Chipotle in Spain

Chipotle in Spain Philipp Ebner von Eschenbach Ana Mirandés Isabella Parrotta Michelle Posch Anthony Sadler American University IBUS 300-007 Dr. Sarah Mady Chipotle in Spain Page 2 Table of Contents Executive Summary 3 Introduction 3 Internal Strengths and Weaknesses 3 Company Overview: Chipotle Mexican Grill 3 Customers 4 Spain External Opportunities and Threats 5 Cultural Analysis 5 Industry analysis 6 Mode of Market Entry 7 Location 7 Staffing 7 Primary Data : Interview & Survey 8 Supply Chain 8 Timeline 9 Conclusion 9 Chipotle in Spain Page 3 Executive Summary We recommend Chipotle’s expansion into Spain, through a wholly owned greenfield investment. Spain is stable both politically and culturally and has been increasing its ease of doing business to encourage enterprise. Madrid is an ideal location for Chipotle’s operations. The city is seeing substantial economic growth along with a thriving quick service industry. We recommend a polycentric staffing approach to take advantage of local networks and achieve more successful integration. Our Spanish venture should utilize both local suppliers and imports from the United States to establish a lean supply chain. Chipotle in Spain will hold true to the company’s overall brand message with approximately 20% of the menu catering to local tastes. Introduction Expansion into Spain, through a wholly owned greenfield investment. Spain is stable both politically and culturally and has been increasing its ease of doing business to encourage enterprise. Madrid is an ideal location for Chipotle’s operations. The city is seeing substantial economic growth along with a thriving quick service industry. We recommend a polycentric staffing approach to take advantage of local networks and achieve more successful integration. Our Spanish venture should utilize both local suppliers and imports from the United States to establish a lean supply chain. Chipotle in Spain will hold true to the Internal Strengths and Weaknesses Company Overview: Chipotle Mexican Grill Chipotle is a Mexican style fast casual American restaurant that opened its doors to the public in 1993. All of its restaurants are corporately owned rather than franchised, which allows the company to have more control of its brand (Chipotle Mexican Grill, n.d.). Currently, Chipotle has over 2,400 locations with 29 of these being international in Canada, France, Germany and the United Kingdom (Statista, 2017; eMarketer, 2017). In August 2015, an E-Coli epidemic began in in California, Minnesota and near Boston College. According to Public Health officials, almost 500 people in the United States became sick from Chipotle Chipotle in Spain Page 4 food in July of that year (Strom, 2016). Chipotle was very responsive to the situation, deciding to implement additional safety procedures and audits in all of its 2,000 restaurants to ensure that robust food safety standards were in place (Strom, 2016). Chipotle heavily struggled in the aftermath of this crisis due to the company’s inability to win back customer trust. Specifically, a 13% decline in yearly sales, from $4.5 billion in 2015 to $3.9 billion in 2016 (macrotrends, 2018). This decline is clearer in 2016’s quarterly revenue where there is an evident collapse in the last quarter of 2015, when the outbreak began, fluctuating until the first quarter of 2018, where quarterly revenue began to increase to the point where it reached $1.26 billion, surpassing the highest quarterly revenue before the crisis which was $1.16 billion (macrotrends, 2018). Chipotle’s commitment to serving only ethically and naturally sourced ingredients has led to successful marketing initiatives such as the “Food for Integrity” motto which has become integral to company culture. However, this initiative has some costs such as higher ingredient price points and a dependence on a small number of farmers (Business News, 2018). Customers Spain is a logical choice for Chipotle’s next venture because of the increasing number of tourists, who are a key target demographic. Spain hosted 81.79 million tourists in 2017, a statistic that is second only to France (Statista, 2018a). Tourism in Madrid has been steadily rising over the past four years (Statista, 2018b). Moreover, it is important to consider that of the millions of tourists coming to Spain, high concentrations of the visitors are from Germany, France, and the US, all countries with Chipotle (Statista, 2018c). Statistics also show that interest in tourism to Spain is not ceasing, with a 2018 study projecting that the total contribution of travel and tourism to GDP in Spain will be 224.3 billion in 2028 from 172.9 billion in 2017 (Statista, 2018d). Another target demographic will be students in Madrid looking for affordable fast-casual fare with an American twist (see page 8 for primary data). Chipotle in Spain Page 5 Spain External Opportunities and Threats Cultural Analysis Located in western Europe, Spain has a population of around 46.6 million, 80% of whom reside in