Customers give Chipotle Mexican Grill high marks for its “food with integrity” commitment to ingredient sourcing. But many took their business elsewhere when a shortage of humanely raised pork caused the chain to temporarily remove carnitas from its menu.
Chipotle executives explained what happened during the company’s Q1 2015 conference call, and their experience provides valuable insights on how key product shortages and related menu price changes should be handled.
Financial types keep an eye on Chipotle because it has been a highly profitable growth machine since it went public. It still is. Even with the pork problem, comp sales rose a healthy 10 percent-plus on the quarter. But competitors watch this chain closely because Chipotle has no peer in attracting a Millennial customer base and keeping them coming back. How would customers in this key demographic group react when they stepped up to the Chipotle counter and were told they can’t order their favorite meal?
“Our carnitas customers really love our pork, and they appear to be visiting less often or not at all, until they know we have carnitas in their market,” is the way Chipotle CFO John Hartung spun it on the call.
“The vast majority of our customers tend to find their favorite burrito or favorite bowl combination, and then they order that favorite meal every single time they visit,” he continued. “We had hope that the shortage would encourage our carnitas customers to try another menu option, and some did, but many have decided to hold out until carnitas returns to their market.”
Customers may have been confused about when and where carnitas would be back on the Chipotle menu.
“We rotated markets without pork about every six weeks, and so every one of our markets has been affected at some time or another,” Hartung said. “We found that when we rotated supply back to a particular market, it could take weeks before our carnitas product mix returns to previous product mix levels.
“This rolling blackout has caused confusion among our customers about where and when we were out of carnitas, and this has worsened the sales impact. Because of this phenomenon, we're going to stop the rolling blackout and continuously serve carnitas in our markets where the carnitas product mix tends to be the highest, starting later this month.”
In other words, carnitas won’t be available at one-third of Chipotle units until a new supplier is brought on board. When might that be? “We expect additional pork to be returning to our restaurants beginning in the third quarter, with a full return of carnitas during the fourth quarter,” Hartung said.
No word on how much a carnitas bowl or burrito will cost when they return to the menu full bore. But we’re about to find out how well Millennials react to a price hike for two other Chipotle favorites, steak and barbacoa. The chain raised menu prices for both items in 2014, and it sees another increase on the horizon.
“Beef prices remain at historically high levels, although beef inflation was largely contained during the quarter,” Hartung noted. “We currently believe that the pricing for beef will remain at these elevated levels well into 2016 and perhaps even into 2017. As a result of this increased inflation, we expect to raise prices on steak and barbacoa this year, most likely by the end of the third quarter.” Hartung said.