Chipotle Mexican Grill (NYSE:CMG) aims to serve "food with integrity," according to its evocative mission statement. But contrary to some assumptions, the company's ingredients aren't quite as local as you might think.
In this clip from the Industry Focus: Consumer Goods podcast, Vincent Shen and Asit Sharma talk about Chipotle's mission statement and what it reveals about the company's business model. They also discuss where Chipotle's pork, avocados, tortillas, and lettuce come from, and why they aren't as locally sourced as they used to be -- in fact, it's possible some components of the burrito you ordered today were shipped across an ocean.
A transcript follows the video.
This podcast was recorded on May 24, 2016.
Vincent Shen: The company's mission statement actually reads, "Food with integrity is our commitment to finding the very best ingredients raised with respect for the animals, the environment and the farmers."
If we're looking at the life cycle here of the Chipotle burrito, going from the farm to our table, it's exactly some of those animals and farmers that I think we're going to be discussing today, looking at these ingredients. Let's dive right into it. What do you think Asit?
Asit Sharma: Yeah, sure. Let's talk about that mission statement for just a second. Chipotle often shortens that mission statement on its websites, [if] you come across any promotional materials, because it's a mouthful. They shorten it to, "Food with integrity," and that is an awesome mission statement when you condense it down. It's concise, it's evocative, it makes you believe, or want to believe in the product. But there's this other thing going on, too, and that's actually a business model. It's got this marketing pull and it's got a certain cost structure underneath it. When you communicate to the customer, "This is food with integrity," you're differentiating yourself from the quick-service restaurants, the McDonald's and Wendy's of the world, so you're setting a very high bar to begin with.
What we've seen with Chipotle is that that business model's worked so well for them for so many years because there weren't many incremental costs associated with that model. They went about their business sourced with great suppliers, had a great product, but didn't have to come to terms with any kind of food scares that we've seen recently. This is the first instance that we're seeing Chipotle is having to pay whatever it takes to make that one word in the mission statement, integrity, come true for its customers.
Diving from there into the supply chain, what's really interesting when you walk into your local Chipotle, you see -- Vince, I know we talked about this recently -- you see the ingredients, and you want to think they're very low or very close to you. I'm sure this is your take, correct?
Shen: Yes, absolutely.
Sharma: Yeah, mine too. I'm also a fan of Chipotle, a fan of the stock, a fan of the food. But the reality is that your burrito, or your burrito bowl, has a variety of far-flung ingredients coming with it. Your pork may be coming from England, because Chipotle had a few food scares, and before that had issues with hormones. They've really reached out and branched overseas to some suppliers. They have two, one is called Karro, the other is Tulip. These suppliers sent carnitas, that is pork, over the ocean to Chipotle because Chipotle ran into some issues with hormones in the pork here domestically.
That doesn't mean that they don't have domestic suppliers, it's just they're branching out. Your pork and your burrito bowl might come from overseas. The avocados come from California, for the most part. One of Chipotle's big tortilla suppliers is called Don Pancho, and they're based in Oregon. You might think, "Hey, I happen to know that there is this farm close by that supplies lettuce to Chipotle," and again this is very interesting. Before that lettuce gets to you, because of the Norovirus scares, E.coli scares, that lettuce is now being shipped to a central kitchen, which may be hundreds of miles away, where it's prepped and then sent back to be distributed to the restaurants.
This burrito bowl ought to come with its own passport; it's a really cosmopolitan batch of ingredients that's traveling hundreds, and in some case thousands of miles to get to the line where you pick up that order.