Chipotle's Hidden Secret

Chipotle is known for its sustainable business practices and captivates a large customer base because of it. Chipotle purchases only natural, cage free/free range chicken, pork, and beef from local, heavily audited ranches and farms. They also source vegetables from local farms and their dairy is free of added hormones. Chipotle has a sustainable building program in which they use low VOC paints, energy efficient appliances and kitchen equipment, and their paper products made out of recycled materials (bags, bowls, and napkins). The aluminum lids are made from recycled beverage cans. Even Chipotle’s uniforms are made from organic materials. The list goes on.

These “sustainable” and eco-friendly practices are great for the environment and make a lot of people feel better about paying the higher price. For those who haven’t checked-in to a store in a while, the cost for guacamole is a $2.00 add-on depending on store geography. People are aware of this, and people are aware that they will need to pay a bit more for better quality meats, locally sourced produce and eco-friendly in-store materials. Hence why many of their loyal customers are coming back day after day because they feel like they are supporting a good cause – food with integrity. Many of these same people claim to be pesca-pescatarian.

With all that said, Chipotle has historically maintained good margins and has been very profitable over the past 10 or so years, experiencing rapid growth. Chipotle has produced double-digit comps figures more years than not over the past 10 years. Their company culture coupled with their profitability seemed to have beat the odds by becoming a healthy fast-food restaurant/QSR.  With the exception of the recent e-coli breakout, and subsequent temporary closures of stores (which has caused their stock as of late to drop), Chipotle has a bright future ahead. On a side-note, Chipotle’s policy of avoiding the industrial food supply chain may have, ironically, actually led to this outbreak due to the increased variability, and subsequent increase in exposure of food sources to variable environments. I digress.

How does Chipotle remain profitable? The first reason is obvious – they charge a premium price that consumers are willing to pay. In addition, they are able to produce and distribute lots of their ingredients in-house. They get produce, meats and dairy products from farms (some owned, others not) no further than 350 miles from each local store cutting down on import other transportation costs for non-local goods. This cuts into the margins of would-be markup costs associated with buying ingredients from distant third parties and industrial food factories. Their eco-friendly stores also keep overhead relatively low. Side note: The margins on the guacamole also HAVE to be lining their pockets as well (personal opinion).

One area that I recently identified where Chipotle goes against all fabrics of their being resides in their takeout bags. Yes, their takeout bags. Don’t get distracted by their quirky marketing campaign where inspirational quotations are included on the bags and cups. Don’t get distracted by their 100% recycled fiber bags either. Have you ever noticed the takeout bags are much larger did they need to be? You can fit at least five or six orders in each bag, and probably more (assuming the standard recycled bowl and lid). Have you ever noticed that there is only one size option for takeout bags? Well I have.

Now why does this go against the message that Chipotle is trying to convey in their sustainability culture? And how does this relate to their stance of sacrificing cost for quality? Well first, by creating one oversized bag this creates a significant excess of waste since the packaging does not fit the product meant to go inside. If Chipotle was to offer different sized bags they could use small bags (say 50% smaller than current size) for orders of one or two people, medium bags for 3-4 orders and large bags for orders of four or more. Rarely do I ever see takeout orders of 3-4 orders or more. If small bags were issued 50% of the time and were 50% smaller than the current size this would reduce the waste from takeout bags by 25% alone. Even though Chipotle uses primarily recycled materials in these bags and have a strict recycling policy in-store, most takeout bags are disposed of outside of the store and end up at landfills rather than recycling centers. So not only are they creating an excess of waste, they are not able to adhere to their internal recycling process because the disposal of these bags happens outside their stores thereby compounding the issue.

As a packaging industry best practice to reduce the amount of waste, package sizes need to be precisely fitted for the item(s) they are housing. By having different sized takeout bag options this would minimize Chipotle’s carbon footprint by tailoring each packaging container to optimally fit each unique order.

Presumably Chipotle has one large bag option to chip away at their production costs in order to remain semi-competitive on price with other QSR and fast food competitors while still focusing on sustainability and high quality ingredients. By using a universal bag size the outsourced packaging company can, by default, produce more of the same bags at once. This results in a lower cost per order which occurs for a few reasons: First it minimizes the tooling costs necessary to produce different size takeout bags as different tooling is required for different size cuts and folds. Different adhesion patterns are required for each bag bottom. Different print patters are required for each bag face. All of these variables, coupled with smaller run sizes that are required for different bag sizes, attribute to a one size-fits-all solution being the most cost competitive option. But it is not the most “sustainable” solution.

So why does Chipotle choose to skimp on their takeout bags of all things? Did they think we wouldn’t notice? As Chipotle continues to promote sustainability while remaining semi-cost competitive I’m sure there are other areas I have not yet noticed in which they go against their values in order to cut-costs. I may notice something new next week for my periodic Chipotle visit. Stay tuned.