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Chipotle Isn't That Worried About the Avocado Supply

An employee slices avocados to be made into guacamole at a Chipotle restaurant in Hollywood on July 16, 2013

Photograph by Patrick T. Fallon/Bloomberg

An employee slices avocados to be made into guacamole at a Chipotle restaurant in Hollywood on July 16, 2013

The mere prospect of a guacamole apocalypse at Chipotle Mexican Grill (CMG), flagged by the company in financial documents as one potential risk associated with climate change, was enough to trigger a minor online panic attack. The website ThinkProgress spotted the avocado warning mixed in with the boilerplate in the company’s 10-K filing. If weather-related conditions make certain ingredients more expensive or harder to source, Chipotle said it “may choose to temporarily suspend serving menu items, such as guacamole or one or more of our salsas.”

But the recent commotion, the chain said, is much ado about nothing. Asked if the guac threat is real, Chipotle spokeswoman Danielle Winslow said in an e-mail: “I wouldn’t read too much into this. It’s routine ‘risk factor’ disclosure,” the sort of thing public companies are required to disclose to investors. An ordinary increase in avocado prices hasn’t been enough to stop service in the past. “We saw similar issues in 2011 and incurred higher prices for the avocados we used,” Winslow noted, “but never stopped serving guacamole.” The chain increased menu prices that year.

In fact, company officials seem to issue warnings regularly about avocado-related issues. “Avocado prices continue to remain high,” Jack Hartung, Chipotle’s chief financial offer, explained during a January earnings call, “and are expected to remain elevated throughout 2014.” He pointed to increasing demand and lower supplies from drought-plagued California.

Fairly typical stuff, and investors don’t appear to be particularly worried. “Chipotle seems to have more than adequate pricing power,” said Sharon Zackfia, an analyst at William Blair, in an e-mail.

Consumers may be particularly anxious about guacamole, but avocados are hardly the only ingredient that could come under pressure. Chipotle noted in its filing that it also expects prices of beef, dairy, and chicken to be high in 2014. The chain’s “sustainably raised” food philosophy generally puts it in a tougher position than fast-food competitors. Chipotle already deals with failures to source enough sustainably raised beef to meet demand and acknowledged shifting to “conventionally raised beef or chicken due to supply shortages” in its recent risk factor filing.

Avocados may be getting pricier, but there’s much more to a burrito than just the guac.

Wong is an associate editor for Bloomberg Businessweek. Follow her on Twitter @venessawwong.

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