Business

Chipotle pork shortage leads to not enough carnitas to go around

Bad news for die-hard carnitas fans: Chipotle said it doesn't expect its pork shortage to fully recover until closer to the end of the year.

Fast food chain that has earned a reputation of good environmental steward can't get enough pork

Chipotle's principled stance on sourcing its ingredients from ethical suppliers has become an issue, as the chain currently can't keep up with demand for pork. (Jeff Kowalsky/Bloomberg News)

Bad news for die-hard carnitas fans: Chipotle said it doesn't expect its pork shortage to fully recover until closer to the end of the year.

The Denver-based company said Tuesday it is working with suppliers to get pork back in its roughly 1,800 restaurants by the fourth quarter, which begins in October. The shortage began in January and affected about a third of its restaurants after the company said it suspended a major supplier over animal welfare violations.

Already, Chipotle said the pork shortage and bad weather dampened its sales growth in the first three months of the year. Sale rose 10.4 per cent in the period at established locations, boosted mostly by price hikes.

Carnita crunch

While the increase would be enviable for many other fast-food chains, it fell short of the 11.7 percent increase Wall Street expected, according to Thomson Reuters. It was also down from the 16.1 percent growth in the previous period.

Jack Hartung, chief financial officer for Chipotle, said one problem is the loss of customers who go to Chipotle specifically for its carnitas.

"They appear to be visiting less often, or not at all," he said.

Making matters worse, Chipotle has been rotating its pork supplies around the country every six weeks so that no single region is affected for a prolonged period. But Hartung said that has only caused more confusion and that the company plans to stop the strategy later this month so that regions where carnitas are most popular will have stable supplies.

A spokesman for the company, Chris Arnold, has said that pork accounts for six to seven per cent of entree orders.

Sticking to green conscious strategy

Even if Chipotle's decision to stop serving pork in some restaurants slows growth, it underscores the company's strategy of defining itself as a purveyor of food made with quality ingredients, and high standards. Mark Crumpacker, Chipotle's chief marketing officer, said during a conference call that customers are showing a greater interest in eating healthier - and that healthier is being defined as food that's natural and free of artificial ingredients.

In the meantime, Chipotle has not identified the supplier that it said violated its standards and is responsible for the pork outage at about a third of its stores.

Niman Ranch, one of Chipotle's suppliers, said it has already increased its pork supplies to the Mexican food chain twice since the shortage began, with another increase planned in August, to help make up for the gap. The increases have partly been the result of Chipotle's growing store count, said Jeff Tripician, chief marketing officer for Niman Ranch.

"They've always wanted more from us, even before they had this problem," he said.

The chain has made its name on its ethical sourcing and holistic take on fast food. It got a major bump with a Super Bowl commercial a few years ago in which the voice of Willie Nelson sings over a video that explains the company's environmental policies.

For the quarter, Chipotle Mexican Grill Inc. earned $122.6 million, or $3.88 per share. Analysts on average expected $3.61 per share.

A year ago, it earned $83.1 million, or $2.64 a share.

Total revenue - which was boosted by 49 new store openings during the period - was $1.09 billion. That fell short of the $1.1 billion analysts had forecast, according to Zacks Investment Research.

Its stock was down more than 5 percent to $656.12 in after-hours trading.

Chipotle said it still expects sales at established locations to rise in the low- to mid-single digits for the year.

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