Chapter 6 Case Study: Case: ChipotleChanging Fortunes Since its humble beginnings in Denver, Colorado, Chipotle has energetically implemented the control process. Whether reviewing sales-to-cost ratios, same-store sales figures to gauge growth, payment initiatives to speed checkout during peak lunch hours, or tracking stock performance, management control is a big part of the firm's culture of performance. The First Burrito In 1993, Steve Ells, trained in classical French cooking, opened his first Chipotle in Denver, Colorado. With a loan of $85,000 from his father and inspiration from the huge number of taquerias in San Francisco's Mission district, Ells took over an old Dolly Madison ice cream store near the University of Denver campus. He calculated his first store needed to sell 107 burritos per day to break even. After 1 month, sales of 1,000 burritos a day far exceeded his wildest dreams. Chipotle was an instant success, and Ells knew he was onto something big. Culture Clash with McDonald's After getting 16 stores up and running in Colorado, Ells brought the McDonald's burger empire on board as a minority owner to help fuel his company's growth toward being a national brand. The strategy was for Chipotle to leverage the buying power and supplier networks enjoyed by the burger empire's economies of scale. During critical growth years, McDonald's invested over $360 million into Chipotle and at one time owned more than 80% of the company. With McDonald's as their partner, Chipotle's store locations skyrocketed. But the two companies eventually parted ways. Ells wanted to grow the firm through internal expansion and without franchise owners. We wanted to own the economic model. You -franchise if you want money and people. We had plenty of money for our growth rate, and we had great people, he said. Chipotle went public in an initial public offering (IPO) to settle the McDonald's breakup. Fast-Casual with a Difference Chipotle is fast-casual, a fusion of a fast-food and fine dining. At some of its most efficient restaurants, Chipotle averages more than 350 transactions during the lunch hour alone, or on average, one transaction about every 11 seconds. Executives pay close attention to its customers getting through the line quickly, which results in higher sales revenues and a higher-quality -customer experience. But discouragingly long lunch and dinner lines still cause problems. We've come a long way, but there is still a long line, and there are people turning away at the end, says a Chipotle operations executive. Sustainable Sourcing Chipotle's vision and mission statement reads: to change the way people think about and eat fast food. A threefold value philosophy, called Food with Integrity, includes finding and sourcing the very best ingredients raised with respect for the animals, the environment and the farmers. As a big enough buyer of pork, Ells knew he could create change, saying: I knew at that moment I did not want my success to be based on this kind of exploitation, so we started buying all naturally raised meat. His initial curiosity about the meat supply was prompted by the fact that he was unimpressed with the quality. By switching sources, he wound up with a product produced by humane animal treatment that tasted better to customers. Despite a price increase, Ells happily reports: We started selling twice as many carnitas as before. Safety Scandal and Financial Woes Chipotle is a company that commits itself to constantly improving performance. But its high stock price and the increasingly competitive nature of the fast-casual food industry raise questions about future growth. More recently, the burrito innovator has been in the news for all the wrong reasonsE. coli outbreaks and tumbling stock prices, executive resignations, and store closings. Starting in October 2015, in a multistate outbreak from Washington to California to Minnesota to Massachusetts, more than 350 people became ill with E. coli virus after eating at Chipotle. The outbreak led to the temporary closing of more than 2,000 store locations, turnover at the CEO level with co-CEO Monty Moran resigning his position, the company's stock price tumbling from a high near $750 per share in August 2015 to $370 dollars per share in December 2016a more than 50% loss in value. Although the U.S. Centers for Disease Control and Prevention (CDC) announced that the E. coli outbreak was officially over in February 2016, the company is experiencing ongoing woes. It was just reported that, in March 2017, Chipotle will shut down all of its ShopHouse Asian Kitchen Restaurants. Although Chipotle only launched the Asian Kitchen concept in 2011, Chipotle's spokesperson Chris Arnold announced, We now have a deal in place to sell the ShopHouse leases and believe that is the right decision at this time. What this turn in Chipotle's fortunes makes clear is that maintaining sustained success in the restaurant business can be a difficult recipe to get right. Case Analysis Questions 1. DISCUSSION How did CEO Steve Ells use the control process to move Chipotle forward with success? Explain your answer using at least three examples based on the case. How can the control process be used to move the company out of its current downturn? (10 Points) 2. PROBLEM SOLVING A balanced scorecard helps top -managers to exercise strategic control. The scorecard includes customer satisfaction and internal process improvement. What do you recommend that Chipotle do to implement the scorecard approach and consistently score high in each -category? (10 Points)