The Bees are Dying!
The bees are dying! As avocado prices soar, can Chipotle make guacamole cheap again?
The bees are dying! The implications are manifold – 85% of all food crops for humans are pollinated by bees. Studies have shown that climate change has caused the range within which bumble bees live in the northern hemisphere to shrink. Scientific data has further revealed that as global temperatures rise, bumble bees do not migrate north like many other species do.[1], [2] As of July 2015, this had already led to a decrease in bees’ southern ranges by 300 kilometers. This catastrophic loss of bees has been consistent across continents and poses a threat to all.[3]
Of particular concern to guacamole-lovers and certain multinational corporations alike is the crisis of skyrocketing avocado prices. One company that has been notably impacted by this is Chipotle. As of August 25, 2017, avocado prices had risen over 75% in less than a month’s time. With avocados representing approximately 10% of Chipotle’s costs to serve food, such an increase can have extremely substantial ramifications. Jason West, a Credit Suisse analyst, recently estimated that “every 10 percentage-point increase in avocado prices would lower Chipotle’s earnings per share by 30 cents on an annual basis.” In the risk factors found in Chipotle’s annual 10-K report, management specifically calls out avocados when describing the risk of fluctuations in food prices.[4]
While avocado prices have been particularly impacted in 2017 by a poor harvest that coincided with rapidly rising demand, the crisis is not limited to avocados. Additional crops that are reliant on pollination from bees include apples, almonds, oranges, cucumbers, blueberries, cherries, and onions.[8] It is estimated that one third of the food we eat depends on insect pollination.[5] For those crops that require pollination through bee hives that are delivered to the growing areas, the price paid per colony delivered has been rising due to the bee shortage. Between 2015 and 2016, the price per colony used in pollination of avocados rose from $27.7 per colony to $40.8. Near the high-end of the range, the price paid per colony to pollinate almond trees was $167 per colony.[9]
Guacamole currently represents one of Chipotle’s most popular food items on its menu. To address the concerns around its cost, management at Chipotle has been striving to decrease the quantity used without losing customers. The approach has been twofold: minimize waste and offer alternatives. Company-wide initiatives designed to decrease waste have been effective in decreasing quantities of all food (including guacamole) that is discarded. Additionally, in 2017, Chipotle added a new menu item: queso. The hope of management is that queso sales will cannibalize sales of guacamole and ultimately decrease consumption of avocados. While these strategies show promise in decreasing the amount of avocados used, they ultimately are not designed to combat the global bee crisis.
In considering ways that Chipotle could look to make a greater impact on the issue at hand, management could look first to the actions taken by General Mills to respond to the same issue at hand. Over the last year, General Mills has taken multiple steps to save the bees. In November of 2016, General Mills made a $2 million commitment to add more than 100,000 acres of bee and butterfly habitat on or near existing crop land. Further, as was widely publicized in March of 2017, General Mills used its Cheerios brand to embark on a nation-wide campaign to encourage the planting of wildflower seeds. This campaign led to the 1.5 billion wildflower seeds being sent to Americans and Canadians within the first week of the initiative. Haagen-Dazs, another General Mills Brand, has donated more than $1 million to honey bee research since 2008.
In light of the looming bee crisis as well as some recent negative publicity, now is a prime time for Chipotle to display a strong commitment to sustainability across its entire supply chain. On its website, Chipotle has already shown a commitment to not use preservatives, to ethically source meats, to use almost no GMOs (disclosures shown if they are present), and to buy locally sourced produce whenever possible. Missing from these commitments is a commitment to the bees.[10] With avocados coming primarily from California and Mexico, a commitment should be made to promoting the health of bees in those areas. Investing in and expanding avocado-growing operations in those areas offers a chance to alleviate costs to the business in the long-term. Alternatively, donations to create bee and butterfly habitats near the avocado farms pose a similar opportunity to revitalize the bee populations in the areas most affected by this crisis.
As a key stakeholder, how should Chipotle approach the bee crisis? For all companies whose supply chains are dependent upon insect pollination, how can they play a larger role in protecting their supply chains by saving bees?
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[1] “Bee Populations Feel The Heat Of Climate Change.” The Independent, 2014, p. 24. Lexisnexis, http://www-lexisnexis-com.ezp-prod1.hul.harvard.edu/lnacui2api/auth/checkbrowser.do?ipcounter=1&cookieState=0&rand=0.40525094719153787&bhcp=1.
