BHO 3373 International Marketing

Assessment 3-Final Report

Marketing plan for Chipotle’s business expansion into Malaysia

Tutorial 1

Instructor: Mr. Alvin Fong

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Executive summary

The prevailing corporate environment is rife with global technological advancements and the
extensive globalization that has connected multiple nations and continents, pushing
businesses to expand their operations elsewhere. This report will discuss Chipotle decisions
to expand its operations in a foreign market in Malaysia. Specifically, the paper will highlight
the business environment in the target market business environment by justifying the target
market, identifying competitors, the cultural factor using Hofstede’s model, country of origin,
target market position entry mode, and strategic recommendations. Precisely, the choice entry
strategy for Chipotle is licensing due to the benefits discussed in the paper. Undoubtedly,
licensing is the best entry technique since Chipotle’s objective is to minimize the risks
associated with the establishment of operations in a foreign market. The report will start off
by discussing the background of the company and end with recommendations.
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Table Of Contents

Executive summary 1
1.0. Introduction 3
1.1. Identification 3
1.2 Justification of the external environment of Malaysia (PESTLE) 3
2.0. Competitor identification 6
3.0. Cultural Profile (Hofstede’s Cultural Values) 7
4.0. Country of origin 9
5.0. Target market position and segmentation 10
6.0. Market entry and expansion 11
7.0. Strategic recommendations 11
References 14
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1.0. Introduction

1.1. Identification
- Nature of the product:
Chipotle Mexican Grill is a big success in the f&b industry. It grew from one store in 1993 to
over 2,000 locations by 2016 serving over 1 million customers on a daily basis, developing
the fast-casual food trend. Founded in 1993 by Steve Ell in Denver, Colorado, Chipotle is an
American-based restaurant chain whose significant menu is Mexican inspired meals (Fast
Company, 2022). Chipotle is best known for its brand and marketing campaign, commonly
known as “food with integrity”, which alludes to its commitment to offering fresh meals and
sourcing ingredients from ethical suppliers. Chipotle is a fast-casual Mexican-inspired cuisine
specialising in tacos and burritos. Its food is well-known for using high-quality natural and
organic ingredients. (Chipotle, 2021) Smoky chilli flavours, which are often used in Mexican
cooking, give Chipotle sauce its smoky, spicy flavour. Because of the mild sweetness of the
chipotle pepper, some sauces could be a bit sweet. Chipotle sauces often contain lime juice,
cilantro, and garlic, which give it a sour and peppery flavour (thrive cuisine, 2020)
The company has a high potential to enter the Malaysian environment and operate there. The
Malaysian economy enjoys a mixture of small, medium, and large enterprises in the Food and
Beverage industry. This exposition intends to discuss the entry strategy of the Chipotle
Mexican Grill into Malaysia.

1.2 Justification of the external environment of Malaysia (PESTLE)

Chipotle should first identify the local external environment before expanding its operations
into a new target market, which is Malaysia.

Political factors
Firstly, the political environment in Malaysia is favourable for industries dealing with food
products. Specifically, political factors include policies and government decisions that impact
operations. The existence of good trade policies in Malaysia and a stable political
environment will enable Chipotle to conduct operations efficiently (Aithal, 2016). Chipotle
must be familiar with Malaysia's comprehensive regulatory systems for each segment of the
food business. For example, because most Malaysians are Muslims, Chipotle should include
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the Halal certificate, as well as maintain the regulations for the hygiene of restaurant kitchens,
refrigeration and transit rules, and even regulations for food sector workers.

Economic Factors
Categorically, the economic factors impact the Malaysian economy, which in turn affects the
performance of businesses and the nature of profitability. Contrastingly, the current economic
environment has proven troublesome for all forms of business transactions due to the
pandemic (Tang, 2020). But as of now, Malaysia lifted most of the restrictions and it is
expected that this will affect the Malaysian economy in a positive way. In this example, the
Malaysian Food and Beverage (F&B) sector is a fast-growing sector that is regarded as one
of the major contributing factors to the federal account, rising at a rate of 7.6 percent per year,
with sales of around €22.12 billion in 2018 (TAPiO, 2020) As a result, it is a suitable region
for Chipotle to grow its operations.

