Chipotle opened its first restaurant in 1993. Since then, it has risen within the restaurant industry proving that food served fast does not have to be “fast-food”. The company created a competitive advantage among its competitors that it has sustained for the past two decades.
Rivalry among other firms is medium for Chipotle. The company’s main competitors are Qdoba and Moe’s Southwest Grill. Qdoba is almost a complete replica of Chipotle. It was started in the same city, Denver, Colorado, two years after Chipotle. The rivalry among firms is medium because Chipotle does not have many competitors. Many other restaurants utilize a similar serving style or also serve Mexican food, but few do both. However, Qdoba raises the rivalry level for Chipotle. The two firms compete intensely compete for market share. It is not uncommon to see the two competing restaurants located close to one another.
Qdoba is also the best substitute for Chipotle’s food. If Chipotle raises their prices too high, customers can easily get a very similar product from this competitor. Other potential substitutes include any other restaurants, take-out, and even cooking at home. The restaurant industry is saturated with options. Customers can very easily substitute Chipotle’s food for another with no switching costs. This makes the threat of substitutes high. Chipotle must keep their products at a certain quality level and price level to keep customers coming back rather than finding a substitute.
While the threat of new entrants within Mexican fast food dining may be low due to Chipotle and Qdoba already having such a strong foot hold on the market, these are not the only restaurants that Chipotle competes with. The company competes with other fast serving food joints as well such as Piada, Bibibop, Noodles and Co, and Canes. New entrants into the restaurant industry as a whole are a potentially huge threat. The entry barriers can be extremely low for individuals interested in opening a restaurant. When the industry is doing well, it makes it a more desirable industry for new entrants.
The bargaining power of the buyer is relatively low. The menu has set prices and the customers pay that price. If they want to pay a different price, they have to substitute. Many buyers collaborating together might raise their power, such as a boycott. However, this is extremely unlikely and therefore their power remains low. The suppliers have more power than the buyers for Chipotle products. Chipotle uses suppliers that comply with their high standards of quality and responsibility. Chipotle’s expectations are very high of their suppliers. The company also uses many local farms and ranchers. Because these suppliers are generally smaller in size, their power is relatively low because Chipotle is their main buyer and has high power in the relationship. The low power of the supplier was demonstrated recently when Chipotle took carnitas, one of its meat options, off of its menu indefinitely. The company terminated a contract with one of their pork suppliers because they did not meet Chipotle’s standards for animal welfare.
Several factors about Chipotle have created a competitive advantage for the company. The first advantage for the company was their innovative assembly line ordering process. The process allows for mass customization while still funneling customers through at a high speed. It also allows the customer to see their meal being prepared. This keeps mistakes from occurring and minimizes profit losses from incorrect orders. The assembly line process is valuable. It was also rare when the company began. However, because it was not costly to imitate and other fast food restaurants noticed its success, the process was replicated by competitors. Chipotle did gain a lot of market share with this approach initially, giving it a competitive advantage, just not necessarily a sustainable one.
