Chipotle Entering Germany

Sajma Singh Adhikari
Sambridhi KC
Tamela O. Dow
Ramita Shrestha
Darrin Holly

Fundamentals of International Business
BUAD 327.001
May 8, 2013

Table of Content

Executive Summary……………………………………………………………………………….3

Introduction……………………………………………………………………………………….6

Economic Analysis………………………………………………………………………………..6

Cultural Analysis………………………………………………………………………………….8

Political Analysis………………………………………………………………………..………...9

Company Analysis……………………………………………………………………………….10

Works Cited……………………………………………………………………………………..12

Appendix………………………………………………………………………………………..13

Executive Summary
Overview
Chipotle Mexican Grill is a restaurant that allows consumer to enjoy fresh and delicious Mexican style food. Chipotle offers fresh not frozen food that you find in many of the restaurants today. Unlike Taco Bell, Chipotle’s entire product line is fresh the fresh taste like buying fresh vegetables and meats from the local farmer. This fresh taste is what makes Chipotle different from any other Mexican style restaurant in business.
Problem
Obesity and poor eating habits is running rampant in the world. “Half of German adults are obese (13.7%) and overweight (36.4%), similar to the 54.5% in the United Kingdom, but significantly less than the 62.1% in the United States” (English). Poor eating habits and little or no type of exercise finds consumers struggling to control their weight. For many consumers, who have busy work schedules and/or family obligations, a quick meal from the microwave or stopping by a fast food restaurant is a quick fix for an individual/family meal. The problems with these meals are they are usually high in sodium, cooked in saturated fats and full of preservatives. Many restaurants include a healthy eating menu but most consumers would choose a greasy burger over a welted salad any day. Chipotle with its fresh and organic foods offers so much more than just a salad or smaller burger. Chipotle offer Mexican style food, for a fresh taste and a great price.
Solution
Americans and Germans alike are becoming or have become more health conscience. Chipotle’s menu gives a variety of choices for that health conscience consumer or not so health conscience consumer. Chipotle allows the consumer to enjoy a fast food meal without the guilty pleasure of eating unhealthy foods. Chipotle offer a large selection of foods that are healthy, organic and good tasting.
Opportunity
1. Mission
The six following guiding principles will help us measure the appropriateness of our decisions.
-Provide a great work environment and treat employees with dignity and respect.
-Embrace diversity as an essential component in the way that we do business.
-Apply the highest standards of excellence to the food production, preparation, and service to our customers.
-Build lasting relationships with the customers.
-Contribute positively to communities and our environment.
2. Concepts
-The food is simple, fresh, and prepared daily. Burritos, quesadillas, tacos, and salads make up the majority of the menu, and a large variety of salsas and sides.
-To complete our concept, Chipotle strives to meet our customers’ desire for a quality meal, good service, and a unique customer’s experience.
-The Chipotle provides full service, with takeout for approximately 2-5% of food sales.
3. Concepts Benefits
•Food costs are low. Profit margins on Mexican food are good. Other than pizza and Italian food, Mexican food have some of the lowest food costs used chicken, beef, vegetables, rice, beans, and tortillas.
-Labor costs are low. Due to the fact, we do not need highly skilled and highly paid kitchen staff to prepare this type of food. The food is quick, simple, and all organic.
-This type of business does not have high startup costs due to the casual theme and suggested size. Equipment needed for this concept is minimal fryer, grill, oven, and double stack steamer.
-Recession proof business. None of the menu items is priced over US$15. It’s hard to find any full service restaurant that will offer that. Each year, more and more people are going out to eat and are price conscious with their choices. With a pricing structure like we have, it makes it affordable for all.
Competitive Advantages
Quality Ingredients: Chipotle only uses fresh, organic ingredients which make them a healthier alternative for consumers looking for food with high quality ingredients.
First of its Kind: Chipotle would be the first major casual Mexican chain restaurant to enter Germany. There are no Taco Bells or other restaurants that serve Mexican dishes to compete with. Chipotle would be able to enter Germany and almost establish a monopoly.
Business Model
Initially one Chipotle location will open. Once a strong customer base has been established, we will begin to open more locations throughout Germany.
-Location will have dining area for customers.
-The average meal will cost the customer about 5-8 Euros per visit, which is about $7-9 USD.
-For the first fiscal year we anticipate generating $50,000 a month in revenue, or about $600,000 annually with hopes of it gradually increasing over time.
-We will employ a staff of about 20 people and rotate shifts weekly.
-The restaurant will open 7 days a week, with daily operating hours of 11 am – 10 pm

