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Chipotle
Chipotle started as a quick-service Mexican restaurant next to the University of Denver, serving San Francisco style burritos. The founder, Steve Ells, calculated that he needed to sell 107 burritos per day to make a profit. However, within the first month, Chipotle was selling over 1,000 burritos per day. This led to the abandonment of Ells' original fine dining restaurant plan. Chipotle now has over 2,500 locations in the US, Canada, and Western Europe, with an annual revenue of $5.6 billion dollars.
Chipotle's success is based on controlling the product. All of Chipotle's ingredients are locally grown and freshly made every day. There are only 53 ingredients offered by Chipotle, but they allow for quality control. Chipotle automated as much as possible to increase efficiency and added digital ordering and a second assembly line to reduce wait times. Chipotle charges accordingly for their quality, with an average order value of $15, three times that of McDonald's.
Control of product and their thesis was great for Chipotle, but it may have caused their downfall, because their growth was as fragile as a piece of lettuce. Turns out they didn't have control over the execution of that vision. Chipotle reached an all-time high in 2015, with a stock price of over $700 per share. However, six different food-related illness crises within six months caused a rapid decline in the company's reputation. These crises broke the trust in the company's "food with integrity" thesis.
Chipotle's making a comeback though, and thankfully the products are good, they just need to get better at executing at scale. They started with naming a new CEO in March of 2018—Brian Niccol, the former CEO of Taco Bell, who has experience playing the execution game.
Yet, there's more to be done. And while Chipotle isn't far into their comeback—the stock is at an all time high. There are some clever things Chipotle could do to rise to Starbucks' or McDonald's level while still maintaining the "food with integrity" thesis. They involve some pretty big changes though. Keep reading.
Data and analysis
Unlimited memberships and tiers only work if the amount covers LTV and/or buys into superfans
Unlimited memberships and tiers are great concepts that can cover the lifetime value of customers and attract super fans. For physical goods like Chipotle, unlimited plans can be used for marketing purposes to cover costs and lifetime value. For B2B, I suggest putting an unlimited lifetime plan in place for a higher price than the current lifetime value to increase earnings potential over time without capping growth.
When is an unlimited monthly subscription to Chipotle too expensive? We analyzed brand affinity data from people who dislike, are neutral towards, and are superfans of Chipotle. Superfans are willing to pay a median of $350 monthly, which is equivalent to 30 burritos per month or one per day. However, not everyone will use it daily, and the subscription can cost over $500 per month.
If you're a Chipotle fanatic, just search Chipotle on Twitter. Celebrities like David Dobrick and Scott Galloway talk about it all the time. Those who go daily are willing to pay a median price of $500. Even those who go multiple times a week are willing to pay up to $250. An unlimited membership or subscription with added perks could be a great opportunity. If just 10% of their base buys into it, they could make a profit with monthly payments of $350 or even $500.
Value Matrix
You're about to see something called a value matrix. We collected data from the group comparing feature preferences and plotted those on the horizontal axis, more valued features on the right, less valued on the left. We then collected willingness to pay for the overall product and plotted that based on their number-one feature preference on the y-axis. Analyzing data in this manner allows us to determine which features are differentiable add-ons, core, or commoditized for each segment.
Tax the reduction in your number-one, unavoidable pain.
To reduce your main pain point, consider taxing it. The biggest issue with places like Chipotle and Sweetgreen is the long lines. Our value matrix shows that prioritizing a line-skipping feature is highly preferred and has a high willingness to pay among those who care about it.
Member-only events and specials can be even more interesting. Subscription-based relationships can generate more revenue, as customers who purchase an unlimited card often share their experiences on social media. Hosting member-only events can increase customer acquisition costs, lifetime value, and average order value. Offering free items like guacamole, chips, or drinks may not be as effective as utilizing this group of customers who are willing to pay more.
You become part of your customer's identity
Finally, you become part of your customer's identity. We mentioned this a little bit earlier, but if Chipotle released this, they would have customers going viral. They'd be tweeting about it, they'd be spreading the word like crazy. These exclusive member events and being able to cut the line, this stuff would spread like wildfire.
The biggest misconception about subscription models, especially when attached to physical-good businesses, is the assumption that everyone needs to use it. Apple has over 800 million, if not a billion, credit cards on file. They do not require every single person to use a recurring revenue bundle. Similarly, Chipotle does not need every customer to subscribe at $350 to $500 per month. By targeting a small group of people, you can generate a $100-million revenue stream from existing customers. By offering a subscription, you can strengthen the relationship and encourage reciprocity. This is a powerful strategy.
Focus on your absolute super fans and cater to their needs. Nurture these fans by incentivizing them to give you more money or bring in more customers. Don't just rely on having millions of fans like Chipotle; the "thousand true fans" principle still applies. Remember that features are no longer the key differentiator - they are simply expected. The real value is in building a strong identity and relationship with your customers.
In conclusion, Chipotle's success story is one of control and quality of product. However, the company's downfall due to food-related illness crises has brought to light the need for better execution at scale. The company's new CEO and potential implementation of unlimited memberships and exclusive member events could help Chipotle rise to the level of fast food giants like McDonald's and Starbucks, while still maintaining their "food with integrity" thesis. By focusing on their super fans and building a strong relationship with them, Chipotle can generate a sustainable revenue stream and strengthen their brand identity in the competitive fast food market.
Need help with subscription pricing?
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