Economics bites Chipotle

The Mexican fast food chain Chipotle has taken on its competitors in recent years by marketing its products as “food with integrity”. It moved to sourcing much of its food locally and took genetically modified ingredients off its menu. It was attempting to suggest its competitors offer inferior and socially irresponsible products. In a 2014 annual report, it even went so far as to list global warming as a risk factor in its ability to offer guacamole, while claiming that its practices reduce carbon emissions.

The problem for Chipotle is that its various claims were mostly marketing spin and devoid of reality. History is littered with companies that have stopped focusing on the basics, like serving the needs of customers and being honest with them. It was first hit by October’s E. coli outbreak at its stores here in Washington state and Oregon, followed by a norovirus outbreak in Boston and this month news emerged of another E. Coli outbreak across multiple states from North Dakota to Oklahoma.

Economics has come back to bite Chipotle in multiple ways. It played up the benefits of buying and preparing food locally, but buried the costs. Customer won’t easily find the following admission by the company on its website or in its store. It wrote in a February regulatory disclosure, as reported this week by Vox:

[Serving local or organic produce] may make it more difficult to keep quality consistent, and present additional risk of food-borne illnesses given the greater number of suppliers involved in such a system and the difficulty of imposing our quality assurance programs on all such suppliers.

While the company had fun mocking “the outrageously twisted and utterly unsustainable world of industrial agriculture”, as Chipotle called it in its original comedy “Farmed and Dangerous”, you’d be hard pressed to find estimates from it as to what a world without specialization, comparative advantage and trade would look like. Fortunately, the team at Freakonomics has:

In order to maintain current output levels for 40 major field crops and vegetables, a locavore-like production system would require an additional 60 million acres of cropland, 2.7 million tons more fertilizer, and 50 million pounds more chemicals. The land-use changes and increases in demand for carbon-intensive inputs would have profound impacts on the carbon footprint of our food, destroy habitat and worsen environmental pollution.

Chipotle even likes to claim on its website that “buying locally reduces vehicle emissions from transportation.” However, Steve Sexton in the article cited above questions that claim as well:

It’s not even clear local production reduces carbon emissions from transportation. The Harvard economist Ed Glaeser estimates that carbon emissions from transportation don’t decline in a locavore future because local farms reduce population density as potential homes are displaced by community gardens. Less-dense cities mean more driving and more carbon emissions.

After years of implicitly criticizing its competitors for not sourcing and preparing as locally as Chipotle has, the company’s recent woes are forcing it to do an embarrassing about-face. As the Wall Street Journal reported this week:

The company will likely rely less on local suppliers, many of whom can’t comply with sophisticated testing. The company will also chop, prepare and hermetically seal ingredients such as cilantro and lettuce in a central kitchen before shipping it to local restaurants.

Chipotle’s efforts to stoke the fears of customers by demonizing GE foods are also deplorable. I noted during Washington state’s debate on Initiative 522 that in almost 20 years since genetically engineered foods were commercialized there’s been no documented health issue. Yet there have been enormous benefits to societies across the globe, particularly the poor.

Chipotle’s appeals to its social virtue were never more than marketing spin. Its stock has now fallen more than 25% year to date, trial lawyers are knocking on the door and while “Farmed and Dangerous” came and went unnoticed, customers won’t soon forget these episodes.

 

Cross posted at Sound Politics