Social / Cultural factors

Cultural factors such as lifestyle trends and the cultural values of customers influence
organizational decision-making. Therefore, Chipotle should strive to focus more on the
customer acceptance of its immediate products. According to studies, Malaysians are
becoming more health-conscious, particularly after the outbreak of the Covid-19 epidemic
(DURA, 2021) Because Chipotle has incorporated health-conscious choices in the emerging
fast-casual business, Malaysia appears to be an appropriate choice for the brand
(FinancialNewsMedia.com, 2020). Also, Malaysia is closely related to the Islam religion,
which is a significant element of their culture and Ethnic identity. Their cultural value
orientation affects their purchasing behaviour and decision making, so getting a halal
certificate would definitely help chipotle in marketing factor also to boost sales (Kamaruddin,
2017).
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Environmental factors

Environmental factors affect the ecological business environment by limiting its transactions
and achievement of operational and strategic roles. External environment factors such as
pollution, negative environmental externalities, and dumping will affect Chipotle. Dumping
of plastic bags and containers that hold food into the soil pollutes the environment. Chipotle
should consider CSR and biodegradable materials to eliminate environmental pollution and
increase human safety by eliminating greenhouse gases (Islam and Mamun, 2017).

Legal factors

Businesses have to be aware of the law and changes to these laws that may affect service
provision to their customers. Awareness of the health and safety requirement by law, healthy
requirements in food and beverage storage and sale, trade regulations in Malaysia, and safety
measures when dealing with foodstuff is crucial for Chipotle. The success of Chipotle lies in
the mode of operation it assumes by following business laws in Malaysia. Thus, undertaking
the PESTLE analysis is important for businesses to discover issues in the external
environment and try to mitigate them.

1.3 Market Opportunity Analysis

According to Jourden (2019), Malaysia is a hot prospect for international restaurant brands
from overseas. The country has about 32 million people, and 6 out of 10 are Muslim, raising
the importance of the food and beverage industry. More residents are under 30 years, and 87
percent dine out. Out of these people, 57 per cent dine out for lunch, 40 per cent for dinner
and two-thirds order food from restaurants. Mexican meals are a hit among Malaysians
because they are spicy and well-seasoned (Clemnet 2021). Most restaurants serve Mexican
meals such as Fajitas, Chimichangas, Quesadillas, Enchiladas, Soft- Shell Tacos, Guacamole,
Nachos, Back Ribs, and Lamb Shanks, meaning that Chipotle has a profound opportunity to
expand its operations in Malaysia. However, Generation Y students make up the largest
consumers of fast foods in Malaysia, consisting of 12.67 million people who are middle-
income earners and can afford to buy from Chipotle (Xiao, 2018).
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2.0. Competitor identification

The target Malaysian market is rife with fast food operations, and Chipotle faces immense
competition from companies such as KFC, McDonald’s, Pizza Hut, Domino’s, Subway,
chilies, and many more, as shown in Table 1 below in the sale of foreign dishes (Statista
Research, 2021). KFC has the highest market share of 82 percent, followed by Mcdonald’s at
81 percent, Taco Bell and Pizza hut at 57 percent, also, Subway because they provide healthy
fast-food alternatives which Chipotle is expected to compete with, as shown in the table
below. Data collected from 24,912 Malaysian adults shows that the preference for fast food is
rising gradually. Adult eating in such joints one to three times on a weekly basis rose from
36.05% in 2016 to 38.95% in 2018, leading to a mushrooming of new fast food companies
and high competition (Krishnan et al., 2022).

Figure 1: Fast food restaurants in Malaysia

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The increased job satisfaction and customer satisfaction have led to heightened demand for
fast foods such as Chipotle in Malaysia, increasing value. This highlights the nature of the
market, where value brings loyalty and raises the profitability of food joints. Despite the high
nature of competition from other fast-food restaurants, Chipotle should focus on satisfaction
in the fast-food industry since it has a positive relationship and impact on customer
satisfaction variables bringing success (Arokiasamy, 2019). To deal with the high
competition in the target market, Chipotle will focus on service quality which cordially
highlights the difference between the level of service in the firm and customer expectations
(Nuryanto and Farida, 2020). Being the leading competitor, KFC Malaysia operates over 600
joints in Malaysia 82. 81 percent of consumers who prefer to buy from them due to higher
customer satisfaction in regard to its services, food, and ambience quality (Zamani et al.,
2020). KFC sells products like chicken, soda, and fries which match Chipotle’s products
meaning that the firm has to match KFC’s quality to maintain a successful entry in the
Malaysian market and Chipotle will have a competitive advantage over the leading fast-food
restaurants as chipotle is considerably healthier than KFC and other existing fast-food chains
(Song et al., 2022).

