Chipotle sourcing beef from ‘Down Under’

by Monica Watrous
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Chipotle looks to Australia as a source of grass-fed beef for its menu items.

DENVER – In spite of efforts to source local ingredients, Chipotle Mexican Grill said it has begun buying beef from Australia.

“For many months now, we have struggled to get all of the beef we need from cattle raised without the use of antibiotics or added hormones, which is the cornerstone of our meat and dairy protocols,” said Steve Ells, chairman and co-CEO, during a July 21 call with financial analysts to discuss second-quarter performance. “When we have not been able to get enough beef that meets our high standards, we have temporarily filled that gap with conventionally raised beef and posted notices in our restaurants so customers are aware of the change. With the nation's beef supply at a 60-year low and our demand continuing to rise, it looks as if this challenge is going to continue, and we want to find a better solution, one that allows us to source as much beef as possible that meets our high standards.”

The burrito chain began sourcing grass-fed beef from Australia in recent months to supplement the beef it purchases in the United States. Ells said the cattle are raised on pastures or range lands by ranchers whose practices align with Chipotle’s standards for humane animal farming.

“Over time, we hope that our demand for grass-fed beef will help provide an opportunity for more American ranchers to adopt a grass-fed program and help turn grass-fed beef into a more mainstream product in the United States,” Ells said. “We look forward to working with our supplier partners to meet this challenge.”
Chipotle recently announced a goal to use at least 20 million lbs. of produce from farms within 350 miles of its restaurants this year. Locally sourced ingredients may include romaine lettuce, bell peppers, red onions, jalapeños and oregano, as well as avocados, citrus and cilantro, where available.

Some customers switched to chicken as a result of higher prices for steak.

 
“Our commitment to serving locally grown produce is ultimately about serving the best tasting food we can,” Ells said. “Quite simply, produce from local farms can arrive closer to the time it is harvested and result in fresher produce, but there are other benefits as well, including a reduction in food miles and economic impact to rural communities throughout the country.”

Higher costs for such ingredients as beef, cheese and avocados drove a nationwide menu price increase at Chipotle during the quarter, but that did not discourage customers from visiting the chain. An increase in traffic helped push revenues over $1 billion in the quarter, a first in the company’s history.

“Though the average increase was 6.25 percent to 6.5 percent, the increase varied by market and by menu item,” said Monty Moran, co-CEO. “So, for example, because of the significant recent inflation in beef and the expectation that beef prices will remain elevated for the foreseeable future, steak prices were raised by about 9 percent, on average, while chicken prices were only raised about 5 percent. We expected some customers would trade down from steak to chicken as a result of the higher steak premium, and we have, in fact, seen some customers shift from steak to chicken. Aside from the slight shift from steak to chicken, our customers have generally responded well so far, but it is early and we will continue to watch for resistance in terms of fewer customer visits, as well as customers trading down.”

For the second quarter ended June 30, net income climbed nearly 26 percent to $110,270,000, equal to $3.55 per share on the common stock, from $87,853,000, or $2.84 per share, in the prior-year period.
Revenue for the quarter totaled $1,050,073,000, up 29 percent from $816,786,000, driven by a same-store sales increase of 17 percent and new unit growth, with 45 restaurants opened in the period for a total of 1,681.

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