Green Investment Opportunity:
Chipotle

A Green Way to Do Business—Chipotle (CMG)

After a tough year in 2009, U.S. restaurants are poised for rebound, particularly those that can deliver locally sourced, ethnic, and sustainable food at a low price.  According to the National Restaurant Association, “70% of consumers say they are more likely to visit restaurants that offer locally produced food,” and 40% of consumers prefer restaurants that have made a commitment to conservation or sustainability.1 Yet few fast-food restaurants can deliver what the customers want.  Enter Chipotle, which according to the Wall Street Journal, “has become country's most successful fast-food chain in recent years by rejecting almost every major technique on which the industry was built; Chipotle  eschews franchising and television advertising, and has some of the highest ingredient costs in the fast-food business.”2

Chipotle has turned the notion of fast-food production on its head.  Instead of sourcing from the cheapest suppliers, the company’s strategy includes finding mid-size farms that can deliver fresh, sustainable—and where possible—local ingredients, in a strategy the company calls “Food with Integrity.” Chipotle sources most of its meat from sustainable farms where animals are not given antibiotics, have room to move around and express their natural behaviors, and are only fed a vegetarian diet.  About 40% of its beans are organically grown, and its dairy products are made with milk from cows not treated with growth hormones.3 The company took a gamble that Americans would like the taste of fresh, sustainable food, even if they didn’t fully understand how rare it is on a fast-food menu.  The bet has paid off: the company enjoyed earnings growth of about 50-90% over the past four quarters.4

Chipotle’s strategy is especially on target considering the company’s plans to expand to London, Paris, and gradually to other European locales.  Europeans, especially the English, French, Germans, and Italians, are known for their passionate defense of local food sources, organic food, and animal welfare.

The company has also taken a strong activist position on certain sustainability issues.  CEO Steve Ells, for example, recently testified before the Senate to support the Preservation of Antibiotics for Medical Treatment Act, designed to reduce the use of pesticides on farm animals in order to maintain efficacy for human needs, and reduce skyrocketing rates of antibiotic-resistant pathogens. 

Chipotle is apparently broadening its “green” appeal from the food that it sources to restaurant operations—the exact opposite of the usual sustainability uptake for restaurants. The company recently announced that it would install solar panels in 75 of its stores in 2010, making it the largest generator of solar power in the U.S. restaurant industry. Chipotle comprised 0.50% of the Calvert Equity Portfolio's net assets as of 4/30/10.

1. National Restaurant Association, 2010 Restaurant Industry Outlook, January 20, 2010
2. The Wall Street Journal, November 23, 2007
3. Chipotle corporate website
4. Investor's Business Daily, March 1, 2010

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