3.0. Cultural Profile (Hofstede’s Cultural Values)

Power Distance
Malaysia receives a very high grade (100) towards this category, suggesting that individuals
embraces a hierarchical structure where everybody has a position and no more explanation is
necessary. The leader ’s role is a benign dictator, and organisational hierarchy is perceived as
representing underlying imbalances. Employees expect to be told how work is to be done,
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hence hierarchy inside an organisation is viewed as representing fundamental inequities.

Managerial challenges often rarely encountered with enthusiasm.

Individualism
With a rating of 26, Malaysia is a collectivistic culture. This presents itself as a long-term
attachment to the "member" group, even if that group be a relative, entire family, as well as
extended relationships. In a collectivist society, devotion takes priority over all the other
societal regulations and laws. Strong bonds are developed in such a community, where
everybody bears accountability for the members of their family or group. In collectivist
societies, offense results to shame and loss of status in the family or in the group. Employer-
employee relationships are ethically evaluated, and employment and progress are centered
mostly on employees in-group and the Management is the term used to describe the
administration of organizations.

Masculinity
The fundamental question would be whether individuals are driven by the desire to become
the best (masculine) or even a desire to appreciate everything they do (feminine) (Feminine).
An intermediate rating near 50 does not indicate a preference for this aspect.

Uncertainty Avoidance
Malaysia seems to have a low proclivity to avoid ambiguity by ranking 36 in this area. Low
UAI cultures have a far more relaxed attitude in which practice outweighs ideas thus
deviation from the standard is much more frequently tolerated. Individuals living in low UAI
areas believe that there ought to be no more restrictions than necessary, therefore any that are
unclear or ineffectual should be abolished or amended.

Long-term orientation
Malaysia does have a normative culture, as can be seen by its low rating of 41. Individuals in
such cultures are obsessed with discovering its absolute Truth; their mindset is normative.
They value tradition, have quite a low tendency to spend for the future, and also have a
significant willingness to see quick results.

Indulgence
Malaysia's top rating of 57 indicates that it has an indulgent society. When it relates to life
and having fun, individuals in areas with a high Indulgence rating are much more likely to
accept their emotions and desires. They have a positive attitude and a tendency to be
optimistic. Additionally, they put a higher emphasis on recreational time, behaving freely
while spending their money as they like. (Hofstede Insights, 2021)

Understanding and considering these structures for decision-making will help chipotle to be
successful in Malaysian culture. Factors highlighted by Hofstede’s framework match those of
the country of origin, making it easy to manage cultural differences in Malaysia.
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4.0. Country of origin

Country of origin
The Country of Origin is the influence of the manufacturer nation on the favorable or
negative consumer evaluation is referred to as effect. According to studies, when a buyer
learns about a product's nation of origin, their view of the product is changed either positively
or adversely, depending on their perceptions. Steve Ells created Chipotle Mexican Grill in
Denver, Colorado, United States, in 1993. (Oatman, 2019). Chipotles are still predominantly
created in Mexico, where two varieties are produced: Morita, which is popular in the United
States, and Meco, which is popular in Mexico (Tiffany, 2020).

Consumer Animosity

Consumer animosity to foreign products is a factor that drives consumer perceptions.

Consumer animosity, according to Klein et al. (1998), is lingering antipathy or fury related to
recent or current political, military, economic, or diplomatic events that will impact
customers' purchasing behavior. In this situation, we may deduce that Malaysian consumers
are unconcerned about the recent or current political, economic, and other problems in
Chipotle's home country. As a result, customers are unlikely to boycott Chipotle and as a
result, Chipotle may consider expanding its operations to Malaysia.

