Chipotle: Balancing Sustainable Ingredients with a Sustainable Supply Chain

Chipotle has recently run into trouble balancing sustainable ingredients and its increasingly complicated supply chain. With global warming set to increasingly affect agriculture worldwide, how can Chipotle balance staying on the leading edge of sustainability, while maintaining a functioning supply chain?

Chipotle: Balancing Sustainable Ingredients with a Sustainable Supply Chain

The term fast-casual has become synonymous with Chipotle’s meteoric rise. Chipotle Mexican Grill cultivates a health-conscious, socially-responsible image focusing on a simple ingredient deck, low number of ingredients, no GMO’s, and a focus on sustainability [1]. With 2,250 locations at year-end 2016 with plans to add approximately 200 more in 2017, maintaining intensive attention to an increasingly rigid set of ingredient specifications has riddled the company with supply-chain issues [2]. Because of Chipotle’s dependence on niche vendors to supply an increasingly sprawling array of locations, it has been plagued by several highly-public supply-chain related problems, including food safety problems and supply shortages across many restaurants in recent years [3]. The problem of increasingly-complicated vendor relationships, coupled with rigid supplier standards, will become exacerbated by the impact of global warming in the coming years.   Scientist project decreases in crop yields and difficulty in projecting demand, which will result in cost increases and a constrained marketplace for crops, the impact could be massive on both short-term costs and, in the case of food safety issues, long-term brand equity [4]. A bevy of crops affect its supply chain from end ingredients like rice, avocados, peppers, and animal products to feed crops like corn and barley [5].  This exposure to a wide range of crops with very different growing patterns leaves Chipotle susceptible to the risks of climate change.  Chipotle is at a crossroads—If it moves deliberately and swiftly, it can maintain the quality ingredients its customers expect, while limiting the risk that climate change poses to the restaurant’s future.

Chipotle’s stated mission is commitment to “food with integrity,” and “sourcing the very best ingredients we can find and preparing them by hand,” [6].  This includes using no added colors, flavors, or preservatives and meticulously sourcing ingredients from “farms rather than factories,” [6].  In 2013, Chipotle announced it would remove genetically modified organisms across its supply chain, and by 2015, it had [7].  Chipotle has taken significant steps to lead consumers to make “natural” and “healthy,” synonymous a strategy that’s been replicated by competitors in what the Wall Street Journal calls, “The Chipotle Effect,” [8].

To procure ingredients that meet Chipotle’s high standards, it predominately uses large national and regional suppliers complemented by a web of local suppliers [9].  In 2015, the complication of its supply chain proved calamitous when, in a matter of months, it faced norovirus in California, salmonella in Minnesota, an outbreak of E. Coli across nine states, and 140 sick from a Boston College Chipotle [10].  Due to the complexity of the supply chain, it was impossible for the company to determine where the tainted ingredients originated.  Concurrently, an audit revealed that one of Chipotle’s largest pork suppliers was not using sustainable practices, knocking out pork supply to over a third of its restaurants for nearly a year [11].

Chipotle’s issues with food safety and ingredient scarcity don’t bode well for the company’s future supply chain in the face of global warming. In 2013 and 2014, there were droughts across the US, which scientists predict will increase in severity and frequency in the coming years [12]. This caused a shortage of beef across Chipotle’s supply chain, which was further amplified by the specificity of its standards [13].  Chipotle can count on an impending collision between ever-stricter standards and a more difficult ingredient procurement environment.

Management has taken public steps to combat impending supply-chain issues. In Chipotle’s 2016 Annual Report, management discusses an increase of over 1% in food costs attributable to technological and supply-chain improvements to curtail the problems that recently plagued the business [14].  For the past decade, Chipotle has pressed forward with sustainability initiatives, but has recently been noticeably silent concerning future plans.  There is speculation in the market that the company recognizes that its vast growth and size, coupled with its incessant drive toward sustainability, led to a collision between sustainability efforts and its supply chain.  Far ahead of its competitors, the company needs to understand that balancing sustainable ingredients with a sustainable supply chain will define its success in the face of climate change. It’s vital that Chipotle’s management stay on the leading edge of the natural ingredient trend, while maintaining a supply chain that can survive stresses to the system that global warming will accentuate.  If management wants to see the company’s success continue, it needs to take a wholistic approach to sustainably procuring quality ingredients.  If the company continues to ignore supply-chain ramifications, the recent incidents will appear trivial relative to future problems.

