Chipotle’s Move to Non-GMO Clean Food Gets Wall Street’s Attention

07 Feb, 2014

Guest Article by Robyn O’Brien, cross posted from Prevention.com

The landscape of food is changing, and Chipotle is standing on the front line.

The company (CMG) just reported financial results for its fourth quarter and knocked it out of the park again, proving cleaning up food is not only profitable but also should be the fiduciary duty of other food companies.

Chipotle is one of the first food companies to realize that the food technologies of the 20th century no longer work for families today.

Technologies that introduced a host of artificial and synthetic ingredients into our food supply in the twentieth century are now being avoided by 21st century families who find themselves staring down diabetes, Alzheimer’s, cancer, allergies and autism at rates like never before.

Companies that meet this growing demand for clean food technologies are being rewarded, while companies that entrench into the chemically intensive food operating systems of the 20th century run the risk of becoming as obsolete as the Betamax.

Chipotle is meeting consumers where they are: online and waking up to what is going into our food supply.

The company’s successful Scarecrow campaign, a video that takes you behind the scenes of “Big Food”, has been viewed almost 12 million times on YouTube.

Back in October 2013, when Chipotle reported third quarter earnings and announced that they plan to remove genetically engineered ingredients from their product line, the stock soared to record highs.

This week, they followed up, delivering a powerful 4th quarter.

Highlights for the quarter included:

  • Revenue increased 20.7%
  • Comparable restaurant sales increased 9.3%
  • Net income increase of 29.8%
  • Diluted earnings’ increase of 29.7%
  • Opened 56 new restaurants

And that’s in the fourth quarter alone.

As someone who sat on the equity desk and covered the food industry, one of my responsibilities was to report on companies like Chipotle, YUM brands and what was happening in food shops like Taco Bells around the country. We dutifully reported “same store sales” which represent the increase in year over year, quarter over quarter sales in stores that have been open for at least a year. It’s a data point closely followed by investors.

Chipotle blew it out. The company saw a 9.3% increase in sales, capitalizing on their marketing campaign and meeting the growing number of consumers who are joining the food awakening.

And it wasn’t just for the quarter, a look back on the year shows an incredible trend:

  • Revenue increased 17.7% to $3.21 billion
  • Comparable restaurant sales increased 5.6%
  • Restaurant level operating margin was 26.6%, a decrease of 50 basis points
  • Net income was $327.4 million, an increase of 17.8%
  • Diluted earnings per share was $10.47, an increase of 19.7%
  • Opened 185 new restaurants

“Over the past 20 years, we have created a very unique and special restaurant company. Chipotle is a place that appeals to a diverse customer base throughout the country and beyond,” said Steve Ells, Founder, Chairman and Co-CEO of Chipotle.

The company is creating a unique marketing strategy, too. It is harnessing the power of social media to create awareness on issues that conventional media may not allow. The Scarecrow, a video campaign launched by the company that takes you behind the closed doors of “Big Food”, has been viewed almost 12 million times.

And now, the company is breaking ground with the first of its kind comedy series to be shown on Hulu, again harnessing the emotion and power of social media to spread the message that our food supply is now polluted in ways we could never have imagined.

Who is Buck Marshall they had everyone asking in a tease ahead of the Superbowl.

It was working. We were talking. The irreverence, compassion and novelty with which they deliver information that can cause heartache is helping the company to communicate not only the value of their brand to consumers and investors, but also how important it is that we are all part of this change, including the farmers.

As their report goes on to highlight, food costs for the year were 33.4% of revenue, an increase of 80 basis points mostly from higher salsa, meat, and dairy costs. They need farmers to opt into this clean food technology, too, to meet this growing consumer demand. The opportunity in front of American farmer for this is enormous.

G&A costs for the full year 2013 were 6.3% of revenue, 40 basis points lower than the prior year.

What food company wouldn’t want these numbers? Companies that are entrenching like Kellogg are in the midst of global layoffs. Other companies are dipping a toe in the water, like General Mills, and being rewarded both in the media and marketplace when they opt out of things like GMOs in their signature products.

As Chipotle continues to focus on cleaner food, “food with integrity,” they are beginning to shift our food system, a shift that makes clean and safe food the standard, more affordable option, to all Americans.

It can’t happen soon enough.

Our current food system is broken. As it stands, food that is loaded with genetically engineered ingredients that have been presoaked in chemicals and saturated with weed killers, are the ones that are currently subsidized by the federal government. In other words, our taxpayer dollars are being used for the chemically intensive operating system being used to grow food. Farmers growing food without these chemicals and genetically engineered foods have to pay fees to prove that their crops are safe, fees to label them and so much more. Their cost of production is higher. Is this really how we want out taxpayer dollars spent? At the very least, there should be a level playing field economically, giving farmers the financial freedom to grow either. Currently, however, farmers are hard pressed to make a switch to organic agriculture, because not only do they not receive the subsidy support, but they also don’t receive the crop insurance and marketing support that farmers that grow genetically engineered ingredients do. In other words, it isn’t a level playing field economically.

