Chipotle: The Fast, Casual Descent to Supply Chain Oblivion

By Jim Sainz
Alumni
Posted Nov 15, 2017

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What’s the Beef?

 

Chipotle proudly boasts a unique customer promise: locally sourced, non-GMO, antibiotic-free ingredients wherever possible to fuel a radically simple, affordable menu.  This claim’s emotional resonance and the carefully choreographed supply chain which make it possible have long provided a distinctive advantage for a company warring in a brutally competitive market.  While the heightened risk of food-borne illness in this unique arrangement has been acknowledged quite publicly [1], climate change poses a potentially greater threat to the system.  Chipotle’s position leaves it dependent on a smaller, fragmented pool of suppliers [2] and uniquely vulnerable to climate change pressures on commodity prices and availability.  Ultimately, there is a distinct possibility the only way Chipotle will be able to continue to fund its meteoric ascent is by selling its soul.

 

Climate change has already begun slowing crop yield growth and threatening prices for key Chipotle ingredients, such as wheat and rice [3].  The company created a small panic in 2014 when it suggested climate change might one day force them to retire its beloved guacamole [4].  They later downplayed this fear, but water-intensive crops such as avocados have seen tremendous pressure in recent years of record heat [5], and the reality is that these items may be just the first of many to find themselves on the brink [6].  While other competitors, such as McDonald’s, have been able to shop aggressively for suppliers abroad [7], Chipotle’s decision to pursue the agricultural high road leaves them poorly positioned to adapt without breaking one of the central customer promises: raising price, discontinuing items from an already-limited menu, or watering down its agricultural ethos.

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Chipotle Responds

 

Short Term- Chipotle has already started sacrificing its preference for small, local suppliers in favor of continuity, control, and animal welfare.  For example, in recent years they have snubbed domestic ranchers and increased Australian beef imports [8].  After a control breakdown at a US supplier led to Carnitas being withdrawn from the menu, pork sourcing has also been largely shifted abroad [9].  Domestically, the company has admitted that a paltry 10% of produce comes from local providers [10].  While these tactics have generally preserved continuity, they have also invited derision and taunts of hypocrisy from both industry experts and consumers and portend future credibility risk [11, 12].

 

Medium Term- Chipotle clearly sees the writing on the wall, and the company has taken significant steps to invest in increasing supply chain scale for the future.  To better position themselves to sustain their competitive advantage, they have undertaken several mission-consistent initiatives.  Perhaps the biggest bet to date is the “Local Grower Support Initiative,” by which the company will invest up to $10 million to train, educate, and support local farmers to adopt more sustainable, resilient practices and elevate to the company’s aspirational production standards [13]. Chipotle has also invested heavily in transitional farms— farms in the process of achieving organic certification—which they also believe will fare better in future conditions [14].  They have also applied tremendous pressure to traditional fast-food restaurants, publicly slamming conventional farming tactics and betting that this will lead to changes in public sentiment and spur farming reform [15].  While these strategies have been partially effective, it seems that there even larger opportunities in the immediate and long-term they can pursue.

 

What is to be Done?

 

Diversification

Up to this point, one of Chipotle’s greatest strengths has been the utter simplicity of its offering.  However, this approach places too much weight on climate-vulnerable ingredients, such as rice, beans, and wheat. Sensible introduction of more resilient Mexican staples, such as yuca (a type of cassava) [16], into production will provide greater flexibility and train their customers’ palates for a different future state where they’ll have to lean more heavily on these items.

 

Accelerated R&D– For a company so outspoken against efficiency-improving GMO’s, Chipotle has a strong incentive to invest heavily in alternative yield boosters.  While much of the innovation of the company is outsourced to farmers, they would benefit disproportionately from discovery of emerging capabilities, such as microbiome soil priming.  The fragmented supply chain network would enable the company to wield greater leverage over smaller farms and more easily spur development and innovation than they possible could with large enterprises.

 

What’s Next?

 

Chipotle must wrestle with several critical questions that challenge their deepest-held values.  If these predictions come to fruition, what are they willing to trade-off to stay competitive?

 

As the veil is lifted on the company’s current practices and climate change pressures force even greater concessions, is there enough distinct value left to stop a once-bright star from extinguishing?

