Chipotle 2013 Annual Report Download - page 23

welfare, we may experience shortages of meat, particularly chicken or steak, meeting these criteria due to
suppliers suspending production, market conditions, or other forces beyond our control. A few of our markets
have reverted to temporarily serving conventionally raised beef or chicken due to supply shortages, including
ongoing shortages of beef meeting our protocols during 2013 and early 2014. Furthermore, as we grow, the
ability of our suppliers to expand output or otherwise increase their supplies to meet our needs may be
constrained. Moreover, we have made a significant commitment to serving local or organic produce when
seasonally available, and a small portion of our restaurants also serves produce purchased from farmers markets
seasonally as well. These produce initiatives may make it more difficult to keep quality consistent, and present
additional risk of food-borne illnesses given the greater number of suppliers involved in such a system and the
difficulty of imposing our quality assurance programs on all such suppliers. Quality variations and food-borne
illness concerns could adversely impact public perceptions of Food With Integrity or our brand generally.
If as a result of any of these factors we are unable to obtain a sufficient and consistent supply of these
ingredients on a cost-effective basis, our food costs could increase, adversely impacting our operating margins.
These factors could also cause us difficulties in aligning our brand with Food With Integrity, which could make
us less popular among our customers and cause sales to decline. Our commitment to Food With Integrity may
also leave us open to actions against us or criticism from special interest groups whose ideas regarding food
issues differ from ours or who believe we should pursue different or additional goals with our Food With
Integrity approach. Any adverse publicity that results from such criticism could damage our brand and adversely
impact customer traffic at our restaurants. We may also face adverse publicity or liability for false advertising
claims if suppliers do not adhere to all of the elements of our Food With Integrity programs, such as responsible
meat protocols, requirements for organic or sustainable growing methods, and similar criteria on which we base
our purchasing decisions. If any such supplier failures occur and are publicized, our reputation would be harmed
and our sales may be adversely impacted.
Additionally, in response to increasing customer awareness and demand, some competitors have also begun
to advertise their use of meats raised without the use of antibiotics or growth hormones, dairy products from
cows not treated with rBGH, and other ingredients similar to those we seek as part of our Food With Integrity
philosophy. If competitors become known for using these types of higher-quality or more sustainable ingredients,
it could further limit our supply of these ingredients, and may make it more difficult for us to differentiate
Chipotle and our restaurants, which could adversely impact our operating results.
Our success may depend on the continued service and availability of key personnel.
Our Chairman and co-Chief Executive Officer Steve Ells founded our company, has been the principal
architect of our business strategy, and has led our growth from a single restaurant in 1993 to over 1,500
restaurants today. Monty Moran, our co-Chief Executive Officer, and Jack Hartung, our Chief Financial Officer,
have also served with us for several years and much of our growth has occurred under their direction as well. We
believe our executive officers, each of whom is an at-will employee without any employment contract, have
created an employee culture, food culture and business strategy at our company that has been critical to our
success and that may be difficult to replicate under another management team. We also believe that it may be
difficult to locate and retain executive officers who are able to grasp and implement our unique strategic vision.
If our company culture were to deteriorate following a change in leadership, or if a new management team were
to be unsuccessful in executing our strategy or were to change important elements of our current strategy, our
growth prospects or future operating results may be adversely impacted.
Our marketing and advertising strategies may not be successful, which could adversely impact our
business.
We have developed a marketing and advertising strategy that we believe is unique in the restaurant industry.
We have not generally advertised on television and engage in very limited price or value-based promotions.
Instead we invest in marketing and advertising strategies that we believe will increase customers’ connection
with our brand. If these marketing and advertising investments do not drive increased restaurant sales, the
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Annual Report