How should Chipotle Invest $.26 per Burrito?
McDonald’s spends $820M+/yr in marketing on $21.5B revenue…4% of revenue.
Chipotle spends $4.5M on $882M revenue…less than 1% of revenue.
I did the math… if you assume the average meal is $8 (with drink, maybe chips), then Chipotle is serving over 110 million burritos (or burrito bowls, as I prefer) per year.
If they decided to spend as much as their McDonald’s parent and competitors (4% of revenue), they could spend an additional $29M in marketing. That’s an extra $.26/burrito they could spend on advertising. Or perhaps they should spend it on something else?
I’m not suggesting they spend this money. They are growing 26% YOY and pulling in $41M in net income. They are not ‘growth challenged’.
More importantly is the positive business results growing on such a small marketing budget? How does Chipotle do it? They create a great atmosphere, built an eco-friendly company, and invest in great food that is served fast. I eat there once a week — they give me more food than should fit in my stomach for a decent price, and it comes nowhere near the poor quality of first-frozen fast food.
As growth slows Chipotle will face the pressures of a public company, typically to reduce costs. Bad idea. Or, ironically, analysts may ask for them to spend more on advertising. This is the recipe (no pun intended) for disaster because it could change the DNA of what makes Chipotle successful. Sustained success is to continue innovation and improvement using the same strategy that drove word of mouth in the first place. Perhaps there are new strategies to amplify their customers’ passion?!
Hopefully management and the street will remember what got Chipotle here and when it is time to prime the pump for growth they’ll look at investing that $.26 per burrito (or less) in the same strategy – creating a great experience and product. In my opinion, this is the foundation for a winning strategy in today’s “citizen marketing” world.