Introduction The purpose of this research is to see if Chipotle can enter into the German market. Germany has a population of more than 81 million as of 2011 and the United States population is more than 311 million as of 2011. The population sizes may different by a large number, but Germany and the United States seem to have similar taste in food and entertainment. Germany just like the United States is dealing with the rapid pace of obesity and weight control. Like the Americans, Germans enjoy eating greasy foods that is full of fat and preservatives. Chipotle, a restaurant with a different and healthier way to eat fast food without the extra fat and grease is their ways of helping consumers fight the weight control battle. Chipotle is offering better eating for better living concept. Germany’s westernized attitude and thinking will help Chipotle enter into this country smoothly.
Economic Analysis This section will discuss and compare the countries Germany and United States. It will show the economic analysis which will include exchange rates analysis, Growth Domestic Product (GDP), and Gross National Income (GNI). The currency for Germany is the euro and for USA is the US dollar. Appendix A shows how the euro weakened compared to the US dollar, from the period of January 1, 2012 through April 30, 2013. In July 2012 the US dollar had weaken and the euro was strong but overall the US dollar has strengthen to the euro. Imports would be cheater and exports would be more expensive. When looking at foreign direct investment it would be cheaper to invest in Germany. Germany as well as the US is part of the NAFTA which means these two countries have agreement on a trade agree that allows easy flow of imports and exports. Germany’s exports to America amounted to $100.4 billion or 4.4% of overall US imports. The German economy is the fifth largest economy in the world in PPP terms which estimated at $3.123 trillion ranking them six in world comparison. Europe's largest is a leading exporter of machinery, vehicles, chemicals, and household equipment and benefits from a highly skilled labor force. Germany’s GDP per capita is $39,100 as of 2012. The annual inflation rate of 2012 is 2%. The labor force by occupation is agriculture: 1.6%, industry: 24.6% and services: 73.8% (2011). The unemployment rate for Germany is 6.5%, this is a drop from 7.1% estimated in 2011 (GDP). The US has the largest and most technologically powerful economy in the world. The United State PPP is $15.66 trillion which ranks the United States number one when compare to the rest of the world. The United States is the leading exporter in machines (engines), electronic equipment, oil, vehicles, aircrafts (space crafts), medical (technical equipment), gems (precious metals, coins), plastics, organic chemicals and pharmaceuticals. When looking at the GDP per capita for the United States $49,800. The average inflation rate for the United States for 2012 is 2.1%. The labor force by occupation is farming, forestry, and fishing: 0.7%, manufacturing, extraction, transportation, and crafts: 20.3%, managerial, professional, and technical: 37.3%, sales and office: 24.2%, other services: 17.6%. The unemployment rate for 2012 is 8.2%, which a drop from 9% in 2011.Comparing these two countries show that both countries move in almost the same direction when it comes to inflation and unemployment. Exchange rates for Germany and the United States are .76 euro = $1. Germany’s current balance of payments for a current account is surplus and a financial account is surplus. The United States current account and financial are both deficit (GDP). The corruption index Germany ranked 13th with a score of 79 and the United States ranked 19th with a score of 73, as you can see both countries have some type of corruption going on when it comes to paying off government officials to get what they want (Corruption Index).
Cultural Analysis Taking a look at the cultural and Hofstede’s cultural dimensions of Germany and United States, Germany’s ethnic make is German 91.5%, Turkish 2.4%, other 6.1% (made up largely of Greek, Italian, Polish, Russian, Serbo-Croatian, Spanish and the United States is white 81.7%, black 12.9%, Asian 4.2%, Amerindian and Alaska native 1%, native Hawaiian and other Pacific islander 0.2% (2003 est.). The official language of Germany is German with over 95% of the population speaking German. The United States does not have an official but English is spoken by about 82% of the population. Here one can see the similarities between Germany and the United States such as conducting business would start off with a firm handshake. Punctuality is a must with both countries. Agendas for both countries should follow strict guidelines to include starting and ending times. Germans as with the United States there does not have to be a relationship to conduct business.