[2] Gosden, Emily. “Climate Change May Wipe Out Bees, UN Scientists Warn.” The Daily Telegraph, 2014, p. 15. Lexisnexis, http://www-lexisnexis-com.ezp-prod1.hul.harvard.edu/lnacui2api/returnTo.do?returnToKey=20_T26798356604.
[3] “Bumblebee Decline Linked To Warming Climate.” Times, 2015, p. B5. Lexisnexis, http://www-lexisnexis-com.ezp-prod1.hul.harvard.edu/lnacui2api/returnTo.do?returnToKey=20_T26798356607.
[4] “20161231 10K FY_Taxonomy2015.” Sec.Gov, 2017, https://www.sec.gov/Archives/edgar/data/1058090/000105809017000009/cmg-20161231x10k.htm.
[5] Spector, Dina. “The Collapse Of The Honeybee Industry Could Cost Hundreds Of Billions Of Dollars.” Business Insider, 2017, http://www.businessinsider.com/collapse-of-the-honeybee-industry-could-cost-hundreds-of-billions-of-dollars-2013-6.
[6] “Rising Avocado Prices And Chipotle’s Other Woes.” Forbes.Com, 2017, https://www.forbes.com/sites/greatspeculations/2017/08/29/rising-avocado-prices-and-chipotles-other-woes/.
[7] Whitten, Sarah. “Spiking Avocado Prices Are The Least Of Chipotle’s Worries.” CNBC, 2017, https://www.cnbc.com/2017/08/25/spiking-avocado-prices-are-the-least-of-chipotles-worries.html.
[8] “10 Crops That Would Disappear Without Bees.” Fox News, 2017, http://www.foxnews.com/food-drink/2012/07/19/10-crops-that-would-disappear-without-bees.html.
[9] “Cost Of Pollination.” Usda.Mannlib.Cornell.Edu, 2017, http://usda.mannlib.cornell.edu/usda/current/CostPoll/CostPoll-12-22-2016.pdf.
[10] “Chipotle — Food With Integrity.” Chipotle.Com, 2017, https://www.chipotle.com/food-with-integrity.
Great article, Jonathan! I think all of your proposed solutions, namely making a commitment to add more than 100,00 acres of bee and butterly habitat on or near existing crop land, is a great solution. Based on my research, there is also another solution: Chipotle and other key stakeholders and work with researchers and explore and eventually important foreign bee populations. As you mentioned, while the northern hemisphere is suffering from a shrinking bee population, honey bee populations in South Africa, Uganda, Kenya and Benin are very healthy. Is it possible that introducing a foreign honeybee to the northern hemisphere may help our the significant decline in bees? Similarly, could genetically altering either African bees or European local bees be beneficial in extending the lifespans and durability of bees in the Northern Hemisphere?
http://www.cnn.com/2015/11/05/africa/african-honey-bees-conversation/index.html
http://etheses.whiterose.ac.uk/2891/1/thesis.pdf
Jonathan, I thoroughly enjoyed your article on Chipotle and the bee crisis. Given the scale of this problem, I think Chipotle stands to earn a lot of goodwill in addition to reducing their costs if they are able to make a firm commitment to the bees and curb the impact of climate change on native bee populations.
One radical idea would be to consider capital investment in technology that is aimed at filling the void left by decimated bee populations. For example, autonomous bee robots or tiny drones that serve the same end would be an avenue worth considering. The Wyss Institute at Harvard is already looking into the matter and has produced an interesting breakthrough: Robobees [1]. According to their site, these are autonomous micro-aerial vehicles capable of self-contained, self-directed flight and of achieving coordinated behavior in large groups. Scientists in Japan are also exploring similar technological breakthroughs [2]. Although these technological prototypes are far from market, perhaps Chipotle should consider branching beyond delicious food and become the first major Robobee investor.
Check the first link out for some cool videos!
[1] https://wyss.harvard.edu/technology/autonomous-flying-microrobots-robobees/
[2] https://www.npr.org/sections/thesalt/2017/03/03/517785082/rise-of-the-robot-bees-tiny-drones-turned-into-artificial-pollinators
I appreciated the interesting post, Jonathan.
