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Case Study #2

Stefan S. Boodoo (119022234) and, Vinicius M. S. Lima (133619239)

School of Hospitality & Tourism, Seneca Polytechnic

GSL275ZGF: Leading Global Business

Prof. Enver Harbans

November 7, 2023
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Table of Contents

1. Executive Summary...........................................................................................................3

2. Identification of the problem..............................................................................................3

3. Situation Analysis..............................................................................................................4

4. Organizational Objectives..................................................................................................5

5. Identification of Alternatives.............................................................................................5

6. Recommendations..............................................................................................................7

7. Implementation Plan..........................................................................................................8
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1. Executive Summary

This case study is based on case ‘Exploring the Business Potential of Chipotle Mexican

Grill’s Expansion in China’ authored by Bel Wang in 2015. Chipotle Mexican Grill is a highly

successful American restaurant chain that specializes in Mexican food. They utilize

sustainably raised meat and agriculture in its business. Chipotle has gained popularity in the

American market and has expanded to most of the U.S. states, as such it is aiming to sustain

its expansion by focusing on European countries and Canada. The presented case study aims

to show that there is significant opportunity for growth in the Chinese market as a fast-

growing developing nation with a large and steady growing middle class. Chipotle has a

reputation for fast, quality, and healthy dining which aligns with Chinese consumers' This case

highlights the strengths and opportunities while taking into consideration the threats and

weaknesses that Chipotle faces in entering the Chinese market. The main issues faced are the

need to define and execute an effective entry strategy that ensures the core principles are

maintained while adapting to the preferences and expectations of the Chinese consumers. Five

alternatives to address the issues are presented with "Gradual Expansion"chosen as the

solution. This strategy will allow Chipotle to enter the Chinese market cautiously and

minimize the risks associated with a large-scale expansion. An implementation plan was done

for this strategy with a short term and long term plan that details how the gradual expansion

solution is to be implemented.

2. Identification of the problem

The Chipotle Mexican Grill's expansion need to primary problem revolves around

defining the viable approach to enter and establish a presence in China. Chipotle faces the

challenge of adapting its proven business model to meet the demands and preferences of the

Chinese consumer base. While the company has experienced success in the United States and
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certain international markets, entering China poses challenges due to cultural differences,

unfamiliarity with the market, and competition from existing local and international fast-food

chains.

Additionally, Chipotle needs to address the uncertainty with the Chinese market, including

regulatory hurdles, potential food safety concerns, and the need to build brand awareness and

local relationships. The company must identify the core obstacles and prioritize them to

formulate an effective market entry strategy.

3. Situation Analysis

Internal Analysis: Chipotle Mexican Grill, Inc. possesses strengths, including a strong name,

a reputation for quality, and an operational model. However, the limited familiarity in China

and the absence of established business models in the region create internal weaknesses,

demanding adaptability.

External Analysis: Chipotle has opportunities in China's growing middle-class market by

offering healthy yet affordable Mexican fast-casual dining options, capitalizing on its

pioneering status and expanding near schools and offices. However, it also faces threats such

as competition and the need for strong differentiation and marketing, the importance of

maintaining stringent food safety to avoid public distrust, and the market's unpredictability

due to the lack of established precedents, requiring agility and constant adaptation to shifting

consumer preferences.

Economic Factors: Chipotle needs to calibrate pricing strategies based on the economic

conditions of specific regions in China. Understanding consumer purchasing power is crucial

for determining pricing structures. Additionally, assessing overall economic growth in China's

restaurant industry offers insights into potential increases in consumer spending and dining

out habits.
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Technological Factors: Embracing digital platforms, online ordering systems, delivery apps,

and active engagement on social media are essential. These technologies can enhance

accessibility and amplify brand visibility in the Chinese market, catering to the preferences of

tech-savvy consumers.

4. Organizational Objectives

Starting with the revenue growth objective, Chipotle aims to achieve a minimum fifteen

percent increase in revenue within the first year of operation in Beijing. At the same time, with

market penetration, the company's goal is to attain an eight percent market penetration rate

among the target demographic, within the first two years of operation. Concomitantly, to

create customer loyalty, Chipotle plans to establish a loyalty program with a target enrollment

of thirty thousand members within the first year and maintain a retention rate of seventy

percent over subsequent years. Withal, the organization seeks to increase brand awareness

among the target audience by twenty-five percent within the initial year, as measured by

independent market surveys and social media engagement metrics.

These objectives are crafted to guide the company's expansion strategy, ensuring efforts and

outcomes, steering Chipotle towards sustainable growth and success in this new international

endeavor.

