The threat of substitutes is high.
Many of the consumers have options including eating at any other fast food restaurant that offers larger menus. Therefore, many of the threats of substitutes can come into play when people make the decision to go to a casual or a fast food restaurant or just eat within their home. Other restaurants that are innovating and introducing new products and services at a lower cost can create a threat.
Typically, a threat exists when a product demand is affecting price change in a substitute product that impacts an industry through price competition. Bargaining Power of Buyer Buyer bargaining power is high as well. Customers have the power to choose other restaurants to spend their money, while they do not have the power to drive down the prices, they do not hesitate to pay for premium fresh products. Customers demand the best at minimum prices. Chipotle Mexican Grill has a lot of pressure placed on them and their profitability by the consumer by offering lower prices for quality products. The customer has the ability to see increasing offers and discounts due to the smaller and powerful customer base that makes up Chipotle Mexican Grill.
These include individuals and business customers respectfully, who like the fact that Chipotle is geared toward everyday people. Also, the fact that Chipotle is going greener with organic and fresh products and not using meat fillers. (Fern Fort University, 2011) Threat of New EntryThe threat of new entrants is moderate. “New entrants in restaurants brings innovation; new ways of doing things and puts pressure on Chipotle through lower pricing strategy, reducing costs, and providing new value propositions to the customers. Chipotle has to manage all these challenges and build effective barriers to safeguard its competitive edge” (Fer Fort University, 2011) Chipotle is unlikely to change its menu and new entrants could have new ideas on the same process Chipotle offers.Bargaining Power of SuppliersThe supplier bargaining power is low.
An industry of fast food requires raw materials, labor, and other suppliers. The relationship with the supplier is very important. There are several networks in which Chipotle could receive their products, however, there are very few suppliers that offer organic products due to the higher cost of the products and ingredients. The suppliers can exercise an influence on the producing industry. The supplier has the power to sell raw materials at a higher price to try and capture some of the industry’s profits. Having a limited number of suppliers is a benefit of Chipotle. Competition within the MarketChipotle is set apart from its competitors because of their continual commitment to organic and sustainable ingredients, Food with Integrity philosophy, and a unique taste that is hard to duplicate.
How can Chipotle tackle the intense rivalry among the existing competitors in the fast food/restaurant industry? They must build and sustain a differentiation strategy by collaboration with competitors as to increase the market size rather than just competing for small markets.