Chipotle’s pork plight could hurt Q1 results

Reuters –– Chipotle Mexican Grill’s decision to suspend purchases from a pork producer that ran afoul of its animal welfare requirements could bolster its reputation with diners but threatens sales and profits this quarter, an analyst said Wednesday.

The burrito chain’s move caused a supply shortfall that is hitting about one-third of its roughly 1,800 U.S. restaurants.

It also underscored the clash between the U.S. agriculture industry, commodity traders, food companies and U.S. consumers, who have become increasingly concerned about what happens to their food before it reaches their plates.

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While animal rights activists heralded the news, others were dismissive of supply chain squeeze having much impact on the broader food or farming sector.

“It sounds like the problem can be fixed as soon as they take the little pigs for a walk,” said James Burns, president of Chicago-based JBS Trading Co., a commodities brokerage firm.

Chipotle made the decision Friday to cease buying pork from an unidentified supplier after one of its own auditors found “inconsistencies” with company standards requiring that pigs be raised with access to the outdoors or in deeply bedded barns.

Chipotle also bans the use of antibiotics, but that was not the issue in this case, spokesman Chris Arnold said. Arnold declined to name the producer, but said it is not Niman Ranch, a long-time Chipotle supplier.

Alternate proteins

Diners choose braised pork “carnitas” as the protein in about seven per cent of all burritos, tacos, bowls and salads sold at the chain, Miller Tabak + Co. analyst Stephen Anderson said.

He said the move should strengthen Chipotle’s relationship with customers, many of whom like its “food with integrity” policy that focuses on using organic produce and antibiotic-free meats when those ingredients are available.

“It shines their halo, but it has the potential to affect first-quarter” results, said Anderson, who expects most Chipotle customers to switch to alternate proteins.

Citing the risk of lost sales, Anderson cut his first quarter per-share earnings forecast to a range of $3.84 to $3.87 from $3.93. He also lowered his growth forecast for sales at established restaurants to 10 to 10.3 per cent from 11 per cent.

Chipotle, which declined to say how much pork it buys each year, is seeking to source more pork from existing suppliers. It currently uses pork shoulder and is exploring adding pork loin to its orders, Arnold said.

Reporting for Reuters by Lisa Baertlein in Los Angeles, Theopolis Waters and Tom Polansek in Chicago and Sruthi Ramakrishnan in Bengaluru.

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