Chipotle Mexican Grill is still struggling to keep popular menu items from disappearing.
The Mexican-food chain stopped selling carnitas burritos at hundreds of its restaurants in January because it dropped one of its pork vendors, and it's still not fully stocked again. The company also has run low on its premium supplies of beef and chicken over the past year, forcing it to offer alternatives at some locations. And social media are rife with posts from customers complaining that their local Chipotle is missing one item or another.
While Chipotle remains popular with both consumers and investors, the company is a victim of its own growth and ingredient guidelines, which prevent it from using most of the nation's fast-food suppliers. It's also facing an increasingly crowded market for natural and humanely grown livestock.
Before the shortage of carnitas — the shredded pork shoulder that goes into burritos, tacos and salad bowls — the Denver-based company warned that it may have to stop selling guacamole or salsa because of ingredient costs, scaring some customers.
Chipotle has built its reputation on a stringent set of food standards. The meat it serves is free of antibiotics and added hormones. When it comes to pork, the animals must have access to the outdoors or deeply bedded barns — ones with plenty of straw to sleep on.
The trouble is, pigs raised that way account for a tiny fraction of what's produced in the U.S. So Chipotle has to go on a farm-by-farm search for more pork.
At the same time, the company is looking to open as many as 205 new restaurants this year, bringing its total to about 2,000. It may have to reconsider those plans if it can't find a long-term solution to the pork supply woes, said Asit Sharma, an analyst at the Motley Fool in Raleigh, N.C.
That concern may undercut a thesis embraced by Chipotle management and investors, who believe "growth will be supported by store expansion and customers' seeming indifference to price increases," Sharma said. "The company may be forced to slow its store growth if it can't evolve new relationships with 'sustainable' suppliers quickly enough."
Chipotle's growth story has helped the stock more than double over the past two years.
Chipotle expects to record a $2 million charge this quarter related to the pork it pulled from restaurants and distribution centers. The situation stemmed from its discovery that an unidentified supplier wasn't housing pigs the correct way. Niman Ranch, Chipotle's top pork supplier, has boosted shipments, but it hasn't closed the gap, Chipotle spokesman Chris Arnold said.
The top pork processors in the U.S. make up 70 percent of domestic production and mostly don't meet Chipotle's specifications. Smithfield Foods Inc., the biggest hog and pork producer in the world, said it stopped producing antibiotic-free pork "due to low market demand at a price point that sufficiently compensated producers for increased costs." But it is phasing out gestation crates, which have drawn criticism for confining pregnant sows.
The other large suppliers have a mix of approaches. Cargill Inc. sells antibiotic-free pork and is eliminating gestation crates as well, said spokesman Mike Martin. Still, its hogs don't have access to the outdoors or deeply bedded barns.
Tyson Foods doesn't offer antibiotic-free pork, and its hogs don't go outside. As customers request changes, though, it "will continue to work to meet those needs," spokesman Worth Sparkman said.
Chipotle has been talking to potential new suppliers, but they won't commit to raising their standards unless there's a buyer for the premium pork that Chipotle doesn't want, Arnold said.
Chipotle also has experimented with other parts of the pig, but using pork loin would be significantly more expensive than pork shoulder, he said. Continued shortages increase the likelihood Chipotle will have to raise prices again. It boosted prices 6.3 percent last year, citing supply constraints. Customers continued ordering steak and barbacoa burritos, and comparable-store sales rose more than 16 percent in the fourth quarter. But there may be limits to how much they're willing to pay for a burrito.