Compare Chipotle and McDonald’s

For the past decades, McDonald's had been leading the fast-food chains, and it gave customers the speed and convenience they craved. However, with the rise of the fast-casual chain, it has changed the way that people eat and Chipotle Mexican Grill has managed to lead in the fast-growing space. In this paper, it compares Chipotle and McDonalds based on the pricing and output, market power, and revenues and cost structures.

Similarities and differences

Pricing and output

Chipotle is considered the most successful restaurant chain to hit the public markets. McDonald’s restaurant serve a locally-relevant menu of quality food and drinks sold at different price points in more than 100 countries. The company is comprised of both company-owned and franchised restaurant. Chipotle serves a focused menu of burritos, burrito bowls, tacos, and salads that are made using fresh ingredients. McDonald's menu includes cheeseburgers, Big Mac, Filet-O-Fish, Chicken McNuggets, French fries, wraps, shakes, oatmeal, salad, among others (McDonald’s Corporation 2015). Chipotle has over 1800 locations around the world while McDonald's has over 36000. The frequency of customer visit in McDonald's is high than that of Chipotle (Chipotle Mexican Grill, Inc 2015). There is 43% of customers who visit Chipotle stores once every month and 71% of customers visiting McDonald's once in a month.

Market power

Chipotle has a market value of $11 million, and McDonalds’s market value is $98 million. McDonald's does franchise its outlets; however, Chipotle does not usually franchise it outlets as all its stores are operated by the fast food player itself (Chipotle Mexican Grill, Inc 2015). Both Chipotle and McDonalds have seen their stocks price going in the opposite directions. From March 2015, McDonald's shares have been soaring almost 30% while Chipotle has struggled within falling more than 30% (McDonald’s Corporation 2015). The investors at McDonald's have a greater comfort from using forward estimates for earnings. McDonald's does sports earnings multiple of 21 compared to Chipotle’s 35. The drop in Chipotles share price has narrowed what was a wider gap between the two stocks; however, McDonald's still looks cheaper on valuation (Chipotle Mexican Grill, Inc 2015). The industry forecasted earnings growth shows Chipotle with a 10.39%, which is similar to that of McDonald's.

Revenue and cost structures

When considering the financial performance, both companies appear to have dropped regarding revenue as of 2015. For McDonald's, the total revenue in 2015 was $25413 million which was a 9% drop from that of 2014 (McDonald’s Corporation 2015). Chipotle had total revenue of $4501 in 2015, and it was a 9.6% increase from 2014. The increase in revenue for Chipotle was as a result of the new restaurant openings. McDonald’s and Chipotle also show differences in their dividends. Chipotle has never paid a dividend as the company considers taking much of its available capital for investment in growing the business (ICRA Online, 2014). The firm has made repurchases of its stock from time to time that includes a $460 million in the buy packs during 2015. Contrary, McDonald’s does have a sterling track record of treating its investors well with good dividends (McDonald’s Corporation 2015). Chipotle did not have dividend yield while McDonald’s had the dividend yield of 2.99. McDonald’s currently have a dividend yield of less than 3%, which puts McDonald's above the average yield of the large-cap stocks in the market. For the long-term investors, McDonald's has been able to put up a 40- year track record of raising its dividends on a yearly basis (McDonald’s Corporation 2015). The company has also been using buybacks so as to return the capital to shareholder and it is a good company for those who does value dividends. According to analysts who follow the companies, they expect that the companies to grow their earnings at an average annual rate of 10.39%.

Differentiating restaurant to compete

Monopolistic competition does describe a market structure where firms have many competitors, but each one sells a different product. For restaurants, each one does offer something different and also possess an element of uniqueness; however, all are essentially competing for the same customers. In the case that I open a restaurant, I would consider differentiating my restaurant through marketing. Having a well-thought marketing strategy will help in creating excellent brand awareness for my restaurant. While all the restaurants in the business are aiming to get the attention, my restaurant will have to understand how vital it is to be present in the customer’s mind. Therefore, one way of marketing my restaurant and ensure that many people are aware of my brand is through the use of social media. Social media does prove to be a good channel for communicating with the target audience. Therefore, creating my presence on social media such as Facebook, Twitter, Instagram, and You Tube will help me get in touch with my audience and also inform them about the products that are available at my store. The social media will help me to gain traction. The use of video will help to show how some of the products sold at the restaurant are made and show case the healthy quality of our offerings. 

Reference

McDonald’s Corporation (2015). Form 10-K Annual Report. 

Chipotle Mexican Grill, Inc (2015). Form 10-K Annual Report. 

Dwivedi, D (2002). Microeconomics: theory and applications. Pearson Education India

ICRA Online, (2014). 5 Reasons No Fast Food Chain Can Touch Chipotle. Motley Fool From 

Sherry Roberts is the author of this paper. A senior editor at MeldaResearch.Com in affordable term papers if you need a similar paper you can place your order for custom college papers.