Which is why it’s an all hands on deck time, which Chipotle completely understands.

For 2014, Chipotle expects to continue to capitalize on this growing consumer demand and the food awakening that is happening.

As an escalating number of Americans learn just how polluted our food has become with artificial growth hormones, artificial dyes, antibiotic laced meat and genetically engineered ingredients soaked and saturated in chemicals, they are opting out and into one of the few affordable choices out there: a burrito chain that totally gets it. Chipotle stands ready to capitalize with the plan to open 180 – 195 new restaurants in 2014.

It begs the question, with this kind of success, who will be next?

Robyn is former equity analyst that covered the food industry and author of “The Unhealthy Truth.” She is also the founder of AllergyKids, whose mission is to restore the health of American families by addressing the needs of the 1 in 3 American children that now has allergies, autism, ADHD and asthma and the role that additives in our food supply are having on our health.

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  • SaintU

    is there an independent third party verification that Chipotle has got rid of GMOs, and now using only Organic or Non-GMOs, let them conduct a independent, third party that with expertise in organic foods investigate and confirm, until then we have to wait, because this is the same Chipotle without any conscience used GMOs in their food….how can you trust them?.

  • https://twitter.com/MetroIssuesLou Metro Issues :: Louisville

    Well, if they didn’t have a conscience in previously using GMOs, no restaurant chain did. I think we shouldn’t attack people or companies who are forthrightly trying to change their ways for the better. That said, third-party verification should be done.

  • https://twitter.com/MetroIssuesLou Metro Issues :: Louisville

    I don’t mean to defend Kellogg’s, but it is simply a fact that their Kashi brand puts out a number of organic, non-GMO varieties. If you don’t believe me, go to the grocery store and look at the Kashi boxes.

  • Christine Stabb Belair

    As far as I know the Corn they use for the chips is still GMO!!!!

  • JR

    Corn by nature is a GMO it does not grow naturally in the wild.

  • Peri

    I think that you do not understand what GMO means. Many things humans cultivate do not grow naturally in the wild. This is however a natural process of interbreeding, crosspolination and grafting. The dogs don’t grow naturally in nature but through natural occurring mutation and inter-breeding they have come to exist. This however does not disturb nature. It is part of it.

    Now, introducing foreign genes to plants with completely unknown and unintended consequences to the ecosystem and the organisms consuming these plants, is what GMO is all about. Two very very different things.

  • emc2mm

    Hay Peri, Jr, a little science education. GMO is not selective breeding. Selective breeding does not involve cross species gene insertion in to the plant DNA. Corn is not GMO – maze is a seed corn product that corn is all genetically related to . GMO traits are inserted into the DNA for example resistance to man-made weed/lbroadleaf killers “roundup” is one example.Get it – weed killer wont kill the corn plant but round up kills everything else. See the difference?

  • Jojo

    You do not comprehend GMO!

  • JR

    Yes I am very a where of what a GMO is. It is something that has been genetically modified. Cross breading or pollination of a plant is genetically modifying that plant. You are taking the genes of two different plants and combining them to make something new. A lab developed GMO is just a little more specialized. They can isolate a specific gene with a specific characteristic from one plant and add it to another to develop that characteristic in another.

  • JR

    Corn was originally developed by the cross breading of Teosinte and Maize. Then selective breading was used to develop future characteristics of the plant. So there is a little science education for you.

  • Marco Stangoni

    The public really needs to be more informed of the extent, and possible long term repercussions so severly modified foods, such as animal genes being spliced into plants, etc., might have on our health

  • No GMOs

    Genetically modified means that the DNA of one organism is genetically spliced and introduced to the DNA of another SPECIES not related. In corn it is a TOXIN that kills insects!!!! Does this sound like something that you want to ingest? It stays inside you and multiplies….mm good! There is also something that makes it resistant to one of the poisonous chemicals they spray on the crops to kill the weeds, making the corn plants resistant to the weed killer so that it will not die. BUT all the good and bad bacteria in the soil are being killed and all the butterflies, bees, birds that eat the butterflies and bees (bees that pollinate our crops) birds that spread natures’ seeds are also being killed by these corn seeds and pesticides and herbicides.
    In our guts this toxic stuff is killing our good bacteria and causing all kinds of gastric problems…DO SOME RESEARCH and educated yourself.