Chipotle 2012 Annual Report Download - page 22

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, without our knowledge, 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 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 1,400
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 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 a new management team were to change or be unsuccessful in implementing our 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
expense associated with these programs will adversely impact our financial results, and we may not generate the
levels of comparable restaurant sales we expect. In addition, our marketing has increasingly incorporated
elements intended to encourage customers to question sources or production methods commonly used to produce
food. These elements of our marketing could alienate food suppliers and may potentially lead to an increased risk
of disputes or litigation if suppliers or other constituencies believe our marketing is unfair or misleading.
Increased costs in connection with any such issues, or any deterioration in our relationships with existing
suppliers, could adversely impact us.
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Annual Report