Chipotle Mexican Grill, Inc. Shows How to Do GMO-Free Right

Lost amid the swirl of attention showered on Chipotle Mexican Grill's (NYSE: CMG  ) first price hike in three years is the news that the leader in fast-casual dining concepts will be completely GMO-free by year's end.

Although the goal is not new and the company has received a lot of traction from its publicly stated views that locally farmed organic produce is a centerpiece of its mission to bring fresh ingredients to the table, that the Mexican-flavored restaurant can achieve this end and receive customer support in the form of higher sales and greater traffic proves it's a winning strategy others can emulate..

In its just-released quarterly earnings, Chipotle recorded a 24% increase in revenues as same-store sales surged 13.4%, generating a 12% increase in earnings per share. While its comps were up against a relatively easy year-ago figure (same-store sales were just 1% higher in the first quarter of 2013) and its per-share profits were below consensus estimates, the sales number was well ahead of the 9.3% gain recorded in the previous quarter, and the profit numbers were affected by rising food costs, hence the price increase the chain is planning.

In contrast, General Mills  (NYSE: GIS  ) seemed to cynically remove GMOs from its Cheerios cereal. It said it had no plans to remove them from its other brands and its CEO declared the results were pretty much what he expected as sales didn't move the needle. Heck, according to him, even his customers don't care about GMOs!

While it's probably too short of a time period for General Mills to determine whether going GMO-free is working for its cereal, is it really a surprise its customers haven't responded? On one hand, you have Chipotle living and breathing the belief that natural, wholesome ingredients are best for its customers; on the other, a company trying to gain from the "halo effect" by doing what's expedient because it's trendy.

Certainly, Chipotle's decision to go GMO-free has increased its costs internally as genetically-altered foods tend to be cheaper, but higher costs for beef, avocados, and cheese are pushing its expenses higher, too. Yet there may not be a premium much longer for organic ingredients like corn because of the growing global backlash against the GMO versions.

Some 90% of corn these days is genetically modified, and even though the Agriculture Department hasn't found any increase in yields in GM crops over the 15 years they've been in existence, their proliferation is spreading. But countries like China have increasingly been rejecting corn shipments because they contain traits that haven't been approved, and that's led to losses incurred by corn farmers, who have to lower prices to sell China-bound corn elsewhere. As a result, the USDA estimates farmers will plant 4% less corn this year than they did in 2013, meaning corn futures prices are on the rise.

Chipotle has rejected the concept that the world can't be fed without GMOs, and the response by its customers shows they approve of its Food With Integrity message. While its stock dipped following the price hike announcement as investors wondered how the increase would impact sales, as the restaurant notes its customers don't eat at its restaurants for price but rather the experience, it's earned "permission" from them to raise prices. Moreover, it's not increasing them as much as it could -- "We've still got room," the CFO said -- which suggests the gains in traffic and average ticket will offset any potential losses incurred by sticker shock.

Chipotle Mexican Grill will likely lose a few additional points of margin because it's not raising prices as high as it could (and perhaps should), and this past quarter it said its restaurant-level operating margin fell 40 basis points to 25.9% from last year. Yet management's shown it's willing to look beyond just the current quarter or two for what's best for the long-term growth of the chain, which is a trail being blazed that other companies would be wise to take notice and follow.

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Read/Post Comments (6) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 22, 2014, at 6:02 AM, CinAn wrote:

    Such a sad commentary that "getting it right" involved Chipotle's fear profiteering versus General Mills, however misguided, offering consumers some form of GMO-free choice. It shows that companies like Chipotle profit only when they disparage less costly competitors products with false and misleading food scares via their dark hat advertising and promotions like "Farmed & Dangerous." These marketing ploys seek to drive consumers to more expensive organic or GMO-free offerings based on false food safety fears.

    When General Mills mistakenly tried to jump in to the GMO-free game but failed to compliment that with unethical and misleading disparagement of conventional farming methods and affordable foods it was no surprise that it didn't translate into sales. In fact, the "GMO-free" marketed Cheerios turned out to be less nutritious than the original and consumers who aren't misled about the safety of ingredients derived from biotech crops aren't going to buy an inferior and more costly product based on an irrelevant absence claim.

    We should not be applauding Chipotle for spreading fears about safe food for their own profits - and certainly not headlining them for "getting it right" when they cash in from defrauding consumers into paying for their puffed up offerings based on mis-perceptions about food safety and nutrition.

  • Report this Comment On April 22, 2014, at 12:34 PM, EcoR1 wrote:

    I refuse to eat at Chipotle anymore. Pandering to people's unjustified fears is not a marketing ploy I will support, especially when over 90% of America's corn, soy, cotton and canola farmers are choosing to grow GE varieties year after year.

    Consumers who don't like GMOs can freely purchase organic foods, but Chipotle is backstabbing the vast majority of US farmers.

  • Report this Comment On April 23, 2014, at 1:01 PM, Jeff14 wrote:

    I am of the same opinion as EcoR1.They are happy to fill you with sodium, fat, and cholesterol but pretend to be concerned about your health?? Give me a break. I will never support a company that helps create and support fears based on people's ignorance. Put Whole Foods in the same shopping basket for me. According to the Fool who wrote this article, Chipotle stock will soar because people will flock to support non-GMO. Meanwhile the stock dropped another 2% today bringing it down about 20% over the last month.

  • Report this Comment On May 14, 2014, at 11:24 AM, T3chn0 wrote:

    Obviously the prior 3 comments are from people who know nothing of the GMO dangers and little choices people have when choosing restaurants who make a conscious decision to source non-GMO food. There is so much research that GMOs are not only bad for ,mammals, but the pesticide that they have made GMO's resistant is absolutely destroying peoples health. Personally, I would never support General Mills because they do not have a genuine interest in people health. TO remove GMO's from a single product when they have hundreds if not thousands can garner no respect. You all can choose the crap, I'll eat organic and support Chipotle with my comments and dollars. “Monsanto should not have to vouchsafe the safety of biotech food.... Our interest is in selling as much of it as possible. Assuring its safety is the FDA’s job”—Phil Angell, Director of Corporate Communications, Monsanto, quoted in New York Times Magazine, October 25, 1998

  • Report this Comment On December 20, 2014, at 6:10 AM, mary7841 wrote:

    I have been Gmo free for 2 years now ,And its the biggest change in my life so big I will not go back to eating that crap again I feel 20 years younger,I am so glad that I can go out to eat again without worrying about the pesticides I am allergic to.thank you so much

  • Report this Comment On June 03, 2015, at 10:52 AM, BillBarakas wrote:

    Regarding Phil Angell's comment shared by another poster, see

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

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