On April 26, Chipotle announced its farewell to genetically modified ingredients (GMOs), a first for a major restaurant chain. A statement on their site explains: “Chipotle is on a never-ending journey to source the highest quality ingredients we can find. Over the years, as we have learned more about GMOs, we’ve decided that using them in our food doesn’t align with that vision. Chipotle was the first national restaurant company to disclose the GMO ingredients in our food, and now we are the first to cook only with non-GMO ingredients.”
It is estimated that GMOs are in as much as 80% of conventional processed food. Commonly GMO cultivated crops include: alfalfa, canola, corn, cotton, papaya, soybean, sugar beets, and zucchini and summer squash. Of those eight, only two were found as ingredients in Chipotle’s food: corn (corn & flour tortillas) and soy (flour tortillas & cooking oil). As a result, all corn-based ingredients that may have been previously genetically modified on Chipotle’s menu have been removed or replaced with non-GMO versions. Similarly, all soy-derived ingredients have been replaced with alternatives, such as rice bran oil or sunflower oil.
Chipotle is no stranger to sourcing obstacles in their commitment to food with integrity. From time to time, Chipotle has run short of beef and after an audit of one of its suppliers had failed to meet its standards for raising pigs, announced that it could not supply all its restaurants with the pork needed for its carnitas last December. With an estimated over 88% of corn and 94% of soy grown in the US being genetically modified, according to the US Department of Agriculture, what impact will making this switch have on Chipotle’s supply chain?
A Long List of Requirements
When sourcing ingredients, Chipotle has a long list of requirements for meeting their standards of “food with integrity”. This includes: pasture-raised animals, an intolerance for the use of nontherapeutic antibiotics or hormones, locally grown produce, polyculture planting practices, and most recently GMO-free ingredients.
In addition, they must also take into consideration their customers. Chris Arnold, a spokesperson for Chipotle explained the challenge of sourcing a replacement for the soy for flour tortillas: “The shortening had an oil in it that was derived from soybeans. We won’t use lard for tortillas because of our vegan and vegetarian customers, and we can’t use palm oil because of the environmental impact.” Chipotle’s many requirements limits the options for suppliers, increasing sourcing risks and the potential impact on consumers.
Impact on the Consumer
Despite offering burritos that cost twice as much as those sold at Taco Bell, Chipotle’s commitment to high quality ingredients have commanded consumer respect and following. With supply costs of “food with integrity” increasing, Chipotle has in turn had to increase prices; 6.3% in 2014 alone. Despite concerns over higher prices discouraging customers, Chipotle saw a revenue surge. With the most recent switch to non-GMO and continued beef sourcing challenges, Chipotle will likely see further increased supply costs. However, if past consumer reaction to Chipotle’s price hikes are any inclination as to how they will respond to potential increases caused by the non-GMO ingredients, consumers will not blink an eye to paying more for their beloved Mexican grill.
Chipotle has a long list of sourcing requirements and a limited number of suppliers that are up to par with their standards, which potentially raises supply chain risks (fewer qualified suppliers equating to a lack of diversification in the portfolio). To mitigate this risk, Chipotle regularly audits suppliers to ensure their expectations are met. The stakes are so high for Chipotle’s ethical commitment and brand image that a supplier’s transgression has, as seen with pork suppliers, resulted in outright discontinued business relationships and strained the restaurant’s supply chain. While a number of remedies were sought, including the use of different cuts of pork and increasing orders from other suppliers, Chipotle was ultimately forced to remove pork from the menu of hundreds of its restaurants, an ongoing threat they face with sourcing limitations for many ingredients.
So, what can other companies learn from Chipotle? Companies willing to uphold their ethical and moral commitments can experience success. Consumers seem to be more willing to pay a few extra dollars for superior food and experience. Despite the sourcing challenges, consumers are committed and respect Chipotle’s high standards and are forgiving of shortages and price hikes.
Furthermore, healthy supplier relationships are key for dealing with sourcing challenges. Audits and ongoing supplier monitoring are crucial for maintaining Chipotle’s brand image and ensuring their standards are continuously met. Service level agreements and regular audits are an ongoing way companies can combat risks and monitor supplier performance.
There is no doubt, Chipotle is a major driving force behind the changes happening in the fast food industry. With its continued commitment to “food with integrity” including the latest step of removing GMO ingredients from its menu, Chipotle proves to be an ideal model for overcoming supply chain obstacles to deliver products and services in sync with a company’s moral compass.