Is Chipotle facing a guacapocalypse?

Climate change jeopardizes the availability of avocados in the restaurant industry

Once banished for being too fatty, avocados have since exploded in popularity. From avocado toast to avocado smoothies to guacamole, the U.S. demand for the creamy green fruit has increased to nearly 4.25 billion avocados in 2014, almost four times the amount of avocados consumed in 2000.1 Beyond being versatile and buttery, avocados are also high in nutrition and ‘good’ monosaturated fat. Consequently, many fast casual chains, including Burger King, Subway, and Chipotle, use avocados as a way to enhance their menu offerings and attract customers.

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CLIMATE CHANGE AND AVOCADOS

The U.S. primarily sources its avocados from California, which accounts for 80% of American avocados, as well as Mexico.2 The avocado’s native environment is tropical – it typically takes 72 gallons of water to grow a pound of avocados, compared to 9 gallons of water to grow a pound of tomatoes.3 Moreover, avocados are particularly susceptible to changes in climate, such as higher temperatures, heat waves, and water shortages.

Climate change has led to changing weather patterns, unpredictable agricultural conditions, and more extreme cycles of flooding and drought. Due to pervasive dry spells and excessive heat in California and Mexico, there is a serious shortage of avocados from recent growing seasons. The amount of avocados shipped from Mexico dropped from 44 million pounds in October 2015 to 22.9 million pounds in October 2016 due to inclement growing conditions.4 As climate change continues to cause higher temperatures and extreme weather, the long-term supply of avocados may not be able to meet the increased demand, which will only drive avocado prices up.

THE IMPACT ON CHIPOTLE

Chipotle’s commitment to organic and sustainable ingredients makes it more vulnerable to unexpected shifts in climate. Any fluctuations in avocado prices present major risks to Chipotle, which goes through 97,000 pounds of avocados a day.5 In 2014, Chipotle signaled to investors that increasing weather volatility associated with global climate change could have a “significant” impact on their ingredient availability. A rise in avocado prices due to a shortage of avocados could lead the company to remove guacamole from their menu, causing a wave of concerns over an impending ‘guacapocalypse’.6 Since the announcement, Chipotle has reassured the public that it will not stop serving guacamole any time soon, as this item was a pivotal draw for customers. Chipotle will continue to focus on responsibly sourcing their ingredients, recognizing that its future supply chain is at risk of being constrained by climate change.7

chipotle-guac

RECOMMENDATIONS FOR CHANGE

Interestingly, food production and consumption contributes to an estimated 15-50% of all global climate emissions. Any changes in the food industry can have direct positive impact on the very “forces that threaten their livelihood”.8 Given this situation, what can Chipotle do to mitigate the effects of climate change and ensure their future supply of avocados?

Mitigate Effects of Climate Change

With more than 2,000 locations, Chipotle can meaningfully reduce their carbon emission footprint and thereby diminish their own contribution to climate change. Chipotle has already installed Energy Management Systems in restaurants across 32 states, which has decreased their energy use by 13%.9 Looking ahead, Chipotle can continue to build, install, and design more energy-efficient systems in order to further lower their carbon emissions.

Two other restaurants – Noma and Mission Chinese Food – worked with Zero Footprint, a non-profit that helps restaurants with climate change, to successfully achieve carbon neutrality.10 By learning from the best practices and tactics of other carbon-neutral restaurants, Chipotle can continue to offset their carbon emissions and combat climate change.

Ensure Avocado Supply

Chipotle can also work directly with avocado farmers in California and Mexico to increase their avocado yield. For instance, avocado farmers in California are already looking at new, more efficient ways to grow avocados, including developing tougher, more drought-resistant strains of avocado.11 Chipotle can help by investing additional resources to find innovative methods of growing avocados in warmer and drier climates.

Moreover, some restaurants – such as Blue Hill in New York – have gone one step further and co-opted their supply chain.12 By owning the farm where it sources their ingredients from, Blue Hill has more control and is less susceptible to supply disruptions. Similarly, Chipotle can consider vertically integrating with certain avocado farmers in order to ensure a steadier future supply of avocados.

