Chipotle 2006 Annual Report Download - page 39

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Commodity Price Risks
We’re also exposed to commodity price risks. Many of the ingredients we use to prepare our food, as well as
our packaging materials, are commodities that are affected by weather, seasonality, production, availability and
other factors outside our control. We work closely with our suppliers and use a mix of forward pricing protocols
under which we agree with our supplier on fixed prices for deliveries at sometime in the future, fixed pricing
protocols under which we agree on a fixed price with our supplier for the duration of that protocol, and formula
pricing protocols under which the prices we pay are based on specified formula related to the prices of the goods,
such as spot prices. Though we do not have long-term supply contracts or guaranteed purchase amounts, our
pricing protocols with suppliers can remain in effect for periods ranging from one month to a year, depending on
the outlook for prices of the particular ingredient. We also sometimes buy supplies at current market or spot
prices. We’ve tried to increase, where necessary, the number of suppliers for our ingredients, which we believe
can help mitigate pricing volatility, and we follow industry news, trade issues, weather, crises and other world
events that may affect supply prices. Long-term increases in ingredient prices could adversely affect our future
results if we could not increase menu prices at the same pace for competitive or other reasons. Similarly, if we
believe the ingredient price increase to be short in duration we may choose not to pass on the cost increases,
which could adversely affect our short-term financial results.
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