Tuesday, February 24, 2015

A Case Study on the Value of Sustainable Sourcing

Sustainable sourcing really does make good business sense. The value of this view has been demonstrated by a very successful US restaurant chain. They are showing that responsible procurement is entirely consistent with bottom line concerns. Sustainable sourcing goes beyond economic considerations and takes into account environmental, social and ethical factors as well.
As Apple CEO Tim Cook explained, engaging sustainability initiatives is about more than ROI. However, Apple's bottom line appears to be benefiting. The example of Chipotle Mexican Grill, Inc. demonstrates that sustainable sourcing can be a bottom line success factor. An earnings call on Tuesday February 3, by fast food restaurant Chipotle provided the business case for a principled stand on the sourcing of sustainable meat.

The success of Chipotle is built on a business strategy that involves acquiring ingredients from organic and local meat and vegetable producers. They avoid antibiotics, added hormones and chemical pesticides. 

Chipotle stock has climbed steadily in the last decade and in the last five years it has enjoyed a meteoric rise and a particularly strong final quarter of 2014. As of February 23 it was listed at $671 a share just below its 52 week high of $727. The chain has recently added 60 new restaurants and its 2014 revenues went up 27.8 percent to $4.11 billion.

Chipotle is a global leader in terms of its sourcing of sustainable, humanely treated animals. The company recently had its supply chain disrupted when it was forced to suspend an important pork supplier in January because they did not comply with its animal welfare standards. Chipotle demands that its pork suppliers give pigs access to the outdoors and deeply bedded barns.

"The differences in animal welfare between pigs raised this way and pigs that are conventionally raised [are] stark, and we simply won’t compromise our standards this way," a company spokesman said in an email.

In a conference call, Co-Chairman and Co-CEO Steve Ells explained the merits sustainable business and expressed confidence about this decision along with his company’s mission and business model.

"[M]ost conventionally-raised pigs are subjected to conditions that we find unacceptable," Ells said.

This suspension meant that one third of Chipotle's 1,800 restaurants had to remove pork from their menus, a move which could hurt sales. However, Ells is confident the strategy will continue to pay off in the long run.

"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 made the point that standing up for company values will strengthen its supply chain and contribute to further growth. In short, sustainable sourcing adds to the bottom line.

A growing number of customers are more concerned about the quality of their food and this is particularly true among younger consumers.

Chipotle's social responsibility leadership is a significant part of the reason why the company has enjoyed such strong growth and an even bigger reason why they are well positioned to keep eating up market share going forward.

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