Chipotle’s Earnings Call: A Business Case for Sustainable Sourcing

Usually earnings calls are rather dry and pallid unless you are a stockholder excited about a company’s remarkable financial performance — or livid over a steep drop in stock price.

The investor relations officer will start by reading a safe harbor statement, reminding listeners that the company’s liability is limited should future results prove different from what is stated in the one-hour or so discussion. The chief financial officer may talk about additional details such as non-GAAP financial measures and details over adjustments to reconcile net income to net cash.

But Tuesday’s earnings call by Chipotle Mexican Grill, Inc. was much more than a laundry list of financial accomplishments: It stood out as a remarkable business case for the sourcing of sustainable meat and sticking to a business's principles.

If you were smarter than me and bought Chipotle stock five or so years ago, you are laughing. The stock yesterday was listed at $676 a share -- off a bit from its 52-week high of $727, but it has still been performing at an upward trajectory for almost 10 years. The company is successful: Fourth-quarter earnings were up 26.7 percent to $1.07, and 60 new restaurants helped boost sales that were already up 16.1 percent in comparable stores. Diluted earnings per share were at $3.34, up well over 50 percent. And 2014 was overall a banner year, with revenues up 27.8 percent to $4.11 billion, impressive considering many fast-food restaurants such as McDonald's are languishing.

But after a rough January, when Chipotle had to remove pork (as in the popular carnitas option) from a third of its restaurants because of concerns over animal welfare, Co-Chairman and Co-CEO Steve Ells was confident about his company’s mission and business model. Its competitors could learn a lot from that hour-long call.

The earnings call started almost immediately with Ells confronting last month’s crisis, which could cost the company up to $2 million in sales. Last month many analysts insisted that Chipotle’s commitment to sustainable pork — and all meat for that matter - -and animal welfare would hurt the company in the long run. But Ells hardly sounded as if he were on the defensive. If anything, it was more of a lecture on why a business should do good and do right. “We have made it our mission to change how people think about, and eat, fast food,” Ells said as he launched into his segment of the call.

So, why would a company with 1,800 restaurants and counting take such a hit on the ledger? According to Ells, what many viewed as a crisis was a time for the company to stand its ground even more. “Choosing to suspend the supplier meant that we would not be able to supply carnitas to about one-third of our restaurants,” he said. “While we could have chosen to replace this supply with pork from conventionally-raised pigs, we decided not to because most conventionally-raised pigs are subjected to conditions that we find unacceptable.”

Ells then continued with what sounded like an Animal Welfare 101 lecture, explaining how pigs raised conventionally are almost never outdoors, cannot roam outside and have no bedding — while antibiotics and other treatments compensate for harsh treatment and cause the pigs to grow unnaturally. “Customers are applauding our commitment to our vision, thanking us for standing on principle, commending us for taking action against the inhumane treatment of animals, and congratulating us for standing by our business values,” he said.

Ells then made his case about the benefits of sustainably-sourced meat, dismissing January’s supplier fiasco as a disruption that can help the company strengthen its supply chain — and continue to grow in the long run. Those values echoed throughout the company’s supplier base, from the drive to buy only no-till or organically-grown beans to the commitment to source locally-farmed produce as much as possible.

Indeed, customers are responding to Chipotle’s stand, and they are voting enthusiastically with their feet — walk by your local Chipotle at the lunch hour and see if you can even get a chair. While fast food chains of yesterday struggle to get customers through the door, Chipotle is winning hands-down with younger customers — where the real battle is. Teens, millennials, Generation X — Ells listed a bevy of statistics from surveys that show consumers are more discerning about where their food comes from.

To any business school professor or executive who says the point of a business is to only provide value to shareholders while dismissing any notion of social responsibility, he or she should listen to the first 10 to 15 minutes of Chipotle’s business call and take notes. Chipotle is a compelling example of how a company can have a conscience and yet continue to reap success.

Image credits:Proshob

Based in California, Leon Kaye has also been featured in The Guardian, Clean Technica, Sustainable Brands, Earth911, Inhabitat, Architect Magazine and Wired.com. He shares his thoughts on his own site, GreenGoPost.com. Follow him on Twitter and Instagram.