How can Chipotle balance the brand equity it’s built with the consumer as healthy fast-casual, while streamlining the supply chain to account for future shocks to the system?  Would slowing down sustainability efforts affect the likelihood that you eat at Chipotle in the future? (793 words)

[1] Chipotle Mexican Grill, “Food with Integrity,” https://www.chipotle.com/food-with-integrity, accessed November 2017.

[2] Chipotle Mexican Grill, 2016 Annual Report, p. 8, http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_CMG_2016.pdf, accessed November 2017.

[3] Brad Tuttle, “Chipotle Pulls Pulled Pork from 600 of Its Restaurants,” Time, January 14, 2015, http://time.com/money/3667333/chipotle-pork-carnitas-shortage, accessed November 2017.

[4] Risky Business Project, Risky Business: The Economic Risks of Climate Change in the United States (2014)

[5] “Corn and Other Feed Grains Background,” United States Department of Agriculture Economic Research Service, September 14, 2017, https://www.ers.usda.gov/topics/crops/corn/background.aspx, accessed November 2017.

[6] Chipotle Mexican Grill, “Food with Integrity,” https://www.chipotle.com/food-with-integrity, accessed November 2017.

 [7] Stephanie Strom, “Chipotle to Stop Using Genetically Altered Ingredients,” New York Times, April 26, 2015,  https://www.nytimes.com/2015/04/27/business/chipotle-to-stop-serving-genetically-altered-food.html, accessed November 2017.

[8] Jay Cheshes, “The Chipotle Effect: How Chefs Are Reinventing Fast Food,” The Wall Street Journal, February 6, 2015, https://www.wsj.com/articles/the-chipotle-effect-how-chefs-are-reinventing-fast-food-1423258757, accessed November 2017.

[9] Anita Balakrishnan, “Local sourcing: Chipotle’s double-edged sword?” CNBC, December 22, 2015, https://www.cnbc.com/2015/12/22/local-sourcing-chipotles-double-edged-sword.html, accessed November 2017.

[10] Kevin O’Marah, “Chipotle Lessons: Supply Chain Visibility and Higher Prices,” Forbes, December 16, 2015, https://www.forbes.com/sites/kevinomarah/2015/12/16/chipotle-lessons-supply-chain-visibility-and-higher-prices/#19508bde332b, accessed November 2017.

[11] Roberto A. Ferdman, “Why Chipotle’s pork problem is a bad sign for its future,” The Washington Post, January 14, 2015, https://www.washingtonpost.com/news/wonk/wp/2015/01/14/why-chipotles-pork-problem-is-a-bad-sign-for-its-future/?utm_term=.0301830d5ccf, accessed November 2017.

[12] Intergovernmental Panel on Climate Change (IPCC), Climate Change 2014: Impacts, Adaptation, and Vulnerability – Summary for Policymakers (2014)

[13] Susanna Kim, “Chipotle Says Don’t Worry, Your Burrito Bowls Are Safe From Climate Change,” ABC News, March 5, 2014, http://abcnews.go.com/Business/chipotle-climate-change-risk-disclosure-end-guac-salsa/story?id=22781199, accessed November 2017.

[14] Chipotle Mexican Grill, 2016 Annual Report, p. 27, http://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_CMG_2016.pdf, accessed November 2017.

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7 thoughts on “Chipotle: Balancing Sustainable Ingredients with a Sustainable Supply Chain

  1. Hi GWtrouble7,
    It is interesting reading this from a UK consumer standpoint, where none of the issues you referred to in your article were publicised widely, nor is Chipotle’s position as being particularly sustainable vaunted about. It makes me wonder to what extent, especially as consumers become more aware, the level of criticism a company’s sourcing will receive will depend on the bar that it sets itself, as opposed to what consumers, or regulators, believe that bar should be?
    I would also love to know if you have any comparisons of the 1% increase in food costs to tackle some of their challenges – this seems very little to me to save a) the brand, b) the mission and c) the chain?
    Thank you!