urban areas (Europa World, 2018a; 2018c; World Bank, 2018a). In 1978 Spain ended fascism and established a constitutional parliamentary monarchy, later becoming a member of the EU (Gillespie, 2018). Spain is comprised of 17 autonomous regional communities and domestic politics has been governed by the peaceful transition of power (Europa World, 2018b). Regionalism is a reality in Spain, the Catalonian government voting to secede from Spain in 2017 (Europa World, 2018b). Although Spanish is the official language, regional co-official languages are common (Europa World, 2018d). Spain’s Hofstede dimensions have been influenced by its tumultuous past, as evident in figures 1 and 2. Economic Analysis Spain has a mixed capitalist economy that is currently recovering from the 2008-2013 financial crisis (Spain Introduction, 2017). The country’s population is expected to increase at an annual rate of 0.3%. (Europa World, 2018). Spain is considered a high-income country, with 41.8% of the population earning in the top 20% of income (World Bank, 2018b). The employment market has improved in recent year, with current unemployment rates at 15.2% (Razvadauskas, 2016). Spain holds the 29th highest GDP per capita at $27,580, or about $36,340 on an international purchasing power parity basis (World Bank, 2018b). In order to revive its economy and encourage enterprise, Spain has lowered corporate income taxes from 30% in 2014 to 25% in 2018 and enacted a Labor Market Reform in 2012 (Iberian, 2104). These efforts have resulted in Spain moving up in the World Bank’s “ease of doing business” rankings. In 2014, Spain was ranked 33 and today has achieved the 28th spot (World Bank, 2016). It takes approximately 12.5 days to start a business in Spain, which is less than the world average of 19.8 days (Doing Business, 2018) (Figures 3 and 4). This has resulted in an increase in FDI with FDI net inflows of $4,307 million, (BEA, 2017). As part of the Eurozone, Spain has been exposed to slow eurozone growth and other factors have caused the Euro to lose value over the years. (Skinner, 2018). In 2012, Spain joined Chipotle in Spain Page 6 in a 7-year plan to grow the science, technology and innovation sectors. As we enter the latter stage of their efforts, developments in these sectors appear to be materializing (What is H2020?, 2018). Industry analysis It is important to note that Chipotle falls into the recently emerged “casual dining” industry. Due to the lack of available data for this industry, the fast food industry will be compared instead. With approximately $4.2bn in industry revenue in 2017, Spanish fast-food operators were able to grow sales by 4%. This rate is projected to hold until 2022 (Euromonitor, 2018). The consistent high growth in Chicken Fast Food revenue over the past three years, highlighted in Figure 1, is noteworthy. When comparing these growth figures with aforementioned economic indicators, it becomes evident that revenue growth in fast food largely mirrors changes in the overall health of the economy. As Figure 2 illustrates, the fast food market size has grown at fluctuating rates over the past years as well, mirroring sales fluctuations (Mintel, 2018). Within the industry, operators face a highly competitive environment, competing both in quality and prices. The top two players are McDonald’s (27.9%) and Burger King (17.2%), nearly 35% of operators are small-businesses (Euromonitor, 2018). Throughout the past 5 years, particularly Burger King was able to grow market share while small-businesses have continuously lost share (Euromonitor, 2018). This trend highlights a favorable industry environment for larger fast food corporations. Chipotle’s main competitor in Spain operating in the same market niche is Tierra Burrito Bar. The company currently has eight locations within the greater Madrid area (Tierra Burritos, 2018) and an estimated yearly revenue of $2.8 million (Owler, 2018). While Tierra Burrito has been successful with a menu so far, some international customers have complained about poor flavor, too little seasoning, and subpar meat quality (TripAvidsor, 2018). Headwinds mainly stem from regulatory pressure that has increased significantly over the past 5 years. In 2015, the Spanish government implemented new food quality protection laws that established food quality control systems and sanctioning regimes that fast food restaurants must adhere. The legislation highlights increased public scrutiny on fast food and has increased cost pressures for operators, denting profits (Kapelko, 2015). Chipotle in Spain Page 7 Strategy Mode of Market Entry To enter the Spanish market, we propose a wholly owned greenfield investment. This in line with Chipotle’s previous market expansions into Europe (Chipotle, n.d.) and will allow the firm to control operations and marketing. Owning the Madrid location will allow management to adapt the Spanish business model quicker and directly control its supply chain.

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