On Monday, Chipotle Mexican Grill (NYSE:CMG) said it was G-M-Over It. All 1,800 or so restaurants would stop serving food that had been genetically modified, making Chipotle the first national chain "to cook only with non-GMO ingredients." And the Internet lost its mind.
Hashtags such as #antiscience began sprouting up on Twitter. News magazine Slate said dropping GMOs was the wrong way to serve "food with integrity." Tech blog Gizmodo called it "pandering" (and some other choice words). Apparently, serving food that hasn't been altered in a lab matters to far more people than just those actually buying it.
Yet regardless of what side you're on, as an investor, you have to like Chipotle Mexican Grill's decision to go GMO-free for one very good reason: it's a smart business decision.
Food with a conscience
Chipotle was founded on the notion of serving "food with integrity." This means sourcing ingredients that are not only fresh and taste great, but -- as the restaurant operator itself says -- "should be ... raised with care for animals, farmers, and the environment."
In making its decision, the restaurant identified three reasons why eliminating GMOs was important:
- The science is still out on the long-term implications of GMOs
- Growing GMO crops can hurt the environment
- There ought to be at least one place people can dine GMO-free
Many, maybe even most of Chipotle's customers have bought into that mantra, and are likely looking to reduce their exposure to genetically modified organisms elsewhere. By providing them with a place where they can eat GMO-free, the restaurant chain is directly addressing an unmet need that may even attract more customers, thereby increasing its revenue.
And the move has no effect whatsoever on GMO proponents, who believe GMOs are an integral part of creating sustainable agriculture globally. That's why the outrage over Chipotle's announcement is so perplexing.
A food wasteland
There are risks, of course. As the restaurant notes, the U.S. corn and soy crops -- the last two GMO ingredients eliminated from Chipotle's restaurants -- are almost wholly genetically modified, with 93% of corn and 94% of soy being GMO.
And because corn and soy are so pervasive throughout processed food manufacturing, it's actually hard to escape GMOs. Chipotle says they're in soft drinks (including the ones it sells), fast food, and many grocery store items. It's estimated that as much as 80% of all processed foods on grocery store shelves are genetically modified.
That certainly make it more difficult to source non-GMO ingredients, but not impossible. It took General Mills (NYSE:GIS) over a year to find GMO-free sugar when its Cheerios cereal made the switch to non-GMO. That's because it faced a problem similar to the one Chipotle did, which was the scarcity of non-GMO sugar. Half of the U.S. sugar supply comes from sugar beets, and 95% of the U.S. sugar beet crop is GMO. Fortunately, the oats used to make Cheerios were already GMO-free.
A bumper crop of opportunity
But it's actually not so difficult to find non-GMO corn and soy, despite the lopsided percentages, because there's actually a huge market for them: Europe, Asia, and Australia. Many countries either ban or have severe restrictions on GMOs, so there is always a regular supply available to ship overseas, and it shouldn't be much more expensive.
And it's growing here too. A number of farmers are switching back to non-GMO seed because there's growing demand. This is leading to higher prices for non-GMO crops, which could boost profitability for farmers.
Going GMO-free is also part of a larger trend by food manufacturers of eliminating ingredients you can't pronounce. Just last week PepsiCo said it was removing aspartame from Diet Pepsi as diet soda volumes have plunged dramatically over the past decade.
Other companies are making changes too: Kraft Foods announced last year that it was eliminating artificial colors in its macaroni and cheese mix; Yum! Brands said it would stop using the so-called "yoga mat" chemical azodicarbonamide in its breads (Subway did, too); and Starbucks stopped using carmine, the red food coloring made from the shell of the female cochineal insect. Eliminating GMOs from Chipotle's menu is simply the next progression in this chain.
The restaurant's customers have gravitated toward its mission to serve fresh, natural ingredients, and Chipotle Mexican Grill may see an increase in sales as a result. Investors in this visionary company correctly reading how the market is changing will ultimately be the beneficiaries.