Chipotle Mexican Grill (NYSE:CMG) has built its brand strength around offering "Food With Integrity" in a build-your-own format. Judging by the National Restaurant Association report on expected 2014 trends, the burrito maker will likely continue to outperform competitors like Yum! Brands (NYSE:YUM) and McDonald's (NYSE:MCD).
Trend No. 1: Environmental sustainability
Protip: Sustainability is a journey, not a destination. At its heart, operating in a sustainable manner means continuous evaluation and improvement of processes on both a macro and micro level, collaborative engagement among key stakeholder groups, an ongoing piloting program in order to test and improve upon new and existing projects, and a never-ending dialogue about how to adapt to an ever-evolving set of operational goals. From its beginning, Chipotle has been able to dynamically integrate these values into its operations, making its brand a force to be reckoned with.
Over the past several years, Chipotle has proven to be a self-reflective and transparent company, opting to proactively provide clear documentation about its sustainability practices. Taking an earnest approach to providing Food With Integrity, it has gone so far as to make an entire mini-series satirizing industrial (read: historically unsustainable) agriculture with its Farmed and Dangerous show on Hulu. Ensuring operational sustainability is the cornerstone of its brand. While McDonald's and Yum! have retroactively responded to the conscious consumer movement, the Chipotle brand has been winning over that segment since its humble beginnings.
The fast-food giants' operations are so massive that any meaningful change takes quite a long time to implement and even longer to measure its impact. McDonald's large-scale efforts aren't in vain, though, as the brand does have a great deal of pricing power, thus any improvement it makes to its supply chain drives down costs of the affected materials. The French fry mogul has made some impressive strides by offering sustainably harvested fish for its Filet-O-Fish, partnering with NGOs like the Environmental Defense Fund, and sponsoring ongoing research focused on sustainable farming practices. McDonald's seems to be working in earnest to make up for lost time, while Yum! continues to drag its feet.
The company that brings you KFC, Pizza Hut, and Taco Bell has a long way to go to build up its brand as one that is sustainably focused. Yum! has developed a number of macro bullet points, outlining the expectations it places upon its suppliers, but doesn't outline specifics about any previously implemented programs. Without providing transparent measures from clearly outlined metrics, the Yum! brand will likely continue to lose relevance among the sustainably minded customer segment.
Trend No. 2: Locally grown produce
With its fully integrated sustainability vision and mission, it's no surprise that Chipotle has made a conscious effort to increase the percentage of locally grown (within 350 miles of the restaurant at which it was served) produce it purchases year after year. In 2013, it purchased over 20 million pounds of local produce, a 22% increase from 2012. Making local foods a cornerstone of its Food With Integrity campaign has increased its brand strength by embracing the sustainably sourced movement. This trend is quite bankable, according to the Sustainable Restaurant Association, as about 43% of diners say that they would pay up to 10% more for a meal in a sustainable restaurant.
Neither Yum! nor McDonald's places a great deal of emphasis on providing locally grown produce. Due to both companies having such large operations, it seems that working with industrial agriculture is the only way these fast-food behemoths can ensure a continuous supply of ingredients.
Trend No. 3: Gluten-free cuisine
More than three-quarters of chefs surveyed about these 2014 trends identified the gluten-free niche as something they planned to do more with in the coming year. The GF market demands an audience of about 44 million folks, not a figure to turn your nose at, but that seems to be exactly what Yum! and McDonald's are doing. Comparing their ingredient statements with Chipotle's shows that the latter is the obvious winner for the GF crowd.
Of its over 100 menu items, McDonald's offers about five protein options, one side, and about four salads that are GF. Even its famous fries are questionable, since there is a high cross-contamination risk, as they are fried in the same oil as its hash browns, which aren't GF.
Yum!'s KFC brand GF offerings are limited to about seven sides and a number of dipping sauces and dressings. Its Taco Bell brand offers a total of four -- that's right, a whopping four -- GF items on its extensive menu. While Pizza Hut is trying to remedy its limited GF menu offerings (basically cheese, a dismal amount of toppings, and various sauces) in the U.K., Australia, and Israel by offering a GF crust in those markets, the potential for cross-contamination is quite high, thus will exclude any folks with a severe gluten intolerance.
Chipotle, on the other hand, offers one gluten-containing item on its extensive menu: tortillas. That's it. In fact, the company protects its GF customers by offering to have its meal makers change their gloves and warns against the small possibility of cross-contamination.
Chipotle is able to adapt and change to meet the needs of emerging trends, as its corporate culture and menu offerings are intrinsically more dynamic and adaptable than two of its biggest competitors. Its brand strength as a trustworthy and transparent company affords it the ability to gain relevance with any number of emerging consumer segments, something that shareholders should keep in mind.