Chipotle's Local-Sourcing Gamble Gets Bigger

Last Updated May 19, 2010 10:00 AM EDT

Chipotle Mexican Grill (CMG), the self-proclaimed biggest chain-restaurant user of locally grown produce, plans to grow its locavore stance this year. Having slowly increased its locally sourced ingredients to 35 percent of the total used by the company, founder and co-CEO Steve Ells has set a goal of buying half of Chipotle's food locally this year. The move is a bold one that could earn the chain some goodwill with customers, but added administrative and food-price costs could hit the bottom line.

It's a good time for Chipotle to try a gambit like this -- the chain just turned in solid first-quarter results that included rising comparable-store sales, net profits and customer counts. That's a help, because there's a reality to local sourcing: It usually costs more.

Finding dozens of local small farms to supply your 1,000-unit chain with tomatoes takes a lot more people and effort than does signing on with one national agribusiness giant. The price of those tomatoes is usually higher, too. As Chipotle grows -- it's projecting 120 to 130 new eateries this year -- the challenge of sourcing enough ingredients near stores will increase as well. If Chipotle can pull this off, it may be able to start a side business consulting with other chains on how they get this done efficiently, without eroding profits.

Still a big question mark is whether Chipotle can make local food pay off in terms of customer growth. It's unclear yet if fast-casual diners really care if their tomato came from 100 miles away instead of 1,500. To make this equation work, the locavore move will have to build Chipotle's audience and increase sales volume to cover the additional cost of local sourcing. At the moment, that's unlikely. The majority of American diners haven't caught the locavore bug -- about half of diners say they eat local food less than once or twice a month. In general, locavores tend to be upscale diners, too, not purchasers of quick-serve burritos.

Ells opines that customer traffic may build on taste alone, because produce that travels less is fresher and tastes better. Now that's a marketing angle that could fly.

Beyond taste, Ells says Chipotle is increasing its local buying because it's just the right thing to do -- it wastes fuel to truck produce the 1,500 miles it usually travels. It'll be interesting to see if Chipotle can make that case to investors if its local-sourcing program cuts profits.

Photo via Flickr user Christyxcore

  • Carol Tice

    Carol Tice is a longtime business reporter whose work has appeared in Entrepreneur, The Seattle Times, and Nation's Restaurant News, among others. Online sites she's written for include and Yahoo!Hotjobs. She blogs about the business of writing at Make a Living Writing.