Consumer Ethnocentrism

Consumer ethnocentrism defines as the beliefs held by consumers in the target market on the
appropriateness and morality of purchasing foreign-made goods, according to Mukucha and
Jaravaza (2021). The favorable disposition or lack of by Malaysian consumers towards a
particular country, in this case, the US, results in the acceptance or rejection of Chipotle
products. In some circumstances, consumers elicit feelings of animosity and hostility towards
a country that may result in a lack of consumption and boycotting their products (Ahmed et
al., 2013). The rejection of US policies in the Middle East in the past and in Asia recently has
led to criticism and lack of adoption of products by these countries and their various religious
groups. Despite the hostility towards US products by dominant Muslim countries, Malaysia
has a favorable disposition to Chipotle’s country of origin, making them a favorite target
market.

Consumer Disidentification

The degree to which a consumer actively rejects and isolates himself/herself from the
perceived home consumer culture is measured on a scale employing six, seven-point Likert-
type items. Enmity is the term used when a foreign country is the source of dislike. The
product nationality signal may also induce a positive attitude toward a product (Josiassen,
2011). Among the phrases that spring to mind are society, ethnicity, ethnocentrism,
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difference, identity, and culture (Childers, 2020). In this situation, we may conclude that there
is no customer disidentification with Chipotle in Malaysian culture.

Consumer Affinity

Consumer affinity is defined as a "feeling of liking, sympathy, and even attachment toward a
particular foreign country that has become an in-group as a result of the consumer's direct
personal experience and/or normative exposure and that favorably influences the consumer's
product and service purchasing decision" (Asseraf & Shoham, 2017). In this scenario,
customer preference may have an impact on Chipotle's commercial performance in Malaysia,
as most Malaysians have a preference for Mcdonald's, KFC, and other fast-food companies
(Oppotus, 2020).

5.0. Target market position and segmentation

According to Alhadlaq (2017), the target market for Chipotle’s products in Malaysia is
younger people, millennial professionals, and college students aged between 18 to 28. The
increased awareness of health and healthy foods among these young consumers makes them
the target customers for the product. Using multi-segmentation, adaptive position, and
anticipatory positioning will help serve various customer segments under geographical,
demographic, and behavioral segmentation. Precisely, chipotle should also consider
behavioral segmentation, where customers of their products are divided into segments
according to their behavior patterns and how they interact with the products. There are a
number of reasons why Malaysians purchase fast food. The primary features of fast food,
such as flavor, cleanliness, convenience, speed, and predictability, were found to be
important in the selection of a fast food item in research (Richard, 2003). When consumers
were considering other outlets, however, features such as healthiness, variety, and courteous
personnel were important to them. Customers will, in essence, establish their own values and
expectations based on the numerous market options. As a result, people want and expect
more from the food supply.

The demographic segmentation targets both genders, their occupation, and customer life
cycles from young, single, and newly married couples fall under the discussed age bracket.
On the other hand, behavioral segmentation should focus on loyal consumers of Chipotle
products, their personality, and user status, such as their potential to purchase other products
from the firm. On matters of target market positioning, it is difficult to ignore Chipotle’s
philosophy of “food with integrity.” The company is committed to sourcing the best
ingredients and preparing others, making it position itself as a company that practices
integrity for farms, animals, the environment, and the firms they purchase from (Alhadlaq,
2017). Thus, they should adopt these strategies in Malaysia by avoiding vendors whose only
focus is profitability neglecting integrity and environmental protection to continue to position
themselves appropriately in the foreign market
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6.0. Market entry and expansion

Licensing

Entry modes allude to arrangements, conventional in nature, that streamline and ease the
entry of skills, technology, management, products, and the services of an enterprise in a
foreign market (Barua & Chowdhury, 2014). Adamantly, Chipotle should utilize licensing as
the primary mode of entry in Malaysia since the attractive restaurants and fast foods will help
the enterprise to expand its businesses in the foreign market. Precisely, carrying out direct
arrangements with other established firms or the creation of subsidiaries will help Chipotle
transfer its direct assets there and begin operations. Pointedly, licensing is often utilized as
formal permission granted to other businesses or exclusive rights to other firms in the fast-
food business to provide Chipotle products in their establishment.

