Chipotle's (NYSE:CMG) anti-GMO (genetically modified organism) mission coincided with a 30% jump in fourth quarter profits, and adaptable restaurant chains may soon try to cash in on the positive public response to going GMO-free. Are there any other companies that could pull off the transition to GMO-free menus as well as Chipotle? And even if they can, would they see the same positive results?
Why it works for Chipotle
What separates the anti-GMO move by Chipotle from a similar move by any other restaurant chain is authenticity. Chipotle understands and has always marketed toward the more 'food-conscious' consumers that want to know the origins of the food they ingest. The Chipotle menu has always had a small list of ingredients when compared with traditional fast-food restaurants, and the company has always emphasized the local sourcing of these ingredients and seeks organic ingredients whenever feasible. McDonald's could make a pledge to use only hormone-free beef in all Big Macs, but such a move is not consistent with the rest of the already-established brand and would do little to attract consumers seeking sustainable foods.
Chipotle has seen impressive growth in same-store sales since vowing to go GMO-free almost a year ago, though the growth cannot be entirely attributed to consumers seeking to remove GMOs from their diet. With a constantly growing number of new store openings (nearly 200 are planned for 2014) and quickly increasing advertising expenses, tracing the portion of increased profits attributable to GMO-labeling and reduction of GMOs in their foods is difficult to say the least. Perhaps a better indicator of how the public is willing to buy into the GMO-free market is tracking how a well-established, slower-growing brand like Cheerios is able to profit from announced plans to go GMO-free.
Who else could pull off anti-GMO?
Healthy eaters are not necessarily synonymous with anti-GMO consumers, but the establishments that cater toward healthy eaters are more likely to portray a brand image that puts value on organic and GMO-free foods. That said, Subway would be more likely to make an anti-GMO push than would KFC, even if the transition would require more sourcing of GMO-free ingredients.
Chipotle's vow to remove GMOs from its menu is feasible in part because the menu is already not loaded with corn and soy products. Without meaning to take away from the company's efforts to provide consumers with the ingredients they want, removing GMOs from Chipotle's menu is remarkably easier than removing GMOs from the menus of most common fast food restaurants, which are packed with highly processed foods laden with corn and soy byproducts. Chipotle's primary ingredients are already GMO-free due to its conscious use of rice-bran oil in place of soybean oil in its beans, rice, and meat products, and a move to sunflower oil in place of soybean oil in its fryers. Challenges that remain for Chipotle will be finding suitable and available ingredients to replace GMO corn in corn tortillas and tortilla chips (though this is already in place at restaurants in California, Oregon, Washington, and parts of Ohio and Michigan) and the more imposing task of finding a viable source for meat and dairy products from animals not raised on GMO feed.
Due to the sheer magnitude of ingredients that would need replacing, most of the nation's largest restaurant chains could not feasibly achieve a full GMO-free menu. Even for companies with very limited food offerings like Starbucks (NASDAQ:SBUX), a removal of GMOs from the menu would be extremely challenging due largely to the overwhelming presence of GMOs in almost all baked goods.
Only a small collection of restaurants could feasibly shift to a GMO-free menu, and the portion of those companies for which the transition matches the image and target market of the establishment is even smaller. The two companies that could, with a very concerted effort, make a GMO-free pledge that translated to profit gains are Panera (NASDAQ:PNRA.DL) and Noodles & Company (NASDAQ:NDLS).
Panera was recently named the healthiest fast food restaurant in America by Health magazine, in part because of its organic menu offerings, but the company has done little to increase GMO-free menu options. A move to completely rid its menu of GMOs is unlikely, but given the company's reputation as a healthier option in the fast-casual restaurant market, Panera may be one of the first companies to follow Chipotle's lead to voluntarily label GMO-containing menu items.
Noodles & Company is in a similar position to Panera and could feasibly take steps to reduce the prevalence of GMOs in its menu offerings. However, in a move catering to healthier eaters, the company currently uses only soybean oil to sauté its dishes, making nearly every item on the menu GMO-filled. Chipotle has transitioned away from the use of soybean oil, but such a move by Noodles & Company would require a substantial reworking of the entire menu. If that major obstacle were overcome, the company would have less GMO-free sourcing for its remaining menu items than many of its competitors in fast casual food.
What to expect
A move by the largest chain restaurants to go GMO-free will not happen anytime soon due simply to the widespread prevalence of GMO ingredients and the currently limited sources for large supplies of GMO-free corn and soybeans and the even scarcer supply of meat and dairy products from animals raised on GMO-free feed. Chipotle has established itself as the only national restaurant chain willing and able to cater to the growing number of consumers seeking conveniently sustainable food and its efforts will be rewarded with truly organic growth. While the list of restaurants likely to follow Chipotle's lead in vowing to go completely GMO-free is currently empty, expect the voluntary labeling of GMO-containing products and the number of GMO-free menu selections at larger restaurant chains to grow in the near future. More and more consumers want to know the origins of the food they eat, and responsive companies should see the benefit in giving the consumers what they want.
Shamus Funk has no position in any stocks mentioned. The Motley Fool recommends Panera Bread and Starbucks. The Motley Fool owns shares of Panera Bread and Starbucks. 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.