The Case of Chipotle’s Blue Ocean Burrito

Chipotle’s Current Situation
Chipotle Mexican Grill is a highly successful, midsize restaurant chain in the U.S. that serves large portions of burritos and tacos in minimally decorated shops and markets its ingredients as natural.  According to The Wall Street Journal’s July 25th edition, Chipotle’s sales growth softened through July, while its costs for cheese, avocados and tortillas ate into profits.  On the flip side of this news, Chipotle’s revenues rose 24% to $340.8 million in the second quarter.  Higher ingredient costs will probably be a restaurant industry norm as we move forward due to ever-increasing global demand for food and fuel.

Chipotle’s Blue Ocean – Similar to Curves
Chipotle’s success can be seen through its charting a Blue Ocean strategy of maximizing or raising the consumers’ desire for high quality food while minimizing the additional resources typically spent on service and ambience.  This strategy markedly diverges from the typical restaurant paradigm of reducing ingredient costs and spending resources on service and decorum.  Chipotle’s Blue Ocean also allows buyer groups to “trade up” to higher quality food without the expense of better service or atmosphere.  It is classic Blue Ocean nearly identical to the Curves women’s gym example cited in the book, Blue Ocean Strategy.  Curves avoided many of the big health club frills, opting instead to focus on a specific buyer group in a small facility: they focus on women in a women-only setting with core equipment offerings.  Both Chipotle and Curves have traded fancy resource-laden atmospheres to focus on their core offerings, and they have done so successfully.

Ocean Becoming Less Blue
Due to higher ingredient costs, Chipotle’s Blue Ocean is becoming less blue. While it is not yet red, it is vital that they recharge and head further out to sea. But they must choose the right direction. The wrong strategy could take them into a Red Ocean of fast food restaurants like Taco Bell, KFC, etc., or it could take them into the mid-range class of restaurants such as Chili’s, TGIF, Red Lobster, Olive Garden, etc.  Chipotle must continue to target “niche” customer groups who are willing to trade up food quality for a higher price. This can be achieved in two distinct ways: more strategic location selection and usage occasion strategies.

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Mike Bolden marketing expert and blue ocean strategist – writing to inform, enlighten, and inspire.  Author of forth coming book, “Owning Marketspace”.  Available for consulting and speaking engagements.

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