Chipotle, in conjunction with other players in the food industry, can mitigate the effects of climate change and exert greater influence over their food supply. The guacapocalypse, while not imminent, represents one of the many potential consequences of climate change on future food availability.

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Sources

1 Roberto Ferdman, “The rise of the avocado, America’s new favorite fruit,” The Washington Post, https://www.washingtonpost.com/news/wonk/wp/2015/01/22/the-sudden-rise-of-the-avocado-americas-new-favorite-fruit/, accessed November 2016.

2 Adam Chandler, “The Return of the Avocado as a Luxury,” The Atlantic, http://www.theatlantic.com/business/archive/2016/10/avocado-shortage-price-hike/504383/, accessed November 2016.

3 Adam Sternbergh, “Have You Eaten Your Last Avocado?,” Slate, http://www.slate.com/blogs/browbeat/2015/04/23/avocado_shortage_is_the_end_of_avocados_nigh.html, accessed November 2016.

4 Adam Chandler, “The Return of the Avocado as a Luxury,” The Atlantic, http://www.theatlantic.com/business/archive/2016/10/avocado-shortage-price-hike/504383/, accessed November 2016.

5 Adam Sternbergh, “Have You Eaten Your Last Avocado?”, Slate, http://www.slate.com/blogs/browbeat/2015/04/23/avocado_shortage_is_the_end_of_avocados_nigh.html, accessed November 2016.

6 Natasha Geiling, “California Heat Wave Spells Doom For Avocados,” Think Progress, https://thinkprogress.org/california-heat-wave-spells-doom-for-avocados-b4ed25c95088#.edjpadu4s, accessed November 2016.

7 Tiffany Hsu, “Calm down: The Great Chipotle Guacamole Scare is a non-issue. Right?,” Los Angeles Times, http://articles.latimes.com/2014/mar/05/business/la-fi-mo-chipotle-guacamole-climate-change-20140305, accessed November 2016.

8 Justin Harkey, “The Forecast Restaurants Need to Know About Climate Change,” Modern Restaurant Management, http://www.modernrestaurantmanagement.com/the-forecast-restaurants-need-to-know-about-climate-change/, accessed November 2016.

9 Chipotle, “Using Less Energy For a Brighter Future,” Chipotle website,  https://chipotle.com/energy, accessed November 2016.

10 Allison Miller, “How Zero Foodprint helps restaurants fight climate change,” Delicious Living, http://deliciousliving.com/blog/how-zero-foodprint-helps-restaurants-fight-climate-change, accessed November 2016.

11 Adam Sternbergh, “Have You Eaten Your Last Avocado?,” Slate, http://www.slate.com/blogs/browbeat/2015/04/23/avocado_shortage_is_the_end_of_avocados_nigh.html, accessed November 2016.

12 Justin Harkey, “The Forecast Restaurants Need to Know About Climate Change,” Modern Restaurant Management, http://www.modernrestaurantmanagement.com/the-forecast-restaurants-need-to-know-about-climate-change/, accessed November 2016.

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7 thoughts on “Is Chipotle facing a guacapocalypse?

  1. Interesting article! What are your views on the location of the avocado farms? I like the idea of vertically integrating the supply system, but I imagine that transportation costs for Chipotle are significant and this may also lead to increased CO2 emissions. What options does Chipotle have in reducing some of these transportation costs?

  2. Interesting read! And a scary read as a big fan of avocados. I find it interesting that pretty much the whole supply of avocados seems to be coming from California and Mexico. Has there been research into growing in additional locations? It would seem that other areas would have relatively similar climates, but perhaps the risk of droughts are higher in some of these potential locations. The amount of water to grow an avocado is a bit concerning, especially since California is dealing with similar issues with their almond supply. It will also be interesting to see if possible shifts in agriculture in the US–from West to Mid/South–due to high costs of water may effect the overall supply chain for Chipotle.

