Earth Day 2015: Chipotle Maintains Brand Integrity as Momentum Slows



Running Chipotle must feel somewhat thankless these days—despite it’s ongoing growth, when things slow down, everyone wonders: “What have you done for me lately?”

That might explain why financial investors seemingly punished Chipotle Mexican Grill this week. Shares of the restaurant chain dipped more than 5 percent, reports the Wall Street Journal, despite the company posting a sharp 10 percent sales growth at same-store restaurants and the chain’s first-ever $1 billion sales quarter.

And all of this occurred during Chipotle’s continued struggle to restore regular supplies of pork for its carnitas menu option after dropping a major supplier in January that didn’t meet the strict standards it has set as part of its sustainability commitment.

“We are very proud of our start to 2015, as our average sales volumes reached a record $2.5 million per restaurant,” Chipotle Co-CEO Steve Ells said, on an earnings conference call. “The quarter was not without its challenges, however, as we suspended one of our primary pork suppliers and are exploring options to increase the supply of pork that meets our high standards.

Fortunately, Ells noted, “We now believe we have found a solution with a new supplier to help us fill our gap” and Chipotle plans to begin introducing this pork in some of its restaurants in the coming months.

In the meantime, Chipotle executives said their decision to suspend the pork supplier is ending up becoming a net positive for the company because consumers respect their efforts to protect the integrity of the brand and its menu despite its ongoing short-term supply bottlenecks.

“We remain confident that higher-quality, responsibly raised ingredients taste better and will continue to resonate with our customers,” Ells said on the call.

For this year, however, Chipotle executives project sales growth will slow to the single-digit percentage range. Chief Financial Officer John Hartung explained to investors that Chipotle’s growth cycles historically have come in three-year waves as new consumers discover its food.

“We seem to have these waves … where people figure out that Chipotle exists, they like it, they come back more often. We have this kind of surge and then it levels off.”

Chipotle is banking on expanding its popularity with millennial consumers, who eat out at fast casual restaurants more than other generations, and who respond to the brand’s literary packaging and authentic communications.

Chipotle will be able to take advantage of this demographic, Ells said, because “the loyalty we believe that we are building with key customer groups is very much a result of our commitment to doing what is right, in addition to the excellent customer service that we provide.”

And while Wall Street investors may be tough on Chipotle in the short term, some in the financial community agree with company’s assessment.

Sterne Agee analyst Lynne Collier, for instance, said that the company offers the most attractive long-term investment in the space and that Chipotle’s business model can be replicated across several food categories. The chain, Collier told the Wall Street Journal, “still has the winning recipe.”

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