Chipotle Mexican Grill (NYSE:CMG) is all about the tasty burritos. However, it doesn't have a taste for cruelty. Chipotle's core mission is "Food with Integrity," and it stood by that mission this week by pulling carnitas off its menu in about a third of its stores. A pork supplier had violated Chipotle's high -- and very particular -- standards, and the revolutionary restaurateur responded by putting its money where its mouth is.
In this case, we're dealing with a high standard for animal welfare. Remember Chipotle's animated short The Scarecrow, which was among the company's many attempts to raise awareness of industrial farming's dark side? By pulling the pork from a supplier that it found was violating animal welfare rules in ways that included failing to give pigs some room to roam, the company is being true to exactly those kinds of values.
Some shareholders may be shocked and appalled that Chipotle would possibly throw away some short-term sales by refusing to substitute conventionally raised pork from another source. (Pork burritos represent 7% of its sales.) That attitude is short-sighted, though. Chipotle's making the right decision for the long term; this is all about what the company stands for.
Respect for quality of life
Chipotle requires that its suppliers give their livestock space -- either outdoors or within barns. Pigs -- which are among the most intelligent animals -- have been subject to a lot of attention due to the cruelty of their conditions at many farms, such as the use of controversial gestation crates.
Chipotle is among the vanguard of companies that deals with this complex issue head-on. After all, Food with Integrity is built directly into its business, differentiating it from many other fast-food companies. The restaurant company made no bones about the real issue here and why it won't compromise.
"This is fundamentally an animal-welfare decision and is rooted in our unwillingness to compromise our standards," spokesman Chris Arnold said, according to Bloomberg. "Conventionally raised pigs generally do not have access to the outdoors, spend their lives in densely crowded buildings, live on hard, slatted floors with no ability to root and are given antibiotics to keep them from getting sick. We would rather not serve pork at all than serve pork from animals raised in that way."
By designing itself this way, Chipotle has been ahead of a serious curve in our marketplace instead of rushing to catch up. Today, it's not the only company that's demanding pork from well-treated pigs -- and getting it from suppliers. Some of the biggest are changing their ways and demanding humanely raised pork as consumers have increasingly indicated their desire for it.
For example, Cargill has vowed to have all pigs at company-owned facilities out of the stalls and into "group housing" where they can roam more freely this year, and also plans to have all of its contractors release their pigs from stalls or confining gestation crates by 2017.
Big grocers are also driving this kind of change. For example, Costco (NASDAQ:COST) and Target have both vowed to eliminate gestation crates from their global supply chain by 2022. Suppliers and would-be suppliers have to evolve.
Trustworthiness is the key
Chipotle's ingredients standards aren't limited to animal welfare. The company's definition of Food with Integrity also includes using dairy products from cows raised without synthetic hormones and avoiding meat raised using antibiotics, as well as an emphasis on organic and local produce.
In June 2013, Chipotle also tackled transparency on its menu, labeling which ingredients contained genetically modified organisms (GMOs) and working toward phasing them out.
Social responsibility in its many forms is becoming increasingly important to American consumers, and investors need to be cognizant of that fact and push their companies to be responsive. In the animal welfare area, look no further than SeaWorld for an example of how a company can suffer real negative financial ramifications due to consumers' animal welfare concerns.
Of course, now more than ever, when a company claims lofty ideals, we -- as consumers or as investors -- need to look up the record and make sure it really adheres to them. Regardless of one's feelings about animal welfare or the trends in social responsibility, though, issues like these relate to something essential: trust. If we can't trust our companies' managements to do what they say, we can't trust that our future returns are very safe, either.
In this case, Chipotle has passed that test.