Chipotle Diversifies Avocado Supply Chain to Mitigate Tariff Risks
Key Takeaways:
* Chipotle obtains approximately 50% of its avocados outside Mexico.
* The U.S. imports over 90% of its avocados, predominantly from Mexico (89%).
* Chipotle's supply chain diversification strategy positions it to potentially mitigate the impact of tariffs on imports from Mexico.
* Estimated expense increase of 0.6% for Chipotle if proposed tariffs are implemented.
Avocado Sourcing and Supply Chain:
Chipotle CEO Scott Boatwright revealed that the company sources avocados from Colombia, Peru, the Dominican Republic, and Mexico, with Mexico accounting for only half of its supply. This diversification effort has been intentional, according to Boatwright, who highlighted the role of the supply chain team in vendor diversification.
U.S. Avocado Market:
The U.S. has become increasingly reliant on avocado imports, with Mexico dominating the supply. As of 2023, 89% of fresh avocados imported into the U.S. originated from Mexico. However, avocado consumption in the U.S. has surged since the early 2000s, leading to a decline in domestic production. In 2023, domestic avocado production accounted for just 8.1% of total consumption, the lowest on record.
Trump's Tariffs and Chipotle:
The Trump administration's proposed tariffs on imports from Mexico, including avocados, tomates, and limes, could potentially impact Chipotle's costs. CFO Adam Rymer estimates that these ingredients constitute roughly 2% of the company's cost of sales. If the tariffs are implemented in full, Chipotle's expenses could increase by approximately 0.6% this year.
Economic Impact of Tariffs:
Economists predict that American consumers will likely bear the brunt of the proposed tariffs. Researchers at Yale University estimate that the plan could raise the cost of living by 0.7% and cost American households an average of $1,250 annually.