McDonalds, Starbucks and Now is Time for Chipotle's Growth Strategy

Chipotle Mexican Grill provides a great example of growth through product development and word of mouth marketing.

I’ve stressed before my faith in Peter Drucker’s dictum that growth is accomplished through marketing and innovation and also that I believe that marketing is about balancing efforts between:

• Advertisement - mass, direct, non-traditional
• Customer Experience - service, stores, fulfillment, customer support, returns, warranty policies, call centers, etc.
• Product Development - product quality, dayparts covered, pricing, promotion, etc.

This led me to post at some length about Starbucks and McDonalds; the former providing an example of how marketing that focuses on "customer experience" can fuel growth, whereas the latter gives an example of how advertisement has fueled growth. The comparison has been convenient and relevant because these are two QSR’s that have also pursued a growth strategy based on dayparts expansion (although Starbucks has now taken to leak memos from Howard Schultz that lets us believe that the strategy will change and that growth will have to come from... a focus on customer experience)

But Business Week just called my attention to a great QSR that has been growing madly just by focusing on... food!!! Almost sounds like a novel concept! These folks seem to excel at what they are supposed to.

Unlike McDonalds (previous parent company of Chipotle) it’s food actually looks, smells and tastes fresh, and unlike Starbucks, it is fairly priced. The restaurants are comfortable albeit on the bare bones side of the concept and the service is fast. It’s great success has been the food it serves, to a point that most customers recommend it to their friends and family; in fact, as afar as advertisement goes, Chipotle spends in a year what McDonalds spends in 48 hours, and no matter McD’s meteoric stock price increase, Chipotle’s has trebled since its IPO last year and same store sales have increased nearly 14% last year.

Some observations:

• It pays to focus on the product that customers expect us to deliver - this works well for Chipotle and for McDonalds, the latter is a mature brand that has to focus a bit more on "innovation", Chipotle has great food that - at worst, will live one indifferent; Starbucks has decent coffee and some 'experience' that may appeal to some (is their focus the coffee or the experience???)
• Limited menus may be a viable strategy - McDonalds has menu that may paralyze some folks: the complexity is managed but evident, Starbucks has a needlessly complicated, factorial combination of options that lead to each drink, Chipotle bests them all with a menu that is a paragon of simplicity; as a result, although the restaurants are always full at lunchtime, the fulfillment process is fast and accurate.
• Niches may be dead ends - as far as QSRs are concerned, too narrow a niche may be a dead end: McDonalds equals quick lunch that can be translated in to breakfast, or evening, Chipotle is great, spicy lunch fare that can be translated into breakfast or dinner, Starbucks on the other hand equals 'coffee' and the association may be too strong for a dayparts strategy to work.

Comments

[Jim Novo]

I remember thinking the first time I went to a Chipotle Mexican Grill that they needed a usability check. It was very difficult to figure out what they were offering, what I was supposed to do to get it, and so forth. Older folks in particular are really confused by a restaurant format that is not McDonald's or sit down; they simply don't know "where or how to start". Some instructional / directional signage would have helped a lot; but instead what they got was customers piling up standing around trying to figure out what to do next!

[Adelino de Almeida]

Great point. And yes, I remember a similar experience my first time. They have some great "signage" printed on their cups, maybe they could use that approach to streamline their order taking.

[johnmoore (from Brand Autopsy)]

What I've found to be special with Chipotle is that customers in line will help out newbies who seem lost. Their mass customization system might seem confusing upon intial glance but after a single visit, most customers get "it."

Lots of folks used to find the ordering process at Starbucks confusing but after awhile, they got the hang of it. Chipotle is easier to understand. Buritto. Black Beans. Chicken. Tomatillo Verde. A little lettuce. That's my order. Pretty simple.

Adelino ... you really think Chipotle is fairly priced? I see LOTS OF MARGIN in their burittos. What costs me $5.65 probably costs Chipotle 75-cents to a dollar to make. Ain't nothing wrong with healthy mark-up!

Good stuff Adelino.

[Adelino de Almeida]

Indeed, their navigation is not the best, and since they don't follow a recognizable menu format, the menu and the ordering process may seem foreign at first. You got a good point too: it's all a matter of habit and much like ordering from Starbucks, a habitual customer will have the process pat down in no time.
Yes I think it is fairly priced, "fairness" has less to do with margins than with what is comparable in the market (not what the market can bear), in this aspect, Chipotle's meals compare quite favorably with a TGIF or a Chilis or even you corner Chinese take out. They will be more expensive than Taco Bell or the other low end QSRs but, again, that would not be a fitting comparison since the products do not have the same quality. What irks some folks regarding Starbucks prices is that a comparable coffee costs significantly less anywhere else, that is, a product of the same quality is more favorably priced elsewhere.

[sohrab arshad]

good morning,

i am student at university of sunderland in uk and studying MBA can i request for some of information regarding strategies, like

product development strategies

segmentation strategies

communication strategies

I will be greatful to you