Germans and the United States differ when it comes to addressing business personal, Germany addresses with titles and last names while the United States uses first names or a nickname if they have one. In Germany business attire is formal and conservative with men in dark colored suits and the women are dressed in business suits or a conservative dress. Both the men and women in Germany wear little or no jewelry or accessories. In the United States business people in the East are little Germans, they dress more formal while in the West they tend to dress casually. But in the United States for the initial meeting they dress conservatively, men in suits and women in suits, dresses or pantsuits. Germans meetings are formal while the United States are a little relaxed but are taken quite seriously. For Germans initial meetings are used to get to know each other but in the United States there is very little talk is done prior to the meeting. Hofstede’s cultural dimensions is seen an important part of any businesses deciding to go overseas. Power distance is defined as the extent to which the less powerful members of institutions and organizations within a country expect and accept that power is distributed unequally. Germany scored a 35 and United States scored 40. Dealing with power distant dimensions Germans frown upon business personnel stepping out of line such a subordinate talking to his superiors without going through his immediate supervisor. Germans scored a 67 and Americans scored 91 when it comes to individualism. Both Germans and Americans are all about the me or I society with Americans being even more dominate than Germans. Masculinity for both Germany and the United States scored 66 and 62 respectively, meaning both countries are about being the best in the business. Uncertainty avoidance when is comes to Germany, score 65 gives an indication that Germans try to control their future where as Americans scoring 46, tend to just let things happens. Germans, 31 as well as Americans 29, are short term oriented indicating that both countries exhibit great respect for traditions, a relatively small propensity to save and have strong feelings with trying to “keep up with the Joneses” (Hofstede).
Political Analysis What are the political risks in Germany? Are there political risks in Germany? These are some of the questions that Chipotle must ask itself before moving forward to invest in Germany. According to the AMB Country Risk Report dated October 26, 2012, the political, economic and financial system is low closer to very low in Germany. What does this mean for Chipotle is that can move towards getting established in Germany with little or no resistance from German officials. Talking about foreign direct investment into Germany, Germany has an open and welcoming attitude. With that being said, what is Germany’s attitude towards the United States is steadily growing. Germany’s attitude towards the United States had fallen before and during the Iraq war has but things are changing and Germans are really more comfortable with the United States again.
Company Analysis Chipotle Mexican Grill was founded by Steve Ells in 1993 and based in Denver, Colorado. The name Chipotle derives from the Mexican Spanish name for a smoked, dried jalapeño chili pepper. Chipotle Mexican Grill, Inc. is one of the leading fast-casual Mexican restaurant chains, with more than 1400 locations in 43 states, Washington, D.C., 2 Canadian provinces, England, and France. Known for its fresh, gourmet, and organic ingredients, Chipotle offers a simple menu of burritos, fajitas, and tacos with the options of pork, shredded beef, chicken, steak, and vegetarian fillings. McDonald's first invested in the company in 1998, before taking majority control the following year, and it now holds a 90 percent stake. The majority of Chipotle restaurants are company-owned. Annual revenues per unit are an estimated $1.2 million. Chipotle had a net income in 2012 of US$278 million and a staff of 37,310 employees. “In a list of fastest-growing companies in 2009, Chipotle was ranked eighth, based on increases in U.S. sales over the past year. As of April 2010, 976 restaurants have since opened throughout the United States and Canada” (Daszkowski). There is currently not a restaurant like Chipotle in Germany, so for a mode of entry would have to be the Greenfield investment. The International Strategy is basically coping what the United States have produced and take it into another country with only slight customization for that country. International strategy is the best fit for Chipotle since they want to maintain all core competencies at their headquarters. Chipotle would start out on a small-scale with one restaurant in Berlin and continue to expand if there is a profit being shown. Thinking of customization, sauerkraut and beer would be a few things that Chipotle would have to customize to satisfy Germany’s taste buds. The 4 P’s of the market mix will have to play a very important role in how Chipotle will enter into Germany. Starting with product as stated earlier, the menu would be the same because of the taste preferences between Germany and the United States. One of the products that may have to be added is beer and possibly sauerkraut because Germans seem to love the beer and sauerkraut, plus sauerkraut has vitamin C, all sorts of healthy bacteria and cancer-fighting chemical, which is keeping with Chipotle’s healthy eating plan. Pricing would be slightly lower because the euro is weak compare to the US dollar. Once the right place would be Berlin, Germany due to it being the capital of Germany and it is Germany’s tourist spot. As for promotion, Chipotle would use advertisements through billboards, internet and commercials. Germans are not fans of coupons and freebies, so promotion through coupons would not be beneficial to Chipotle.
Conclusion
Chipotle Mexican Grill restaurant would be the right fit for Germans to help combat the weight control battle. Chipotle will

