{"id":26596,"date":"2017-11-15T22:41:09","date_gmt":"2017-11-16T03:41:09","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/chipotle-the-fast-casual-descent-to-supply-chain-oblivion\/"},"modified":"2017-11-15T22:41:09","modified_gmt":"2017-11-16T03:41:09","slug":"chipotle-the-fast-casual-descent-to-supply-chain-oblivion","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/chipotle-the-fast-casual-descent-to-supply-chain-oblivion\/","title":{"rendered":"Chipotle: The Fast, Casual Descent to Supply Chain Oblivion"},"content":{"rendered":"

What\u2019s the Beef?<\/u><\/strong><\/p>\n

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Chipotle proudly boasts a unique customer promise: locally sourced, non-GMO, antibiotic-free ingredients wherever possible to fuel a radically simple, affordable menu.\u00a0 This claim\u2019s emotional resonance and the carefully choreographed supply chain which make it possible have long provided a distinctive advantage for a company warring in a brutally competitive market.\u00a0 While the heightened risk of food-borne illness in this unique arrangement has been acknowledged quite publicly [1], climate change poses a potentially greater threat to the system.\u00a0 Chipotle\u2019s position leaves it dependent on a smaller, fragmented pool of suppliers [2] and uniquely vulnerable to climate change pressures on commodity prices and availability.\u00a0 Ultimately, there is a distinct possibility the only way Chipotle will be able to continue to fund its meteoric ascent is by selling its soul.<\/p>\n

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Climate change has already begun slowing crop yield growth and threatening prices for key Chipotle ingredients, such as wheat and rice [3]. \u00a0The company created a small panic in 2014 when it suggested climate change might one day force them to retire its beloved guacamole [4].\u00a0 They later downplayed this fear, but water-intensive crops such as avocados have seen tremendous pressure in recent years of record heat [5], and the reality is that these items may be just the first of many to find themselves on the brink [6].\u00a0 While other competitors, such as McDonald\u2019s, have been able to shop aggressively for suppliers abroad [7], Chipotle\u2019s decision to pursue the agricultural high road leaves them poorly positioned to adapt without breaking one of the central customer promises: raising price, discontinuing items from an already-limited menu, or watering down its agricultural ethos.<\/p>\n

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Chipotle Responds<\/u><\/strong><\/p>\n

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Short Term- Chipotle has already started sacrificing its preference for small, local suppliers in favor of continuity, control, and animal welfare.\u00a0 For example, in recent years they have snubbed domestic ranchers and increased Australian beef imports [8].\u00a0 After a control breakdown at a US supplier led to Carnitas being withdrawn from the menu, pork sourcing has also been largely shifted abroad [9].\u00a0 Domestically, the company has admitted that a paltry 10% of produce comes from local providers [10].\u00a0 While these tactics have generally preserved continuity, they have also invited derision and taunts of hypocrisy from both industry experts and consumers and portend future credibility risk [11, 12].<\/p>\n

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Medium Term- Chipotle clearly sees the writing on the wall, and the company has taken significant steps to invest in increasing supply chain scale for the future.\u00a0 To better position themselves to sustain their competitive advantage, they have undertaken several mission-consistent initiatives.\u00a0 Perhaps the biggest bet to date is the \u201cLocal Grower Support Initiative,\u201d by which the company will invest up to $10 million to train, educate, and support local farmers to adopt more sustainable, resilient practices and elevate to the company\u2019s aspirational production standards [13]. Chipotle has also invested heavily in transitional farms\u2014 farms in the process of achieving organic certification\u2014which they also believe will fare better in future conditions [14].\u00a0 They have also applied tremendous pressure to traditional fast-food restaurants, publicly slamming conventional farming tactics and betting that this will lead to changes in public sentiment and spur farming reform [15].\u00a0 While these strategies have been partially effective, it seems that there even larger opportunities in the immediate and long-term they can pursue.<\/p>\n

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What is to be Done?<\/u><\/strong><\/p>\n

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Diversification<\/u><\/em><\/p>\n

Up to this point, one of Chipotle\u2019s greatest strengths has been the utter simplicity of its offering.\u00a0 However, this approach places too much weight on climate-vulnerable ingredients, such as rice, beans, and wheat. Sensible introduction of more resilient Mexican staples, such as yuca (a type of cassava) [16], into production will provide greater flexibility and train their customers\u2019 palates for a different future state where they\u2019ll have to lean more heavily on these items.<\/p>\n

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Accelerated R&D<\/em>– For a company so outspoken against efficiency-improving GMO\u2019s, Chipotle has a strong incentive to invest heavily in alternative yield boosters.\u00a0 While much of the innovation of the company is outsourced to farmers, they would benefit disproportionately from discovery of emerging capabilities, such as microbiome soil priming.\u00a0 The fragmented supply chain network would enable the company to wield greater leverage over smaller farms and more easily spur development and innovation than they possible could with large enterprises.<\/p>\n

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What\u2019s Next?<\/u><\/strong><\/p>\n

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Chipotle must wrestle with several critical questions that challenge their deepest-held values.\u00a0 If these predictions come to fruition, what are they willing to trade-off to stay competitive?<\/p>\n

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As the veil is lifted on the company\u2019s current practices and climate change pressures force even greater concessions, is there enough distinct value left to stop a once-bright star from extinguishing?<\/p>\n

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(Word Count \u2013 773)<\/p>\n

Sources<\/p>\n

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