Chipotle has long dominated the fast-casual restaurant industry.
The burrito chain has enjoyed double-digit sales growth for many years, as well as high favorability among health-conscious diners looking for a quick, reasonably priced meal.
But recently, Chipotle’s same-store sales growth has been slowing, leaving some investors to wonder if the chain is beginning to lose its lustre after 22 years in business.
Chipotle also has more competitors than ever before, as the fast-casual industry gets increasingly crowded with new restaurant concepts trying desperately to replicate Chipotle’s success.
According to the Wall Street Journal, Chipotle is facing four major challenges right now: slowing sales growth, a tightening labour market, supply chain issues, and new attacks from critics.
Here are the challenges Chipotle is facing as it reports earnings this afternoon.
1. Slowing sales growth.
Chipotle’s same-store sales growth has been contracting for several quarters. That metric grew 4.3% in the second quarter ended June 30, following a 10.4% increase in the first quarter. Same-store sales grew 16.8% in 2014.
Revenue is still increasing by double digits, however, as Chipotle spokesman Chris Arnold points out.
Chipotle’s sales overall grew 14.1% to $US1.2 billion in the most recent quarter.
“Those are very healthy results and I imagine there aren’t many restaurant companies that wouldn’t want that kind of performance,” Arnold told Business Insider.
2. Challenges attracting and retaining employees.
The restaurant industry is struggling with a tightening labour market due to the strengthening economy and growing demand for restaurant meals.
Chipotle held a one-day hiring binge this fall to bring in new workers.
Arnold says the company’s labour “pipeline remains strong.”
“We continue to hire the top performers that we need, and we are developing stronger leadership within our ranks all the time,” he said.
3. Supply chain problems.
Chipotle stopped serving pork at hundreds of restaurants this year because of its strict standards for how animals should be raised and fed.
The pork shortage began in January after the company cut ties with a supplier that violated its standards, which ban the use of hormones or antibiotics and require that pigs have access to the outdoors and to deeply bedded barns.
After dropping the supplier, Chipotle had trouble finding replacements that met its guidelines. Ten months after the shortage began, the company has finally restored pork to 90% of its restaurants with the help of a British supplier.
As Chipotle expands, supply chain shortages could worsen and even extend to other menu ingredients.
Arnold says Chipotle will always find a way to resolve supply chain issues, however.
“We have faced challenges getting the premium quality ingredients we want going back many years, and we have always found ways to rise to meet those challenges,” he said.
4. Attacks from critics.
Chipotle has become the target of some new attack ads by the Center for Consumer Freedom, a nonprofit based in Washington, DC, that lobbies for food companies.
The ads, which have been published in the New York Post, accuse Chipotle of deceptively marketing its food as healthy and free of added hormones.
Arnold has called the ads a smear campaign and questioned where CCF gets its funding. The group does not disclose its donors.
“The attack from the Center for Consumer Freedom is nothing more than a hatchet job orchestrated on behalf of anonymous big food interests,” Arnold said. “This is a front group that exists for the sole purpose of protecting the anonymity of companies with interests that differ from ours.”
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