Thus, opting to use licensing will allow the parent company to grant permission to restaurants
and other joints in Malaysia to operate exclusively using their name products, flavors, or
recipes locally in the US, selling the parent company’s products (Sikimic et al., 2017). The
agents located in the US market can now utilize the firm’s resources, knowledge, and
proprietary technology to enter the Malaysian market. Licensing will help the Chipotle to
issue copyrights, resources, rights, patents, and operational licenses to other joints in
Malaysia to use their brand for a specified time period (Market entry strategy, 2020)

Undoubtedly, Chipotle stands to benefit from using this entry mode as the licensed business
has knowledge of the local market in Malaysia critical for gaining a rapid market stronghold.
Also, the method is justifiable because using licensing by Chipotle will not tie down their
capital to the foreign enterprise being licensed, leading to low costs of establishing their
operations in Malaysia (Gaille, 2018). Therefore, in this case, licensing is the best entry
technique since Chipotle’s objective is to minimize the risks associated with the
establishment of operations in a foreign market. Additionally, acquiring permits and licenses
for foreign industries has been particularly efficient in Malaysia due to the country’s
favorable political and legal environment that supports international operations.

7.0. Strategic recommendations

We recommend that Chipotle considers employing a marketing mix as a tool to understand

what combinations of the 4 Ps in the marketing of products, prices, promotion, and place to
use to meet its marketing objective of setting up operations in Malaysia. Advisably, using
these tools in its operations in the Malaysian market will be crucial in deriving the desired
responses from the target consumers. Besides, Chipotle’s broad portfolio will aim to reach
different target groups in the market, bringing emotional, physical, and psychological benefits
to consumers.
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Product

The premium product offered by Chipotle, such as GMO-free poultry, are the primary
success factors that will help the company remain successful in Malaysia (Alhadlaq, 2017).
Notably, products are significant components of an organization that utilizes distinct
characteristics such as quality, ease of use, benefits consumers, and expresses their broad
portfolio to consumers (Conrad and Bonanno, 2019). Malaysian customers will be
invigorated by the fact that they access healthy and fresh ingredients and fast foods from the
company. The company should maintain its product options like a burrito, bowl, salad, and
tacos to make sure that the product is of quality and meets customer demands in Malaysia.

Pricing

Chipotle should strive to distinguish itself by having a value pricing strategy whose product
prices should be set lower than the relatively high prices in most fast food joints. The firm has
enjoyed a lot of success creating a high demand for their products in the US and other
international marketing, maintaining their ability to charge higher without losing customers.
However, for successful entry into Malaysia, the company should strive to set lower prices
for its product to garner a certain percentage of consumers and to compete favorably with
other restaurants such as KFC. Chicken prices at KFC Malaysia for family meals range from
RM 25.99 to RM 79.30 (KFC Menu, 2022). Chipotle should strive to set their family meal
burritos and tacos prices starting from as low as RM 15.00 to RM 60.25 while at the same
time maintaining quality to attract more customers.

Placement

Chipotle should consider conducting its sales and services in local licensed joints and e-
commerce stores at different locations in Malaysia that allow online consultation of orders
and confirmation of location for deliveries. Fully mastering quick and timely delivery of all
online orders by placing multiple shops near their customers also, Chipotle should work with
delivery services such as Grab Food and Food Panda in Kuala Lumpur, Malaysia will help
them enjoy far-reaching customer loyalty and exponential growth in the region. As Kuala
Lumpur has lot of Colleges and Universities that will ultimately help Chiptole to get more
customers.

Promotion

Finally, for strategic success, Chipotle should consider immense promotion as a marketing
strategy, giving free deliveries for certain online orders, discounts on sales, and gift vouchers
for loyal customers. The company should also utilize social media and websites to directly
engage their customers and enlist a team of customer service providers in case of
inconveniences. Also, Chipotle should strive to use community influencers, brand
ambassadors, and conventional marketing such as newspapers and magazines to reach as
many consumers as possible since their target customers own smartphones and access the
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internet. Without any doubt, combining a marketing mix with licensing will help Chipotle
enjoy a successful entry into the Malaysian market
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