Chipotle Tightens Food-Supplier Standards

Some Local Produce Suppliers Might Not Meet Elevated Requirements

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Credit: Courtesy Chipotle
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Chipotle Mexican Grill, dealing with an E. coli outbreak that has sickened dozens around the U.S., has tightened its supplier standards, putting its longstanding promise to buy food locally in jeopardy.

"We have elevated requirements for all of our produce suppliers (chiefly in the area of testing of ingredients), and we are not sure that all of the current local suppliers will be able to meet those elevated protocols," Chris Arnold, a spokesman for the Denver-based company, said in an e-mail in response to questions from Bloomberg.

Chipotle changed its website last month, taking down a description about buying locally and replacing it with a message on long-term supplier relationships. Though the company is still contemplating its plans for the local-produce efforts, the move cuts to the heart of Chipotle's culture and marketing. It began the program in 2008 in a bid to support local farms and sustainable agriculture.

"We changed it both because the program is largely out of season, and because we are not entirely sure what it will look like next year given some changes we have made," Mr. Arnold said. The local program runs from about June through October in most of the U.S., he said.

Closed Restaurants
Chipotle, which has about 1,900 U.S. locations, is reeling from several food-safety incidents this year. At least 43 people who ate at the company's restaurants were sickened with a strain of E. coli bacteria. The Mexican chain temporarily shut down locations in the Pacific Northwest, which were especially hard hit, and deep cleaned them. Before that, salmonella and norovirus cases were linked to Chipotle restaurants.

The shares have felt the impact from the outbreaks, falling 11% in October and 9.5% last month. Chipotle shares dropped 1.4% to $566.51 on Thursday morning.

The E. coli outbreak has spread to six states, including California and New York, but the cause hasn't yet been found. The evidence suggests that an ingredient or "common meal item" served by Chipotle was the source of the illnesses, according to the Centers for Disease Control and Prevention.

The CDC said the cause of the outbreak probably wasn't meat because vegetarians were among those who became ill.

Sales Impact
The health scare may hurt sales over the next 12 months, according to a report this week from Lynne Collier, a Sterne Agee analyst. In October, the company posted same-store sales growth of 2.6% in the third quarter, a slowdown from 4.3% in the prior period.

The company should get back to normal by the fourth quarter of next year, Ms. Collier said.

Still, stepping back from its buying-local pledge could affect how the company markets itself. The company has said in the past that it's steadily expanded the effort, buying millions of pounds of produce from regional farms. The idea is to serve vegetables that are grown within 350 miles of individual restaurants.

In 2014, Chipotle bought more than 20 million pounds of locally grown produce, up from its 2013 goal of 15 million pounds. In June 2014, the company said it would work with more than 45 local U.S. farms to purchase bell peppers, cilantro, red onions, jalapeno peppers, oregano, romaine lettuce and tomatoes when seasonally available. It was also planning to buy avocados and lemons from local growers in select cities as part of its local sourcing effort.

Co-Chief Executive Officer Monty Moran mentioned the local program when discussing Chipotle's expansion plans in October. "There is still this opportunity to educate people," he said on a conference call at the time. "They don't necessarily know that we do things like source naturally raised meats and we have a local program during the right seasons."

-- Bloomberg News with additional reporting by Ad Age

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