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 , climate change poses a potentially greater threat to the system. Chipotle’s position leaves it dependent on a smaller, fragmented pool of suppliers  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 . The company created a small panic in 2014 when it suggested climate change might one day force them to retire its beloved guacamole . They later downplayed this fear, but water-intensive crops such as avocados have seen tremendous pressure in recent years of record heat , and the reality is that these items may be just the first of many to find themselves on the brink . While other competitors, such as McDonald’s, have been able to shop aggressively for suppliers abroad , 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.
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 . After a control breakdown at a US supplier led to Carnitas being withdrawn from the menu, pork sourcing has also been largely shifted abroad . Domestically, the company has admitted that a paltry 10% of produce comes from local providers . 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 . 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 . 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 . 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?
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) , 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.
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?
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- Nicole Torres, “Why Sourcing Local Food Is So Hard For Restaurants,” Harvard Business Review, June 25, 2016, https://hbr.org/2016/06/why-sourcing-local-food-is-so-hard-for-restaurants, accessed November 2017
- Dina Gerdeman, “Food Safety Economics: The Cost of a Sick Customer,” Harvard Business School Working Knowledge, May 16, 2016, https://hbswk.hbs.edu/item/food-safety-economics-the-cost-of-a-sick-customer, accessed November 2017
- Jeff McMahon, “Climate Change Already Impacting Wheat, Rice, Corn, Soybean Yields Worldwide,” Forbes, September 1, 2017, https://www.forbes.com/sites/jeffmcmahon/2017/09/01/climate-change-already-impacting-wheat-rice-corn-soybean-yields-worldwide/#381a5379777b, accessed November 2017
- The Atlantic, “Climate Change’s Latest Casualty Could Be Chipotle’s Guacamole, Salsa,” March 4, 2014, https://www.theatlantic.com/business/archive/2014/03/climate-changes-latest-casualty-could-be-chipotles-guacamole-salsa/358818/, accessed November 2017
- Chase Purdy and David Yanofsky, “Avocados are now too popular for their own good,” Quartz, September 29, 2016, https://qz.com/774718/avocado-prices-in-the-us-are-up-because-of-climate-change-and-consumer-demand/, accessed November 2017
- Twilight Greenaway, “Eight foods you’re about to lose due to climate change,” The Guardian, October 29, 2014, https://www.theguardian.com/vital-signs/2014/oct/29/diet-climate-maple-syrup-coffee-global-warming, accessed November 2017
- Lawrence Gregory, “McDonald’s Five Forces Analysis (Porter’s Model)”, Panmore Institute, February 5, 2017, http://panmore.com/mcdonalds-five-forces-analysis-porters-model, accessed November 2017
- Nikolai Beilharz, “US fast food chain Chipotle to source beef from Australia,” Australian Broadcasting Corporation News, July 4, 2014, http://www.abc.net.au/news/rural/2014-07-04/us-fast-food-chain-chipotle-wants-aus-grass-fed-beef/5572742, accessed November 2017
- Steve Ells, Chipotle Co-Chief Executive Officer, remarks made on Q3 2015 Earnings Call. From transcript provided by Seeking Alpha, https://seekingalpha.com/article/3587406-chipotle-mexican-grill-cmg-steve-ells-q3-2015-results-earnings-call-transcript?page=2, accessed November 2017
- 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?view=story&%24DEVICE%24=native-android-mobile, accessed November 2017
- Christopher Doering, “Chipotle’s farm satire upsets agriculture industry,” USA Today, March 3, 2014, https://www.usatoday.com/story/news/politics/2014/03/03/chipotle-show-angers-farmers/5874435/, accessed November 2017
- Jon Entine and Andrew Porterfield, “Chipotle’s Sustainability Hypocrisy Could Eclipse Its Food Poisoning Fiasco,” Huffington Post, December 23, 2016, https://www.huffingtonpost.com/jon-entine/post_10732_b_8862706.html, accessed November 2017
- Chipotle Mexican Grill, “Chipotle Local Grower Support Initiative,” https://www.chipotle.com/localgrowersupport, accessed November 2017
- Chipotle Mexican Grill, March 27, 2014 Form Def 14A filed March 27, 2014, via Chipotle Investor Relations, accessed November 2017
- Helena Bottemiller Evich and Tarini Parti, “Why agriculture hates Chipotle,” Politico, October 2, 2013, https://www.politico.com/story/2013/10/chipotle-scarecrow-ad-integrity-agriculture-097763, accessed November 2017
- IRIN News, “Cassava key to food security, say scientists”, IRIN News, June 20, 2012, http://www.irinnews.org/report/95694/climate-change-cassava-key-food-security-say-scientists, accessed November 2017