What Are Yum! and McDonald's Biggest Risks and Chipotle's Best Asset?

Brands like Yum!, McDonald’s, and Chipotle Mexican Grill have little in common, but one thing exemplifies the brands’ differences.

Apr 17, 2014 at 8:27PM

Chipotle Mexican Grill, (NYSE:CMG) has started to attack Yum! Brands (NYSE:YUM) and McDonald's (NYSE:MCD), though not directly of course. Rather, the burrito maker has been quite creative while calling attention to a huge risk that fast-food behemoths have built their supply chains around.

Chipotle has been working to build awareness around the risks of industrial agriculture for some time now, specifically by producing "owned media" that creatively emphasizes the degradation of quality that such massive food production generally embodies.

Creative integration
Back in 2011, Chipotle partnered with Willie Nelson to produce Back to the Start, a short clip that emphasizes the burrito maker's focus on cultivating a better world through simplifying agriculture:

 

In 2013, Chipotle partnered with Fiona Apple to produce The Scarecrow, a short video that gives viewers a closer look at how it views itself within the fast-food, industrial agriculture landscape. Aiming to extrapolate out the deplorable aspects of its competitor's supply chains in a palatable manner, Chipotle has succeeded in growing its brand strength and creative credibility.

Screen Shot

Source: Chipotle website.

And now, with its Farmed and Dangerous miniseries on Hulu, Chipotle has gone even further with its "Cultivate a Better World" message by devoting a great deal of resources to producing a show that mentions the brand's name only once. The company seems earnestly devoted to changing the way consumers think about their food. Opting to shine a light on the standard fast-food industry practice of relying on industrial agriculture for its supply chain, instead of focusing strictly on its products, affords Chipotle a number of engagement opportunities that Yum! and McDonald's can only hope for.

Scarecrow shareholders
Chipotle's recent marketing campaigns have allowed the company to call attention to its core values, which further fosters a transparent dialogue among its key stakeholders, from the family farms with whom it works, to its employees and its customers. It is efforts like these, matched with the company's sincere approach to selling "Food with Integrity" that are among Chipotle's most valuable branding assets.

Screen Shot

Source: Chipotle website.

Turning a blind eye
Yum! and McDonald's, on the other hand, exemplify all that Chipotle has been working so hard to expose: inhumane animal conditions, rampant use of antibiotics, GMO-laden crops. The fast food giants have grown their operations by relying upon food production focused on quantity by allowing the quality of their materials to fall by the wayside.

By approaching their supply chains from a bottom line, strictly numbers perspective, Yum! and McDonald's have put their brands and scope of influence at risk. The reliance that these companies have placed upon standard industrial agricultural practices has increased their vulnerability to a number of health and brand credibility concerns. Numerous outbreaks of the avian flu, e coli, and other foodborne illnesses have leveraged both Yum!'s and McDonald's brand strength in recent years, and will likely not stop anytime soon.

Screen Shot

Source: McDonald's website.

Is it good enough to last?
Sure, McDonald's has embarked upon a sustainability initiative in order to address the risks brought to light by consumers' growing demand for higher-quality ingredients with fewer additives. But without taking an earnest look at how to change its supply chain on a holistic and meaningful level, these risks will plague its operations for years to come.

Yum! seems to be quite content with its supply chain practices, as it has opted not to make any meaningful strides toward addressing the cause of its foodborne risks. The parent company to KFC, Pizza Hut, and Taco Bell has chosen to turn a blind eye to this pervasive supply chain issue, which has been taking a toll on the brands' credibility in markets like China, which makes up more than half of Yum!'s overall sales .

Screen Shot

Source: KFC China.

In the long run
Over time, it's a company's story that allows it to grow its brand in reputable manner. Chipotle is plastering its mission all over the place, advertising its drive to be held accountable for its supply chain choices. Yum! and McDonald's are struggling to find their footing in an expanding landscape of health conscious and sustainably-minded consumers who expect more from their food.

Chipotle aims to change the world of fast food
The burrito maker has been hard at work changing the way consumers look at food. We here at the Fool would love the chance to educate you about about two retailers with prospects much like Chipotle's, but in the retail sector. Take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Leah Niu owns shares of Chipotle Mexican Grill. The Motley Fool recommends Chipotle Mexican Grill and McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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