 

(Word Count – 773)

Sources

 

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Student comments on Chipotle: The Fast, Casual Descent to Supply Chain Oblivion

  1. November 28, 2017 Alex Tisdall says:

    I wonder if there is another option to solve the challenges facing Chipotle. While their goals for training farmers (among other initiatives) to create more sustainable farming and supply chain practices are admirable, it is unclear how much they can change in what is such a macroeconomic issue. I would imagine the costs of buying local, certifiable meat and vegetables are significantly higher than buying from other farms. At a certain point, these costs would have to be passed onto the consumer and the model becomes untenable. Given these realities, Chipotle could create two menus. One is certified local and organic (with prices to match), and the other is not (with cheaper prices). I think this is analogous to shopping for lettuce in the grocery store: the more expensive organic lettuce is right next to the cheaper inorganic lettuce and the consumer gets to choose.

    One of the concerns for this would be brand image. While Chipotle could possibly suffer from their brand being tarnished by being associated with unsustainable farming practices, they are already suffering from this to a degree. Additionally, I am not convinced most people buy Chipotle because of their organic, local ingredients. A lot of people go there simply because their burritos and tacos are delicious.

  2. November 30, 2017 Andon Cord says:

    As a frequent consumer of Chipotle, I appreciate the consistency of their menu options regardless of where I am traveling, however I found your comment about diversification particularly interesting. One way to reduce Chipotle’s dependence on climate-vulnerable ingredients, as well as seasonal ingredients, would be to introduce rotating menus leveraging the crops that are in season. SweetGreen is a restaurant within the fast casual space that does this, changing their ingredients based on what local producers are growing. By doing this they are promoting fresh ingredients by reducing transit time and distance, and cutting out preservatives. Furthermore they could emulate what SweetGreen does to creatively incorporate non-traditional ingredients, such as food scraps, into their sauces or toppings. For example SweetGreen used “nutrient-dense broccoli leaves that are usually tossed” [1] in one of their salads to make it healthier and less wasteful.

    [1] Rowe, M. (2015). Menu moves: Sweetgreen LTO salad rescues food scraps to make a point. Restaurant Hospitality, Retrieved from http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/1700065929?accountid=11311

  3. December 1, 2017 Ginny says:

    Great post. One question that came to mind while reading this was the degree to which Chipotle is investing in sustainability practices in order to anticipate climate change vs. an investment in anticipation of customer interest in a “local” and “sustainable”-branded product. If it is indeed the latter, then I question how much consumers will actually care. Research shows that the overwhelmingly dominant purchase drivers for food are 1) taste (85% say has a great impact) and 2) price (71%), compared to the 40% that say that sustainability has a great impact on their food purchases. [1] And while the 40% figure is not insignificant, I think it is key to keep in mind that Chipotle is risking quite a bit if any of their investments in sustainable production come at the expense of taste and price.

    In order to gain back consumer trust while hedging against looming supply chain strains due to climate change, I do agree that Chipotle should leverage win-win investments into sustainable practices that they can tout as a stamp of their quality food and brand. However, they must be mindful of the trade-offs of price and taste in the process!

    [1] https://www.statista.com/statistics/245005/factors-influencing-purchase-of-food-and-beverages/

  4. December 1, 2017 TOM_Section F says:

    I can see a scenario where Chipotle consumers would be willing to pay more for sustainably sourced food. A 2014 study from Gartner suggest that younger consumers would be willing to pay a premium for products produced under good working conditions (27% premium on goods that are $100). I’m interested to see whether Chipotle will make updates to their marketing strategy / positioning. Will Chipotle share more detailed information around sourcing ingredients, nutritional information, and fair treatment of employees? How will they integrate these messages into their digital platforms (eg.Chick-fil-A CFA One app offers pre-ordering, customization of sandwiches (which can cue freshness) and nutritional information).

    https://scsolutionsinc.com/news/is-your-supply-chain-sustainable-from-a-marketing-perspective

  5. December 1, 2017 jackambridge says:

    Interesting look into Chipotle. With all the troubles they’ve been having with making people sick, I had not even considered how they might be affected by climate change. I take the side that they will have to adapt their menu eventually if they want to keep from becoming irrelevant. By insisting on using only non-GMO products, Chipotle is limited its supplier base and is further exposing themselves to risk associated with climate change. Larger suppliers have greater resources to help them overcome events that shrink crop yield. Larger suppliers also tend to use practices that help overcome some of these events – such as using GMOs. Chipotle’s stance on GMOs is a bit perplexing. Chipotle is one of the few fast food restaurants that only uses non-GMO products, yet they have more frequent instances with food borne illness that makes customers sick. GMOs are helping to produce crops that can grow during drought or in other harsh conditions. As time goes on, and we see more change in the climate, Chipotle will have to either switch to new ingredients and change its menu or they will have to embrace using GMOs. BY doing so, they may actually reduce the amount of food borne illnesses they cause as well.

    https://www.healthline.com/nutrition/gmos-good-or-bad

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