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

The casual-dining chain proves it's profitable to offer all-natural foods.

Apr 21, 2014 at 12:32PM

Images

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.

The next innovation poised to change our world
The Economist compares this disruptive invention to the steam engine and the printing press. Business Insider says it's "the next trillion-dollar industry." And the technology behind it is poised to set off one of the most remarkable health-care revolutions in decades. The Motley Fool's exclusive research presentation dives into this technology's true potential and its ability to make life-changing medical solutions never thought possible. To learn how you can invest in this unbelievable new technology, click here now to see our free report.

Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers