle were never told that the company was failing to meet adequate quality control measures to ensure safe employee handling of foods and safety precautions with their consumers (2016, para. 2). Due to the fact that investors were misled with their purchase of Chipotle stock, investors during that time period have a complete right to sue the company and seek damages.
The wide-spread outbreak has also gained the attention of the government. By early 2016, Chipotle was subpoenaed by a federal grand jury in conjunction with a criminal investigation for their handling of the norovirus outbreak in California (Brunker, 2016, para. 1). The investigation will be conducted through the U.S. Attorney’s Office and the Food and Drug Administration (Madhani, 2016, para. 3). This investigation has already brought to light the manner in which Chipotle was conducting business before and during the outbreaks of food-borne illnesses. California’s Ventura County’s Environmental Health Division pointed out that Chipotle proceeded to treat the beginning outbreaks with a relaxed attitude by not reporting customer complaints about illness for almost five days after the complaints were received (Brunker, 2016, para. 5). This is extremely alarming behavior for all parties involved. Chipotle has a duty to not only the consumer and general public, but also all investors, to notify the Health Department in any cases involving food related health complaints. Chipotle decided to treat the complaints with a relaxed attitude and did not have any concern towards other restaurants or parties who may have been purchasing from the same distributor as themselves. This lack of responsibility can lead to a furthering outbreak and even death in customers who are not treated for the illnesses they received after eating at their establishment.
Financial Analysis
The recent health concerns that swarm around the Chipotle brand has also had a damaging effect on the company’s financial condition, as well. By the end of 2015, Chipotle was struggling with their lowest sales to date-close to 20 percent from the previous year’s sales-in the history of the company (Little, 2015, para. 2-3). The reason for such a drastic drop in sales no doubt is a direct reflection of the public’s trust of the company. Prior to the recent food-borne illnesses that plagued Chipotle and their customers, the company had both a short-term debt and a long-term debt of less than a million; Chipotle’s equity, at the same time in the third quarter of 2015 was over $2,000 million (NASDAQ, 2016). Therefore, Chipotle had a debt-to-equity ratio of 0.00, which is extremely desirable for a company. The company was also looking at a net cash flow of over $16 million in the third quarter of 2015 (NASDAQ, 2016). By the end of the fourth quarter in 2015, that was all going to change for Chipotle. Their net cash flow was negative over $355 million, which resulted in the lowest all time net cash flow the company had seen in their history (NASDAQ, 2016).
Sales and profits were not the only areas that were affected financially by the recent health issues they were facing. By January 2016, Chipotle stock also fell to an all-time low. The chart below depicts how quickly Chipotle’s stock also suffered.
(Miceli, 2016)
While it is typical for stock to fluctuate, it is obvious from the chart that Chipotle’s drop in stock was a direct reflection of investors being uncertain of the company’s ability to bounce back from such a disaster. Yet another reason the stock could have dropped so drastically could be due to the fact that many investors felt that they were misled by the company’s quality control measures for their employees and customers. This distrust and uncertainty in a company leads many investors to cut their losses and results in them being motivated to sell stock holdings.
Business Analysis
For decades, Chipotle was considered a leader in the fast-food industry due to their out-of-the-box approach to managing their business. The company focused on having integrity with their fresh ingredients and naturally raised beef and poultry (Envysion, 2016, para. 2). The company also invested a lot when it came to their employees, by choosing to promote from within rather than outsource management positions that needed to be filled. While this can be a solid and profitable way to run a business, if it is done on a constant basis it can lead to issues within the organization.
Some advantages that could be experienced from a manager who is new to the Chipotle organization would be that he or she would be able to provide a fresh outlook to issues that may not be apparent to others who have been working in the same store for five or so years. Another advantage would be that the new manager would be less influenced by any politics of individuals already working there. Outsourced managers are also able to identify practices that are unsafe or unsanitary that employees are doing intentionally or unintentionally. The lack of outsourcing that Chipotle has conducted business by has no doubt had a hand in the many health risks they are imposing on the public.