  3. Great article, thanks!
    A few concerns on vertical integration: does Chipotle have the expertise (I guess not) or the leverage to add a new business branch? It seems that Chipotle is greatly focused on expanding coverage and entering new markets, which will potentially interfere with trying to buy, own and operate farms (they might risk having too many balls in the air). Such a multitasking model might result in poor execution across areas.
    Additionally, as Chipotle is expanding, they could potentially evaluate sourcing avocados from new locations (e.g. Latin America, Asia) and compensate for the lower price (I assume this will be a fact) with investing more the educate farmers on sustainable practices. This will hopefully increase the avocado supply for Chipotle and help them establish their image as sustainable. Any thoughts from the company on these points?

  4. Interesting article, sad but very good. It is surprising to analyze the impact that fads or trends can have in the economic cycle of one particular product or even region. The shortage of avocados for Chipotle might seem troubling and very serious, but what is more remarkable is the lack of this huge corporations benefiting from natural resources without acknowledging the impact of these shortages in the production chain and therefore design social initiatives to offset their impact.

    Avocados are part of the culinary culture of Mexico. Being an ancient source of protein for the people, avocado is included in 3 of the 3 meals that every Mexican has daily. Since the avocado “trend” in the US, Mexico has exported millions of avocados to its northern neighbor experiencing a huge inflow of resources into the Mexican economy and providing jobs in the Mexican fields, but also creating an inherent shortage in people’s homes and rising avocado prices. The cultural shift and struggle that derives from this tensions is an increasing concern among agriculture officials who are in search of solutions to this growing problem.

  5. Thanks a lot for an awesome post !

    My follow up question would be: don’t you think that Chipotle should actually drop avocados and build another value proposition (based on another key ingredient) ? However hard that might be, it would protect the company from two risks: (1) the fear of a ‘guacapocalypse’ coming from climate change threats and (2) the negative social impact avocado production has on communities (for instance lack of drinking water in Chile)

  6. Hi Willa-

    Great post! It’s amusing to think just how devastated we consumers feel about a potential “guacopalypse.” This is a great example of a cultural fad clashing head-on with the prospect and effects of global warming. I particularly like how you touched on how Blue Hill took their supply chain into their own heads — this is the same kind of vertical integration that we saw in the Ikea case. In addition to being a great branding opportunity, vertical integration really empowers (well, kind of forces) food companies to think about innovating how they source and grow their crops.

  7. As a Californian and guacamole fanatic, I am glad you did not want to pursue alternative menu items like the recently revealed pea-based guacamole (What sacrilege!). I agree that Chipotle should work closely with its suppliers to improve avocado yield. Still, I wonder if focusing on Californian and Mexican suppliers will be enough to offset the fact that climate issues are expected to persist while avocado demand itself increases by ~3% YOY [1].

    I would argue that Chipotle should also aggressively pursue new supplier partnerships in locations like Chile and Colombia to ensure that they have enough avocados to meet future demand. Just last week, the USDA proposed allowing imports from Colombia in order to avoid price hikes for US consumers. In that regard, I think Chipotle should band together with its competitors to help these alternative suppliers increase quality yield to meet US import standards. Colombia for example had previously been unable to meet phytosanitary requirements and waste treatment issues in enough volume to be a key avocado supplier to the US [2]. Chipotle could leverage this issue to not only secure new supplier relationships but also build its reputation as an environmentally-conscious company.

    Lastly, though Chipotle claims they will not raise menu item prices despite the guacapocalypse, I am hesitant to take its word at face value. After all, similar fast casual restaurants like Qdoba have already publicly claimed they are having trouble keeping up with avocado demand, and it was only two years ago that Chipotle raised guacamole prices by 8 to 11% in various locations.
    I would love to hear your thoughts, maybe over a burrito bowl in Boston!

    [1] http://www.freshplaza.com/article/156557/OVERVIEW-GLOBAL-AVOCADO-MARKET
    [2] http://fortune.com/2016/10/28/usda-avocado-shortage/

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