Chipotle Shines on Local Produce

In an effort to emphasize its commitment to cooking, preparing food with more sustainable ingredients and to serve locally grown produce, Chipotle Mexican Grill (CMG - Analyst Report) recently announced its plans to raise its local produce goal to 50.0% for fiscal 2010, compared with 35.0% in fiscal 2009 and 25.0% in fiscal 2008. The use of locally grown produce is part of a program of Chipotle called “Food with Integrity.”

The company’s ‘Food with Integrity’ program focuses on an increasing mix of naturally raised pork, chicken, beef and organic produce, which has resulted in a significant growth in natural and organic food sales in the U.S.

The program also helps Chipotle to support farming communities around the country. Presently, Chipotle is working with some 50 local, family-owned farms for the produce, including oregano, red onions, tomatoes and romaine lettuce. The company also gets some farming done in California for lemons and avocados.

With the increased target, Chipotle expects to serve about 5 million pounds of produce from local farms in fiscal 2010. The produce is generally procured from within 250 miles of its distribution centers with the bulk coming from within 150 miles.

It has become obvious that the demand for sourcing food locally is increasing rapidly. With a continuous focus on expanding locally grown produce program, we think the company will be able to grab increasing market opportunities.

Chipotle’s results for the last few quarters have been stable relative to many of its peers with comparable-store sales that appear to have held up over time. The company has been able to deliver positive comps consistently despite the recent economic downturn, when most of the restaurant companies struggled to plug declining sales.

At present, we have an Outperform rating on the stock. We expect the company’s ‘Food with Integrity’ program to provide a significant competitive advantage compared with its peers, such as Famous Dave's of America, Inc. (DAVE - Snapshot Report), Tim Hortons Inc. (THI - Snapshot Report) and California Pizza Kitchen, Inc. (CPKI).

Founded in 1993, and based in Denver, Colorado, Chipotle operates quick-casual, fresh Mexican food restaurant chains in 35 states throughout the U.S., the District of Columbia and Ontario, and Canada.

Chipotle serves a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla), and salads made from fresh, high-quality ingredients, cooked by using traditional methods and served in a unique atmosphere. Chipotle classifies its restaurants as end-caps (at the end of a line of retail chains), in-lines (in a line of retail chains), free-standing units and others.