Chinese consumers’ dining preferences are changing. The maturation of the food industry in the past few years has brought about numerous conveniences, relieving consumers of the culinary yoke and lowering the burden of standardized meal preparation for catering enterprises. However, as an ever-growing number of consumers lean toward matters of food hygiene and healthiness, many chain restaurants have fallen under public censure for serving dishes with excessive seasoning, and the stigmatized “over-processing of food with additives and technology” has stained their repute.

GenBridge team believes that the development of chain dining brands does not imply that companies must compromise on health and freshness. On the contrary, restaurant businesses should leverage innovative business models to offer provide consumers with high-quality food combinations. In previous case studies in the dining industry, the Japanese Italian restaurant Saizeriya provided affordably priced and farm-fresh vegetable salads through direct-operated farms and cold chain transportation. Currently, as Chinese consumers’ demands for quality continue to rise, the ability of dining brands to supply high-quality foods and other premium dishes becomes increasingly urgent.

In this piece of “Consumer Champions Mastering Cycles,” we conducted an in-depth study of Chipotle Mexican Grill, an American Mexican restaurant. Our motivation stems from two factors:

Firstly, Chipotle has successfully balanced “taste-efficiency-customization-value,” achieving a comprehensive business model development. The company utilizes an organic food supply chain to provide consumers with the health values lacking in traditional fast food.

Secondly, after facing a severe food safety incident in 2016, Chipotle emerged from the crisis through a series of reforms. From this, we can also see that even if a restaurant business chooses the right positioning in its initial development, to achieve long-term growth, the company not only needs to prioritize safeguarding food safety risk control systems but also needs comprehensive development to find growth curves that align with the times.

Different from Saizeriya’s positioning of “ultimate cost-effectiveness,” we hope that by sharing the case of Chipotle, we can introduce new perspectives for the development of restaurant businesses and inspire more creative upgrades.

Under the dining trends led by health-consciousness in Mexican cuisine, Chipotle has solidified its current position through product differentiation and innovative business models. By ingeniously varying its product structure, Chipotle achieves simplicity and richness, offering consumers the joy of customization. At Chipotle, consumers can enjoy nearly 100 customizable combinations, choosing from 5 main items, 5 protein options, 4 grains/legumes, and over 10 sauces to create their preferred meal. This wide range of combinations ensures Chipotle’s broad audience and guarantees repeat visits. However, behind this customization, Chipotle’s ingredients are streamlined to just 53 varieties. In comparison, McDonald’s has 60-70 SKUs, with the Big Mac alone utilizing close to 70 ingredients.

Focusing sufficiently on ingredients allows Chipotle to deeply manage the quality of each ingredient, providing healthier and fresher ingredients. Chipotle’s “Food With Integrity” principle guides its procurement practices, insisting on sustainable and organic cultivation/raising of animals, land, and crops. The majority of its ingredients are sourced directly from farms, avoiding freezing during transportation and eschewing the use of artificial synthetic seasonings during processing.

Chipotle founder Steve Ells’ philosophy influenced the company’s procurement choices. In 1998, Chipotle received investment from McDonald’s, which was then expanding its multi-brand strategy. In order to leverage resources in the supply chain, Steve Ells visited McDonald’s suppliers’ animal farms. However, the appalling conditions of the farms deeply moved him, raising doubts about the sustainability of such supply chains characterized by industrialized farming and ecological destruction.

In 2001, Chipotle released the “Food With Integrity” mission statement, committing to increasing the use of naturally raised meats, organic produce, and hormone-free dairy products. That same year, Chipotle first attempted using pasture-raised organic pork, doubling the cost of pork and increasing the price of a single item by $1 (+16%). However, this move led to accelerated growth in same-store revenue. Steve Ells mentioned in an interview that despite McDonald’s investment in Chipotle, Chipotle maintains its independent values.

Today, Chipotle continues to upgrade its organic supply chain, adhering to direct farm sourcing, making health, freshness, and organic awareness crucial barriers for Chipotle. Most of the chicken, beef, and most grains used by the brand have already adopted an organic and direct farm sourcing model. In the upstream process, Chipotle goes even further, helping family farms transition to industrialized organic farms, securing high-quality ingredient suppliers, and achieving cost leadership. In 2015, Chipotle became the first national chain restaurant in the United States to completely eliminate genetically modified organisms (GMOs) from its supply chain.

The high difficulty of the supply chain and operational demands behind fresh food ingredients raises the barriers to entry for competitors. These barriers have allowed Chipotle to outshine others in the casual dining category. However, these advantages were not built in a day, and Chipotle has also paid a painful price for them.

From 2006 to 2016, Chipotle achieved sustained high-quality growth and stable positive cash flow. However, the food safety crisis that erupted in 2016 posed severe challenges to the company—its same-store revenue plummeted by 25%, and its stock price dropped from a peak of $759 to $400. This crisis also became an opportunity for Chipotle to transition its brand into a full-channel model, upgrading its management system.

From 2015 to 2016, Chipotle experienced multiple significant food safety issues in its stores across various states in the United States, each with different causes. For example, in August 2015, a norovirus outbreak was confirmed in Simi Valley, California, affecting 80 customers and 18 employees. Chipotle failed to intervene promptly after discovering that the kitchen manager was ill, instead allowing employees to continue working for two days before sending them home. In the same year, in August and October, stores in Minnesota, Washington, and Oregon experienced food safety issues due to E. coli and Salmonella contamination, attributed to improper food supply chain management and store operations.

Following a series of food safety issues, Chipotle realized that bacteria and viruses were primarily spread due to the use of fresh produce and meats in its stores. For example, the use of organic fresh fruits and meats, especially the use of manure in organic farming, increases the food safety risks of spreading bacteria such as E. coli. Chipotle’s heavy reliance on staff service also exacerbated the situation. These characteristics exposed Chipotle to a higher risk of foodborne disease outbreaks compared to some competitors.

Due to the diverse types of pathogens involved in different events (Salmonella, E. coli, and norovirus), Chipotle faced a systemic issue. However, Chipotle’s management and supervision of ingredients were very loose. Before the food safety crisis erupted, only four people were responsible for product quality control. Considering the scale of its operations and the complexity of store services, the proportion of risk control personnel was significantly inadequate. The company initially outsourced its 53 ingredients to 15 external suppliers, relying solely on contract terms to control quality inspections. Consequently, even two months after the crisis erupted, the company was still unable to trace contaminated ingredients.

Restaurant management is an art of balancing “taste-efficiency-experience,” and companies find it difficult to achieve longevity through a single strength. Therefore, selecting the battlefield of “high value/low competition” through high-scoring model/dish designs and finding key elements that can maximize consumer value and establish long-term competitive barriers are potential paths for brands to achieve sustained compound growth.

Representing Mexican cuisine, Chipotle seems to be a “niche cuisine,” but it is actually a low-competition high-scoring category that balances “freshness and richness (taste)-efficiency of serving/processing-customization (experience).” The company steadfastly creates consumer value around “freshness,” establishing competitive barriers through organic supply chains and high-standard store management. Despite setbacks, the company’s mission of “Food With Integrity” has never wavered, enabling it to successfully rebuild trust during the food safety crisis.

We believe that more excellent Chinese restaurant enterprises will build core competitiveness around “upgrading quality, affordable prices, and diverse choices,” while “casual dining” will be the high-scoring positioning for the birth of a new generation of evergreen restaurants. GenBridge also looks forward to exploring the practical path of “Chinese Chipotle” with more excellent entrepreneurial partners in the future.