The landscape of food is changing, and Chipotle is standing on the front line.
The company (CMG) just reported financial results for its fourth quarter and knocked it out of the park again, proving cleaning up food is not only profitable but also should be the fiduciary duty of other food companies.
Chipotle is one of the first food companies to realize that the food technologies of the 20th century no longer work for families today.
Technologies that introduced a host of artificial and synthetic ingredients into our food supply in the twentieth century are now being avoided by 21st century families who find themselves staring down diabetes, Alzheimer’s, cancer, allergies and autism at rates like never before.
Companies that meet this growing demand for clean food technologies are being rewarded, while companies that entrench into the chemically intensive food operating systems of the 20th century run the risk of becoming as obsolete as the Betamax.
Chipotle is meeting consumers where they are: online and waking up to what is going into our food supply.
The company’s successful Scarecrow campaign, a video that takes you behind the scenes of “Big Food”, has been viewed almost 12 million times on YouTube.
Back in October 2013, when Chipotle reported third quarter earnings and announced that they plan to remove genetically engineered ingredients from their product line, the stock soared to record highs.
This week, they followed up, delivering a powerful 4th quarter.
Highlights for the quarter included:
- Revenue increased 20.7%
- Comparable restaurant sales increased 9.3%
- Net income increase of 29.8%
- Diluted earnings’ increase of 29.7%
- Opened 56 new restaurants
And that’s in the fourth quarter alone.
As someone who sat on the equity desk and covered the food industry, one of my responsibilities was to report on companies like Chipotle, YUM brands and what was happening in food shops like Taco Bells around the country. We dutifully reported “same store sales” which represent the increase in year over year, quarter over quarter sales in stores that have been open for at least a year. It’s a data point closely followed by investors.
Chipotle blew it out. The company saw a 9.3% increase in sales, capitalizing on their marketing campaign and meeting the growing number of consumers who are joining the food awakening.
And it wasn’t just for the quarter, a look back on the year shows an incredible trend:
- Revenue increased 17.7% to $3.21 billion
- Comparable restaurant sales increased 5.6%
- Restaurant level operating margin was 26.6%, a decrease of 50 basis points
- Net income was $327.4 million, an increase of 17.8%
- Diluted earnings per share was $10.47, an increase of 19.7%
- Opened 185 new restaurants
“Over the past 20 years, we have created a very unique and special restaurant company. Chipotle is a place that appeals to a diverse customer base throughout the country and beyond,” said Steve Ells, Founder, Chairman and Co-CEO of Chipotle.
The company is creating a unique marketing strategy, too. It is harnessing the power of social media to create awareness on issues that conventional media may not allow. The Scarecrow, a video campaign launched by the company that takes you behind the closed doors of “Big Food”, has been viewed almost 12 million times.
And now, the company is breaking ground with the first of its kind comedy series to be shown on Hulu, again harnessing the emotion and power of social media to spread the message that our food supply is now polluted in ways we could never have imagined.
Who is Buck Marshall they had everyone asking in a tease ahead of the Superbowl.
It was working. We were talking. The irreverence, compassion and novelty with which they deliver information that can cause heartache is helping the company to communicate not only the value of their brand to consumers and investors, but also how important it is that we are all part of this change, including the farmers.
As their report goes on to highlight, food costs for the year were 33.4% of revenue, an increase of 80 basis points mostly from higher salsa, meat, and dairy costs. They need farmers to opt into this clean food technology, too, to meet this growing consumer demand. The opportunity in front of American farmer for this is enormous.
G&A costs for the full year 2013 were 6.3% of revenue, 40 basis points lower than the prior year.
What food company wouldn’t want these numbers? Companies that are entrenching like Kellogg are in the midst of global layoffs. Other companies are dipping a toe in the water, like General Mills, and being rewarded both in the media and marketplace when they opt out of things like GMOs in their signature products.
As Chipotle continues to focus on cleaner food, “food with integrity,” they are beginning to shift our food system, a shift that makes clean and safe food the standard, more affordable option, to all Americans.
It can’t happen soon enough.
Our current food system is broken. As it stands, food that is loaded with genetically engineered ingredients that have been presoaked in chemicals and saturated with weed killers, are the ones that are currently subsidized by the federal government. In other words, our taxpayer dollars are being used for the chemically intensive operating system being used to grow food. Farmers growing food without these chemicals and genetically engineered foods have to pay fees to prove that their crops are safe, fees to label them and so much more. Their cost of production is higher. Is this really how we want out taxpayer dollars spent? At the very least, there should be a level playing field economically, giving farmers the financial freedom to grow either. Currently, however, farmers are hard pressed to make a switch to organic agriculture, because not only do they not receive the subsidy support, but they also don’t receive the crop insurance and marketing support that farmers that grow genetically engineered ingredients do. In other words, it isn’t a level playing field economically.
Which is why it’s an all hands on deck time, which Chipotle completely understands.
For 2014, Chipotle expects to continue to capitalize on this growing consumer demand and the food awakening that is happening.
As an escalating number of Americans learn just how polluted our food has become with artificial growth hormones, artificial dyes, antibiotic laced meat and genetically engineered ingredients soaked and saturated in chemicals, they are opting out and into one of the few affordable choices out there: a burrito chain that totally gets it. Chipotle stands ready to capitalize with the plan to open 180 – 195 new restaurants in 2014.
It begs the question, with this kind of success, who will be next?