5. Identification of Alternatives

Advantages: Disadvantages:

Alternative 1 Greater Visibility: Significant media High Risk: Not allow enough time to

Aggressive attention therefore attracting understand local preferences and

Expansion customers. cultures.

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Economies of Scale: Potential cost Resource-Intensive: High demand of

savings through bulk purchasing and capital, personnel, and supply chain

streamlined management.

Alternative 2 - Market Learning: Allows time to Slower Growth: Potential for

Gradual adapt strategies to local preferences. competitors to gain a foothold more

Expansion Resource Management: Resource- quickly.

efficient, as it doesn't require Limited Initial Reach: Limited initial

extensive resources. market reach and awareness.

Alternative 3 - Concentrated Efforts: Allows for Limited Market Reach: Excludes

Focus on Key concentrated marketing and potential opportunities in smaller

Cities management efforts. cities.

Better Market Understanding: Easier Possible Overhead Costs: Labour

to manage resources of a smaller and real estate can be more

area. expensive in a main city.

Alternative 4 - Market Integration: Aligning with Brand Identity Dilution: Ensure that

Menu local dining preferences can menu adaptations do not dilute the

Localization encourage customers. brand identity.

Customer Satisfaction: Satisfied Complex Supply Chain: Sourcing

customers will return and specialized ingredients can be

recommend others. complex.

Alternative 5 - Local Expertise: Joint ventures Complex Negotiations: Can be time-

Local provides access to local market consuming and may involve cultural

Businesses knowledge. and language barriers.

Partnerships Shared Risks: Reduced risk and Loss of Control: Cannot make

reduced burden of market entry. autonomous decisions for the benefit

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of the business.

6. Recommendations

The “Gradual Expansion" strategy is the chosen alternative for Chipotle. It involves opening

two to five company-owned restaurants in Beijing as the initial phase of entering the Chinese

market, following key factors.

The gradual expansion allows Chipotle to enter the Chinese market can minimize the risks

associated with a large-scale expansion. It provides an opportunity to thoroughly assess the

local market dynamics, customer preferences, and challenges to China.

Secondly, the market understanding is a main factor to operate a small number of restaurants

initially enables Chipotle to gain an understanding of the local market. This knowledge will be

useful for adapt the business operations to the Chinese market.

After that, the adaptation and learning brought from a gradual expansion allows Chipotle to

adapt its business model based on the insights gained from the initial restaurants. The

company can refine its menu, pricing strategies, and operational processes to resonate with

Chinese consumers.

This strategy aligns with the company's mission to provide "Food with Integrity" while

ensuring that it meets its organizational objectives. It is expected to provide a strong financial

performance while mitigating risks and accounting for the unique internal and external factors

associated with operating in China. This recommendation builds upon the strengths of

Chipotle, ensuring a sustainable and profitable entry into the Chinese market.

7. Implementation Plan

Short-Term (Year 1):

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 Months 1-2: Location Selection - Considering factors like foot traffic, demographics,

and proximity to target customer groups to identify suitable locations.

 Months 3-4: Supplier Relationships - Establish relationships with local suppliers to

ensure a consistent supply of sustainable and high-quality ingredients.

 Months 5-8: Marketing – Develop and launch marketing campaigns to build brand

awareness among Chinese consumers.

 Months 9-12: Performance Monitoring- Review the restaurant performance and gather

customer feedback. Adapt strategies based on the data collected.

Long-Term (Years 2-5):

 Year 2: Gradual Expansion- Conduct market research on the feasibility of expanding

to other Chinese cities, focusing on areas of the target demographic.

 Year 3-5: Franchising Consideration – Determine if acceleration through franchising

can accelerate the expansion while maintaining quality and customer satisfaction.

Continue to monitor the emerging market trends, competition, and evolving consumer

preferences, and adjust strategies accordingly.

Critical Players in Implementation:

 Local Managers: Local managers oversee the daily operations, staff management, and

customer satisfaction, ensuring Chipotle's brand standards and values are upheld.

 Suppliers: Strong relationships with local suppliers is essential for providing

sustainable and high-quality ingredients that align with Chipotle's "Food with

Integrity" mission.

 Market Research Team: A dedicated team should be responsible for market research

and adaptation and decision making.

Contingency Plans: Contingency plans need to address potential challenges such as:
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 Regulatory hurdles: Develop strategies for operating the business and complying to

any regulatory requirements in China.

 Economic fluctuations: Ensure that there are financial reserves to ensure the economic

safety of the company in the case of economic downturns or unexpected market shifts.

 Cultural and language barriers: Ensure that the staff is trained in cultural sensitivity to

overcome language and cultural barriers.