I wonder if Chipotle would consider passing on the cost of the higher avocado prices onto its customers. In a commodity-impacted business, it can be difficult to pass on costs to the consumers who are used to paying a certain price for a good and do not have a great understanding of the need for the restaurant to cover its own costs. Further, I wonder if Chipotle had a better record in terms of health and public goodwill, would the company be more aggressive in passing on the cost increases to its customers. Chipotle is stuck between improving margins by passing on costs and risking alienating consumers or sacrificing margin to win back the hearts (and stomachs) of its customer base. I saw a recent report that indicated analysts and investors are more concerned with attracting customers at the moment at the expense of margin (https://www.cnbc.com/2017/08/25/spiking-avocado-prices-are-the-least-of-chipotles-worries.html) but these are obviously difficult decisions for Chipotle management.
Based on my own expeirence I believe avocado demand to be inelastic.
See below for my value-add comment.
Great post! SO interesting (and really quite logical) that they are pushing alternatives like queso. Avocado consumption does seem to have increased in recent years as a trend, so it seems quite likely that they could successfully market alternatives to become the new leading trends. Guacamole has a reputation for being much healthier than queso, so I wonder if that is something that they should consider in their marketing.
I also watched a news story on robo-bees recently (similar to those Damir discussed in his comment). It seems like a very viable option, though costly and honestly very sad that we’re more or less giving up on saving the bee population.
Is the Avocado the victim or the perpetrator?
The changing climate definitely puts our avocado supply at risk. In additional to the bee shortage, rising temperatures leads to higher susceptibillity to disease for avocado plants and droughts (e.g., in California) have led to use of higher-salt water which shrinks avocado size.
But… our avocado obsession is also contributing to climate change. Given the booming US demand for avocados, there has been deforestation in Mexico (sometimes illegally) to plant high return avocado farms for import businesses.
Sources: https://qz.com/774718/avocado-prices-in-the-us-are-up-because-of-climate-change-and-consumer-demand/
https://www.pbs.org/newshour/economy/column-avocado-boom
Thank you Jonathan for a great article! I had a great time reading it. My first reaction echoed the great points Damir and Michelle brought up. Robobees! (Reminds me of the Black Mirror episode about robotic bees as a human killing weapon) After all, our current society has a fascination with using artificial intelligence and robotics to resolve challenges of mankind. On another note, I am saddened by the investment worldwide scientists and institutions are putting into the develop of robobees. It could potentially be a huge distraction to the real problem – the disappearance of bees is detrimental to our ecosystem which has profound impact beyond Chipotle’s avocados. Chipotle needs to be an active citizen in addressing this problem (vs. go into this solving for its avocado problem). Real problem is we need to address the disappearance of natural bees NOT the need for robobees. As such, I have my reservations about capital investment from Chipotle into robobees technology. Also what message would that send to the public about Chipotle’s intentions?
Jonathan, thank you for highlighting this interesting (and serious!) topic. This may be radical – but I wonder if vertical integration is the key here. For today’s consumers, sustainable and environmentally friendly sources of food are becoming increasingly critical considerations. As the overall population grows, demand for products such as avacodos will far outstrip any potential crop yield increases, particularly as arable land decreases. So for a company like Chipotle, I’d argue that is is not inconceivable that vertically integrating all the way backwards to the farm is a good idea (i.e., “farm to table”). I think the concept has two significant advantages – (i) from a sustainability perspective, it allows Chipotle to directly control how the bee population is being affected at its own farms, what types of fertilizers (if any) are used to grow its products, and how workers are treated, (ii) vertical integration will also be a source of competitive advantage. As crop prices increase more and more and supplies stay stagnant or even decrease, Chipotle being in a position to grow its own avacados will be a significant competitive advantage to attract customers! I personally can’t wait to visit a Chipotle Avacado / Bee farm someday soon!
My argument here would be that with global warming, the population of bees and avocadoes will move to previously cooler locations to maintain a similar climate. Chipotle and other restaurants might have to shift the region of their suppliers, which could affect their supply chain transportation costs.
Jonathan – excellent post, thank you for sharing this important and timely subject. Chipotle’s response to cannibalize avocado sales with queso is a great tactical choice. I will be interested to see, as avocado supply continues to be variable, how Chipotle will balance consistency with their original product (are avocados are integral to their offering long term?), consumer preference (what is WTP for guac?), and bottom line. Although I like your suggestions to purchase avocado farms and invest in habitat, I am not optimistic that private investments will be adequate to stem the tide of dwindling bee habitat (climate change seems to be happening faster than they can evolve). Chipotle could consider donations to create more political will to address climate change at the federal level, but it risks alienating some customers. PS – thank you for writing about a topic of keen interest to me… (mass extinction).