Operations

Chipotle is hunting for more U.S.-made packaging

The burrito chain said supply chain issues and rising freight costs are making it too expensive to source from overseas, and that it might invest in a domestic packaging operation.
Chipotle Mexican Grill
Photo courtesy Chipotle Mexican Grill

Chipotle Mexican Grill is having “early stage” discussions with U.S.-based packaging suppliers to decrease its dependence on Asian companies because of rising freight costs and ongoing supply chain issues, the burrito chain confirmed Wednesday.

Chipotle CFO Jack Hartung said the chain might even put money behind a domestic packaging vendor to help build capacity in the U.S. The news was first reported in Bloomberg, but Restaurant Business confirmed the chain’s statements via a Chipotle spokeswoman.

Last month, Hartung told investors that he hoped Chipotle was reaching an “inflection point” in packaging and other costs—but that he didn’t expect that to happen anytime soon.

“What we can hope for is that they don't step up from here, they stabilize,” Hartung said. “And at some point, they just kind of normalize in the future. But, right now, if I was going to build a model, I would not build in a reduction in food costs for the fourth quarter. It looks like it's more going to be something in 2023 before we see that.”

Hartung also told Bloomberg that the chain is looking to buy more grass-fed beef raised in the U.S., rather than from its current vendors in Australia.

For the quarter ended March 31, Chipotle’s food, beverage and packaging costs were 31% of total sales, an increase of 100 basis points from the same period in 2021.

Margins have been an ongoing pain for Chipotle, even as its sales have soared during the pandemic.

The Newport Beach, Calif.-based company’s restaurant-level operating margins were 20.7% during the first quarter, down from 22.3% during the same period a year ago. Chipotle raised its prices another 4% at the end of March. The chain had previously forecasted 22% margins.

Packaging continues to be central to Chipotle’s operations, with 42% of sales coming in through digital channels during the first quarter.

The supply chain has been a source of much frustration for restaurants during the pandemic, causing ongoing shortages of packaging, equipment and a wide variety of food items.

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