Yet another downfall of Chipotle’s business management is their almost lack of a loss prevention team (Envysion, 2016, para. 1). With close to 2,000 locations, Chipotle only has a staff of five individuals, in total, within their loss prevention team (Envysion, 2016, para. 1). Though the primary job of a loss prevention team is to prevent theft and crime, the teams also carry the duties of safety and risk management. This should have been higher priority than what it was in the eyes of Chipotle management. Had the company been more invested in having a loss prevention team that was able and equipped to make visits to stores for check-ups on health and safe related practices, the company might have been able to prevent some of the health related problems they currently face. It seems the only tasks management of Chipotle had for their loss prevention team was to ensure that the company remained profitable. They did not foresee how poor health practices or contaminated food shipments would also effect the profits of their company.
Instead of having a stable and solid loss prevention team, the company decided in 2007 that they would install video cameras in each of their locations as a way to ensure employees were behaving and crimes were not occurring (Envysion, 2016, para. 3-5). Though this is one way of safeguarding against bad habits that employees can sometimes develop over time, there is a significant catch to the practice. If there are going to be cameras in the stores, then there should be individuals reviewing the tapes for any safety, health, or crime related activities. Instead, once again, Chipotle decided to not invest in their employees and customers and only reviewed the tapes of their employees if there was a safety or criminal activity reported or transactions deemed high risk by the loss prevention team (Envysion, 2016, para. 2-4). While measures should have been taken during the first outbreak of a food-borne disease in July of 2015, Chipotle waited until almost seven months later to force all restaurants to close for a few hours of safety training (Duprey, 2016, para. 4). This was the same time that the company’s stock plummeted to an all-time low.
Marketing Analysis
Since it opened, Chipotle prided themselves on being a healthy choice for its consumers. The company chose to message their brand of organic farming and reputable food sourcing not through the typical marketing outlets that use traditional media, such as television commercials or radio broadcasts. Instead the company focused on having a powerful online presence and strong word-of-mouth advertisements from their customers. Another tactic that they have utilized that has proven to be successful is the perks they have offered celebrities; Chipotle has selected celebrities to always eat free when they decide to dine at their establishments (Diego, 2015, para.). This tactic has proven to be extremely profitable for the company in the past. Yet another tactic that may not be as readable as the celebrity indorsement is Chipotle’s logo. The company uses a dark red background with bright white font for the company name. Though this is more of a subtle marketing tactic, it is effective none the less. The logo signifies to the target market that by choosing Chipotle, they will be receiving a higher quality option in fast-food. The color red has also shown to increase hunger in many individuals.
Rather than take on a drastically different approach to their targeting and marketing approach after the many health issues the company faced, Chipotle has done very little to regain the trust of their consumers. In December 2015, founder and co-CEO Steve Ells made a public apology to their customers on NBC’s morning talk show, Today (Ferdman and Bhattarai, 2015, para. 10). Ells has also put out a full-page advertisement in over 60 newspapers around the United States stating his regret for the recent health scares and how the company would be taking even stricter precautions in regards to their food safety (Trotter, 2015, para. 2). Though steps that Ells and his company have taken in marketing to apologize to consumers is notable, it will take far more than saying sorry before the consumers begin to trust the company again. These health scares have led many consumers to believe that Chipotle cares more for how the animals are treated in the process, rather than the health of their consumers (Ferdman and Bhattarai, 2015, para. 18). Due to the fact that the health scares were repetitive in nature, it also does not help the company to regain the trust of their patrons as quickly.
Conclusion
In conclusion, when looking at Chipotle, it is clear that they have had some tremendous success in quite a short amount of time. One of the most important aspects to owning a business, though, is to prepare for threats and weaknesses both outside and inside a company. Not only does the company need to identify them, but the company must also be willing to adapt to changes in their environment.