  2. Thank you for this interesting article. It is in times like these when company’s goals collide that we see the real priorities of a company, and according to this article it is obvious to me that Chipotle cares much less about sustainability then its own growth and profits.
    I agree with Nico that 1% is nothing to be proud of and will go further to say that if “sourcing the very best ingredients we can find and preparing them by hand,” eventually ends in all kind of disease and sick people clearly there is lack of control and testing for its suppliers especially if the source of the problem wasn’t even discovered.
    Chipotle might think that the route for growth will benefit it more then the route for sustainability, but actually the brand name can by more damaged with the first option. Maintaining the current number of branches without expansion and focusing on sustainability can guarantee customer satisfaction and revenue for the long run.

  3. Chipotle’s issues seems to highlight a tension particularly prominent in the supply chains of food: diversification versus sustainability. Typically, to reduce reliance on specific sources and to mitigate exposure to localized risks, a company would look to diversify its suppliers. However, with food, companies are constrained by factors such as product perishability, and increasingly, expectations of sustainability. Sustainability in food can mean a lot of different things: non-GMO, humanely raised, fair trade certified, etc. Recently, sustainable ingredients have also come to imply ‘local’. Consumers have come to perceive locally sourced foods as healthier, not to mention more economically empowering to the community to which they belong, and have come to reflect this in their demand. To what extent can Chipotle satisfy consumer expectations of local sources and sustainability while managing their risk to climate change an geographic events?

  4. This seems to be a really pressing issue, not just for Chipotle, but for any rapidly growing company whose value proposition includes sustainable raw materials. I’d be interested to see how this plays out from a public policy point of view, as it seems one key ingredient to ensuring enough suppliers are practicing sustainable agriculture could be to tighten regulations, despite the obvious trade-off of higher prices. Has Chipotle made any efforts on this front? And if they don’t, will they be able to, as Chloe points out, sufficiently diversify their supply chain in order to mitigate risks from disease, climate change, and other factors while meeting their customers’ demands for sustainability?

  5. This is definitely a pressing issue for Chipotle. I would argue that consumers do very much care about sustainability as it relates to Chipotle, at least in the cities I’ve lived in and my West Coast age group. That they aren’t meeting their sustainability goals, coupled with the food poisoning scandals, has definitely impacted my and others’ decisions to stop eating there.

    This past year some shareholders pressed for increased transparency around sustainability goals (source: https://www.dix-eaton.com/blog/entries/next-steps-for-chipotle-after-investors-defeat-sustainability-report-propos)…but management pushed back and the effort was defeated for now. But I’d postulate that we’ll see reports come out in the next year or so, when Chipotle can position them how they want (and not in response to shareholder pressure).

    I agree with Nico that a marginal increase in costs would be worth it for Chipotle to remain true to their customer promise. I’d pay an extra dollar for peace of mind and great, ethical taste.

  6. Great article, and one that is very near and dear to my Chipotle-loving heart! As several people have pointed out above, it is tough to balance sustainability with diversification. I think in the food industry especially, sustainability takes a back seat to health and safety. The reputational damage that Chipotle suffered after the outbreak of E. Coli was massive and their primary goal is to prevent another incident like that from happening, regardless of if they compromise on their sustainability promises. I think the company will have to invest significantly in their supply chain if they wish to achieve both goals simultaneously and, as Nico pointed out above, a 1% increase in costs may not just cut it.

  7. Such a great article looking at the tradeoffs of sustainability in the supply chain! As you note, Chipotle does seem quite far ahead of any of its competitors in the fast-casual lineup. This case reminded me of Starbucks and Ikea, which also have had to rigorously manage disparate supply chains to their sustainability standards. One idea for Chipotle is to start taking ownership stakes in its supply chain. It seems shocking that Chipotle’s key pork supplier could be so non-compliant as to cause downstream impact for a year. Overall, Chipotle should move slower in its sustainability efforts – food safety should be its top priority. Indeed, much of the goodwill that Chipotle had generated over the years was wiped out by its food safety scandal. Having grown so big so fast, Chipotle now has to embrace the cultural shift of managing downside risk, not just upside opportunity.

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