Chipotle's Guac Guarantee: Tariffs Won't Break the Bank
Chipotle Mexican Grill (CMG) assures its customers that the threat of tariffs will not lead to a guacamole shortage or a spike in prices.
CFO's Reassurance
CFO Adam Rymer emphasizes that the company is closely monitoring the fluctuating tariff situation and will not hastily implement price increases. He notes that a patient approach is necessary to assess whether the tariffs will be permanent or temporary.
Cost Absorption Capacity
Chipotle's ability to absorb tariff costs for an extended period stems from its diversified supply chain and modest Mexican imports. Only 2% of its cost of sales is sourced from Mexico, primarily avocados, while 90% of avocados are now imported from non-Mexico sources.
Diversification and Risk Mitigation
Rymer stresses the company's efforts to minimize its reliance on any single region. Despite ongoing avocado cost exposure, Chipotle is proactively mitigating risks by further diversifying its supply chain over time.
2025 Outlook
Assuming tariffs do not materialize, food margins in 2025 are projected to improve. In 2024, rising avocado prices and increased portion sizes impacted Chipotle's profitability.
Value Strategy Remains
Despite a 2% price increase in December, value remains a core strategy for Chipotle. The company has successfully gained market share by offering a 30% discount on food compared to competitors.
Additional Price Hikes Ruled Out
BTIG analyst Peter Saleh predicts that if Chipotle refrains from further price adjustments, same-store sales in 2025 will benefit by 200 basis points from the December 2024 price increase.