Chipotle Mexican Grill's (NYSE:CMG) motto -- "food with integrity" -- has been something consumers and the company have thought a lot about since the recent E. coli and norovirus incidents at the chain. The public is clearly worried about whether the food is safe, and the company needs to assure them that it is.
In this segment from the Industry Focus: Consumer Goods podcast, Vincent Shen and Asit Sharma talk about some of the ways Chipotle has responded to the concerns, and defended its status as a high-quality fast-casual restaurant. Find out what it's changed at a supply-chain level, and how the company has changed the way it prepare vegetables, beef, and chicken to make its food safer for consumers.
In addition, Asit and Vince talk about Chipotle's biggest suppliers, and how well-respected they are in the food industry at large.
A transcript follows the video.
This podcast was recorded on May 24, 2016.
Vincent Shen: Before I wanted to dive into a little bit more of the safety initiatives specifically, and how it's changing, we talked about some of the ingredients, where they're coming from, and then also how the preparation process is changing in the restaurant -- and also at these central preparation centers. The thing is, Chipotle actually has kept their supplier list really pretty close to the chest, so a few other names to keep in mind that we discovered during our research. There's another one that's called Niman Ranch; they're a source of beef and pork, and network from hundreds of independent farmers. As of last year, they were actually the largest pork supplier to Chipotle.
For example, during that carnitas shortage, where the company decided to cease taking pork from one of their vendors that they found was not adhering to their animal-welfare standards, Niman Ranch tried to step in; but they can only do so much on short notice. Interestingly enough, actually, toward the end of last year in September, Perdue Farms actually bought out Niman Ranch, and there was quite a bit of controversy among Chipotle fans and fans of Niman Ranch themselves, basically saying, "This is going to change everything; Perdue takes much more of a large-scale approach to growing food," and that they're not going to be as concerned with animal welfare.
But it seems like I think all parties involved are interested in maintaining that relationship, and the reputation that the Ranch has developed over the years. Then also a few other ones that we discovered were OSI Group, ... and Golden State Foods. These are also commissaries that help with the food preparation, so I think the pork and beef is braised by OSI according to Bloomberg, and then Ready Food also cooks some of their bean -- makes red ingredient sauces. Is there anything that you found out about these suppliers, as well?
Asit Sharma: Yeah, sure. Niman Ranch is extremely well-respected in the food industry. They sort of grew up with Whole Foods. They have, or hold, Whole Foods' highest supplier rating. They have scaled up with that company.
It's a natural fit for Chipotle to do business with them. We know that Golden State supplies to some very large companies, even in the fast-food industry, such as McDonald's. These are well-known large suppliers. Even though Niman was bought out by Perdue, my thought is that they probably will be able to keep their practices, and Perdue understands that revenue stream has a certain buyer, so they're not going to mess with it too much.
But I'd like to move on to actually talking about how this food is prepped in these central kitchens, and some of the techniques that have changed for Chipotle. It's pretty fascinating. When you think about the tomatoes that go into your burrito -- and some other of these vegetables -- they're actually... now, the vegetables are blanched. If you don't know what blanching is, it's basically dropping the vegetables into boiling water for two to three seconds. You might think that this kills the taste. If you were to take that same tomato and taste it, yeah, maybe you would see the difference. But what executives at Chipotle said when they came up with this is, "Hey, I challenge you to taste the difference in a burrito when everything else is in there, including the cheese and the sour cream, whatever else you have."
I tried that. I went to Chipotle and I said: "I know I'm going to be able to taste the difference because I'm a serious fan. I consider myself a borderline foodie. I don't have immense food knowledge, but I'm going to be able to taste the difference." I went, I ate the burrito, and I could not tell the difference on that side. But some of the other procedures that they're using, you can tell a little bit of a difference.
One is definitely for the positive. With the chicken, Chipotle used to marinate their chicken through the day, and now they only do it at night. Anyone who's ever cooked at home, unwrapped a bit of chicken, you see the warnings on the food labels: "Don't let this chicken get all over your counter." You've got to handle this stuff very carefully. What they do know is they marinate the chicken overnight, so there's very little chance of contamination of surfaces and other food items. I think that's actually improved the taste of the chicken, because in some cases, it results in a longer marinade process.
But the beef is a whole different story. Bear with me here; I'm going to go into a little bit of detail. You foodies out there perk up your ears, because you probably are familiar with this technique. If you remember when Chipotle first came around, for me -- and Vince, you mentioned this when we were talking -- for you, as well -- seeing how they used to throw the raw beef onto their grill, and sear that on a commercial oven, a gas oven -- that was pretty exciting and new. Then they would slice it up, and it had a very classic American seared on the outside, medium texture on the inside; and it was delicious.
Along comes this food scare, and now, what Chipotle is ... preparing the beef sous vide. What that means is it's a vacuum process; basically, they take their beef, and put it in plastic bags, vacuumed, and they put this into a water bath, a warm-water bath, and they let it sit there for hours. This is a really slow way to cook the meat, and what it does is, it breaks down the collagens and the connective tissue, and it increases the succulence of the meat. Basically, you should be getting what's an even tastier product.
Now, there's a slight catch there -- which is, when you walk into a Chipotle, you really don't see that beautiful seared beef any longer. You see something that looks appetizing, but it's brownish, and our brains are hardwired so that our senses combine. We need to see what we're eating. We need to smell it; we need to feel the texture on our tongue. If something's different, our brains tell us, "This isn't quite the same, and maybe it's not quite as good." You may think, "How important is that?"
It's so important that, on Chipotle's most-recent conference call, the analysts were asking about this sous-vide preparation technique. They were saying, "Hey, how are customers reacting to this?" Because if you and I don't take to that beef any longer, guess what's going to happen to one of Chipotle's most-popular meats, and to their sales, in general?
Monty Moran, co-CEO, was very careful to say, "Hey, at first customers didn't seem to be taking to this, but now their satisfaction is improving." I think, by and large, that's true. Try this at home: Next time you go to Chipotle and order a steak burrito, try the taste, it's different, but it's not bad. It's actually juicy meat, and I think it passes muster.
Shen: OK, OK. Yeah, I did notice that. Honestly, I have to say, Chipotle's beef was what originally pulled me away from Qdoba, I loved the way they grilled it right then and there. I love grilling out, and seeing those grill marks on it even. It was, I felt, like another level in terms of the quality, and really won me over -- and made me a regular at Chipotle restaurants.