Chipotle Mexican Grill Inc.
) recently achieved the goal of sourcing its entire sour cream
requirement from pasture-raised dairy cows. Along with sour cream,
65% of cheese usage is also procured from pasture-raised cattle.
Under this method, the cows are not administered hormones
externally, taken to open pastures everyday and are raised on
Chipotle has always been committed to serve organic and locally
produced ingredients. Its 'Food With Integrity' program focuses on
a higher mix of naturally raised pork, chicken and beef, and
organic produce. Chipotle also aims to source more organic beans
grown by means of conservation tillage. It is the only national
restaurant company to use fresh produce since 2008.
However, to ensure smooth supply to its more than 1,250
restaurants nationwide, Chipotle works within each region of the
country, thereby creating jobs in farming communities around the
On the flip side, such stringency in ingredient sourcing is
costing Chipotle more in an already inflationary U.S. market. The
Denver-based company expects food cost to creep up in the next few
quarters due to steeper prices of avocados, beef and dairy.
Avocado costs are expected to increase as these will be sourced
from California. The dairy costs are also expected to increase as
sour cream as well as a high percentage of cheese are being
produced from the milk of the cows that are pasture-raised.
Sourcing locally grown food by restaurateurs is gradually
witnessing an uptrend as customers are becoming more health
conscious. While this is providing a competitive advantage in terms
of quality to Chipotle, many others are finding the standard tough
in the restaurant industry.
Moreover, using higher quality premium ingredients remains
justified for Chipotle as it caters to the relatively higher income
strata. This was one of the reasons why Chipotle was largely
unruffled by the economic downturn. However, Chipotle now seeks to
make its offerings available among all income level consumers.
Chipotle which competes with the likes of
Yum! Brands Inc.
) currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. We are also maintaining our long-term
Neutral rating on the stock.
CHIPOTLE MEXICN (CMG): Free Stock Analysis
MCDONALDS CORP (MCD): Free Stock Analysis
YUM! BRANDS INC (YUM): Free Stock Analysis
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