What is in this article?:
- Chipotle stock rises on upgraded outlook
- The cost of 'food with integrity'
Company officials said that sales started to rise in April after the weather improved.
The cost of 'food with integrity'
Food costs were an issue for Chipotle during the quarter, accounting for 33.1 percent of revenue, an increase of about 100 basis points, or 1 percent, compared with a year ago.
The higher cost of ingredients in salsa, as well as for cheese and chicken was offset somewhat by lower avocado prices, said Jack Hartung, Chipotle’s chief financial officer.
Hartung said the company expects food costs to remain at current levels or go slightly higher. Still, he noted, there are no plans to increase prices for the remainder of 2013.
That’s a delay in part to allow the company to better gauge costs associated with a recently announced plan to remove all genetically modified ingredients from the fast-casual chain’s menu, he said.
Earlier this year, Chipotle announced a plan to label all genetically modified ingredients, and the chain’s founder and co-chief executive Steve Ells has pledged to eventually take the menu completely GMO-free as part of the brand’s focus on “food with integrity.”
“Most consumers don’t understand how pervasive GMO ingredients are in this country in restaurants and supermarkets,” said Ells. “But the fact is that 94 percent of the soybeans and 88 percent of the corn in this country are genetically modified. While there’s not yet a clear scientific consensus on issues related to GMO foods, use of GMO crops has been banned or restricted in a number of other countries, and there’s increasing debate about the issue in the United States.”
Chipotle has already begun a switch to non-GMO sunflower and rice bran oils, and there is more to come, Ells said.
Hartung noted that those non-GMO ingredients may increase food costs, though it’s really too early to tell. “When we do raise prices, we may be able to time that with when we’re doing ‘food with integrity’ items, like removing the rest of the GMOs in some of our ingredients,” Hartung said.
Products, initiatives with potential
During the quarter, Chipotle rolled out its new “sofritas” product, a seasoned braised tofu, to all restaurants in California. Ells said sofritas now accounts for between 4 percent and 5 percent of the product mix.
Catering, which launched in January in Denver, has been expanded to about 200 restaurants in a dozen markets, said Monty Moran, Chipotle’s co-chief executive. Catering is expected to reach all markets by the end of the year.
“Though catering is new to us, it’s off to an excellent start and showing great potential,” Moran said. “Sales are approaching 1 percent of total sales, and we believe the vast majority of that is incremental.”
The chain is also continuing to work on improving throughput, which increased transactions by about 25 per day during the quarter — but Moran said he feels the chain can do better.
Recently Chipotle began including throughput metrics as part of various career-step expectations. Managers will be expected to meet certain metrics for their semi-annual bonus reviews, for example, and restaurants will have specific goals to track their improvements on speed of service.
For the quarter, Chipotle added 44 restaurants, ending with a total of 1,502.