Chipotle's Pulled Pork And What It Means For The Company And The Industry

Chipotle's Pulled Pork And What It Means For The Company And The Industry

The following interview with Jonathan J. Halperin appears in Forbes (January 16, 2015).

The recent announcement that Chipotle Mexican Grill CMG +1.47% suspended its popular pork carnitas from its menus in about 1/3 of its nearly 1800 stores when it discovered that a supplier was not meeting its sustainability standards made big news–and rightly so given what the move says about the  increasingly important factors at play for the fast food and chain industries, and consumers.

Here is a quick look at what’s at stake for the Denver-based fast casual chain as it tries to maintain the momentum it demonstrated last year (revenue was up 28% over prior for nine months ending September 2014; it also opened 132 new restaurants).

On Sustainability—and the Bottom Line. While fast food chains (most notably McDonald’s and Taco Bell) have yanked products from their supply chains due to food safety issues, the Chipotle move was different. “Chipotle clearly has done the right thing and stood behind its mantra of food with integrity,” begins Jonathan J. Halperin, CEO of Designing Sustainability who advises corporate and nonprofits on sustainability strategies. “In the past, however, it has not always done that. This time it said, ‘If we can’t get the pork we usually serve, we’re not going to do it.’ In that sense, it sends a powerful signal to customers and other companies that you need to back up your brand: You need to act in accordance with what you say you stand for.”

Loyalists, no doubt, will view this move as confirming why they love Chipotle, but the question is will investors? Darren Tristano, EVP of Technomic consumer research who has advised the company in the past, contends it won’t significantly impact sales (the event was reported to affect 6-7% of its entrees) or investors’ appetite. “This won’t be seen as being caused by an outside influence as much as the company staying true to what they believe in and the integrity of its products.”

When a Chipotle spokesperson was asked about the economic impact, he replied, “We have not provided an estimated cost to this” and while the company quickly updated its announcement with the news that its primary pork supplier, Niman Ranch, would help fill the shortfall (Niman reported it increased supply by 15-20%) it was still exploring other ways to fill the gap.

“The issue right now for Chipotle may be that the supply chain may be struggling to keep up with the demand. It is trying to manage this really high growth with new restaurants opening while sales are really off the charts compared to the industry,” notes Tristano.

Marketing that Matters. Chipotle’s executive decision to raise the issue publicly (which may have gone without notice) is perhaps a lesson in averting a potential PR crisis as well as savvy marketing. “This could be a marketing push as much as anything. What it is saying publicly is ‘We took our pork out of our stores because our supplier wasn’t doing what we expected.’ But what it also does is reinforce the fact that if it’s not right, it’s not being served,” says Tristano. “It’s really giving consumers and investors a chance to see that it’s so important to the company that it’s willing to pull it off the menu, which reinforces its position and philosophy. So there is as much a marketing advantage to be gained here as otherwise.”

While many agree Chipotle is showing consumers (and competitors like Qdoba Mexican Grill) how to walk the sustainability walk, others contend the company still has work to do. “Everyone agrees Chipotle’s really trying. It’s a different kind of fast food restaurant and it has really touched a vein in the food culture of folks wanting to know what they’re eating is better and healthier,” says Halperin. “But it has been under a lot of pressure. And it’s a bit unusual in that they do not do sustainability reporting. Last year, in fact, there was a shareholder resolution on sustainability reporting that didn’t pass, but about 30% of shareholders said the company should be doing this.”

Halperin explains that it’s common today for large companies, such as McDonald’s, to do sustainability reporting. He adds, “Chipotle is in a funny place–and getting heat. People are saying, ‘We like your commitment, but we’d like you to back it up with data.’ There’s a transparency that comes with that that signals genuineness. If Chipotle doesn’t do that, I think, it’s a real shortfall on its end.”

Chipotle will be announcing its full year 2014 earnings on February 3.