The first solution I would advise Chipotle on would be to reevaluate their current business model. Though it is always favorable to give your employees a chance to succeed within the business, it is also highly important to seek outside consultants and managers to provide the company with new insight into how effective and safe current practices are within the company. Having an outsourced manager could have also prevented many legal issues that were caused and showed Chipotle as being more proactive in resolving health related illnesses.
Another solution I would advise for Chipotle would be to bring in financial consultants. It is obvious after analyzing their stock and their statements of cash flows that Chipotle is currently bleeding out. Unfortunately, it appears with the many pending legal issues, they will not began to see profits like they did in 2014 for quite some time.
The final and most important solution I would advise for Chipotle would be the need to establish an effective and reliable safety and loss prevention team. There needs to be checks within each store that are conducted by outside consultants that are impartial to Chipotle to ensure that proper sanitation techniques are being utilized with food preparation. The company should hire food safety consultants to train all employee members. I believe by implementing these changes, Chipotle can return to being an affordable and responsible choice for fast-food meals.

References
Alba, D. (2016, January 15). Chipotle’s Health Crisis Shows Fresh Food Comes at a Price. Wired. Retrieved from http://www.wired.com/2016/01/chipotles-health-crisis-shows-fresh-food-comes-at-a-price/
Alter, C. (2016, January 8). Chipotle Slapped with Lawsuit over E.Coli Outbreak. Time. Retrieved from http://time.com/4173756/chipotle-ecoli-lawsuit-investors/
Brunker, M. (2016, January 6). Chipotle Says It Faces Criminal Investigation in Food Illness Case. NBC News. Retrieved from http://www.nbcnews.com/business/business-news/chipotle-says-it-faces-criminal-investigation-food-illness-case-n491176
Centers for Disease Control and Prevention. (2015, December 10). Norovirus: Transmission. Retrieved from http://www.cdc.gov/norovirus/about/transmission.html
Chipotle Mexican Grill, Inc. (2015). Our Company: The Business of Good Food. Chipotle Mexican Grill. Retrieved from https://www.chipotle.com/company
Duprey. (2016, January 25) Instant Analysis: chipotle Mexican Grill, Inc. to Woo Back Customers in February. The Motley Fool. Retrieved from http://www.fool.com/investing/general/2016/01/25/instant-analysis-chipotle-mexican-grill-inc-to-woo.aspx
Envysion. (2016). Case Study: Chipotle Deep Dive. Retrieved from http://envysion.com/chipotle-case-study/
Ferdman, R. and Bhattarai, A. (2015, December 9). There’s a crisis at Chipotle. The Washington Post. Retrieved from https://www.washingtonpost.com/news/wonk/wp/2015/12/09/chipotle-food-outbreak-ecoli-reputation/
Fundable. (2016). Chipotle Startup Story. Fundable. Retrieved from https://www.fundable.com/learn/startup-stories/chipotle
Madhani, A. (2016, January 6). Chipotle’s food safety woes lead to criminal investigation, sales slide. USA Today. Retrieved from http://www.usatoday.com/story/money/2016/01/06/chipotle-gets-subpoena-over-norovirus-incident/78349086/
Miceli, M. (2016, January 6). The Fall of America’s Fast-Food Darling. U.S. News. Retrieved from http://www.usnews.com/news/blogs/data-mine/articles/2016-01-06/following-outbreak-and-subpoena-chipotles-stock-plummets
NASDAQ. (2016, February 23). CMG Company Financials. Retrieved from http://www.nasdaq.com/symbol/cmg/financials?query=cash-flow
Peterson, H. (2015, October 20). Chipotle has 4 problems that are threatening its growth. Business Insider. Retrieved from http://www.businessinsider.com/chipotle-has-4-challenges-threatening-business-2015-10
Trotter, G. (2015, December 16). Chipotle CEO in newspaper ad: ‘I am deeply sorry.’ The Chicago Tribune. Retrieved from http://www.chicagotribune.com/business/ct-chipotle-full-page-apology-1217-biz-20151216-story.html