Chipotle Mexican Grill, Inc. (CMG) has reportedly suspended the sale of pork at one-third of its restaurants in the U.S. as one of its suppliers failed to comply with the animal welfare standards set by the company. Chipotle found in a recent routine audit that the pigs were not being raised with access to the outdoors or in deeply bedded barns that are more comfortable for the animals.
As a result of the suspension, the company will not serve carnitas – a topping for burritos. The company could not specify when the carnitas will be back. Chipotle is looking for a number of options to address the shortfall, including procuring additional pork from existing suppliers or finding more suppliers.
Chipotle is well known for serving antibiotic-free meat and organic produce. Through its Food with Integrity’ program, the company seeks to provide better food quality by using fresh ingredients and sustainably-grown and naturally-raised products such as pork, chicken and beef. In 2013, Chipotle became the first restaurant to use genetically modified organism (GMO)-free ingredients in its food items. The company has eliminated all GMO ingredients from its menu.
Chipotle has been facing trouble in getting a supply of beef raised without antibiotics or hormones. It has always notified its customers about serving meat that does not meet the company's responsibly raised standards. However, in the current case, it prefers to discontinue serving carnitas rather than serving pork raised with antibiotics. Such actions have helped the company to gain a loyal consumer base of health conscious consumers as the increase in demand for natural and healthier food in the U.S. is constantly rising. Domestic comps of burger giant McDonald's Corp. (MCD) have been sluggish over the past few quarters as people are looking for healthier food options in place of processed food.
Chipotle has been witnessing a fairly stable traffic trend over the past few years driven by its strong market position, menu launches and increased media exposure. We believe Chipotle will be able to keep its growth story intact as its health-conscious customers prefer antibiotic-free meats and organic menu items.
Chipotle presently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the restaurant industry include Red Robin Gourmet Burgers Inc. (RRGB) and BJ's Restaurants, Inc. (BJRI). While Red Robin Gourmet Burgers currently sports a Zacks Rank #1 (Strong Buy) BJ's Restaurants has a Zacks Rank #2 (Buy).
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