Works Cited

Antwelier, Werner, Prof. “Pacific Exchange Rate Serivce”. http://pacific.commerce.ubc.ca/xr/plot.html>. Web. 1 May 2013.

Daszkowski, Don.“History of Chipotle Mexican Grill”. <http://franchises.about.com/b/2010/06/28/history-of-chipotle-mexican-grill.htm> . Web. 26 Apr 2013.

English, Cynthia, and Nicolas Scharioth. "Half of Germans Are Obese and Overweight." Gallup.Com., Oct. 2011. Web. 1 May 2013.

Schmitz, Gregor Peter. “Mended Fences: New Study Shows Americas attitudes Towards Germany Improving”. http://www.spiegel.de/international/germany/mended-fences-new-study-shows-american- attitudes-towards-germany-improving-a-681248.html. Web. 6 May 2013.

“Corruption Index”. http://cpi.transparency.org/cpi2012/>. n.p. Web. 3 May 2013.

“Cultural Dimensions”. http://geert-hofstede.com/html. n.p.Web. 26 Apr 2013.

“GDP Per Capita”. http://www.worldsrichestcountries.com/>. n.p. Web. 3 May 2013.

“Global Etiquette”.<http://www.kwintessential.co.uk/.> n.p. Web. 26 Apr 2013.

“Investment Guide to Germany”.< http://www.gtai.de/GTAI/Navigation/EN/Invest/investment-guide.htmll>. n.p. Web. 6 May 2013.

“Reference for Business”. < http://www.referenceforbusiness.com/history2/88/Chipotle-Mexican-Grill-Inc.html#ixzz2NFh5KpOY>. n.p. Web. 26 Apr 2013

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Appendix A

Appendix B

Germany | United States | GDP per capita in Nominal $43,741 and by sector : agriculture:0.8%, industry 28.6%, services 70.6% (2011)Labor force 43.62 million (2011 EST.)Labor force by occupation: agricultural (2.4%), industry (29.7%), services (67.8%) (2005)Unemployment 5.4% (September 2012)Average gross salary $5692 monthly (2006)Average net salary $2754/monthly (2006) | GDP - per capita (PPP): $49,800 (2012 est.)
$49,100 (2011 est.) note: data are in 2012 US dollarsLabor force: 154.9 million Labor force - by occupation: farming, forestry, and fishing: 0.7% manufacturing, extraction, transportation, and crafts: 20.3% managerial, professional, and technical: 37.3% sales and office: 24.2% other services: 17.6% Unemployment rate: 8.2% (2012 est.) |

Appendix C

Chart - CPI inflation United States 2012 (yearly basis) |

The average inflation of United States in 2012: 2.07 % |

Appendix D

Appendix E