Chipotle 2013 Annual Report Download - page 22

wrongful termination, and similar matters, and we could become subject to class action or other lawsuits related
to these or different matters in the future. Our customers also occasionally file complaints or lawsuits against us
alleging that we’re responsible for some illness or injury they suffered at or after a visit to our restaurants, or that
we have problems with food quality, operations or our food related disclosure or advertising practices. See
“Governmental regulation in one or more of the following areas may adversely affect our existing and future
operations and results, including by harming our ability to open new restaurants or increasing our operating
costs” above, for additional discussion of these types of claims. From time to time, we also face claims alleging
that technology we use in our business infringes patents held by third parties. In addition, the restaurant industry
has been subject to a growing number of claims based on the nutritional content of food products sold and
disclosure and advertising practices. We have been subject to a number of these actions and may be subject to
additional actions of this type in the future. We are also undergoing government investigations as described
elsewhere in this report, including in Note 9 “Commitments and Contingencies” in our consolidated financial
statements included in Item 8. “Financial Statements and Supplementary Data.”
We believe the number of many of the foregoing types of claims has increased as our business has grown
and we have become more visible to potential plaintiffs and their lawyers, particularly in California. Regardless
of whether any claims against us are valid, or whether we’re ultimately held liable for such claims, they may be
expensive to defend and may divert time and money away from our operations and hurt our performance. A
significant judgment for any claims against us could materially and adversely affect our financial condition or
results of operations. Any adverse publicity resulting from these allegations, whether directed at us or at fast
casual or quick-service restaurants generally, may also materially and adversely affect our reputation or
prospects, which in turn could adversely affect our results.
Risks Related to our Unique Business Strategy
We may not persuade customers of the benefits of paying our prices for higher-quality food.
Our success depends in large part on our ability to persuade customers that food made with higher-quality
ingredients is worth the prices they will pay at our restaurants relative to prices offered by some of our
competitors, particularly those in the quick-service restaurant segment. We may not successfully educate
customers about the quality of our food, and customers may not care even if they do understand our approach.
That could require us to change our pricing, advertising or promotional strategies, which could materially and
adversely affect our results of operations or the brand identity that we have tried to create. Consumers may also
be more price-sensitive during periods of economic difficulty or uncertainty, and we experienced some decrease
in traffic during late 2008 and throughout 2009 that we attribute in part to menu price increases. Recent reports
have indicated continued consumer uncertainty that may persist during 2014, so our ability to increase menu
prices or customer visits may be significantly hampered for the foreseeable future. We have announced that we
are likely to increase menu prices during 2014, and if we do so it may adversely impact our customer traffic.
Our Food With Integrity philosophy subjects us to risks.
The principle of Food With Integrity constitutes a significant part of our business strategy. We use a
substantial amount of ingredients grown or raised with an emphasis on practices we believe to be more
sustainable or responsible than some conventional practices, and try to make food as fresh as we can. We do,
however, face challenges associated with pursuing Food With Integrity. There are higher costs and other risks
associated with purchasing ingredients grown or raised with an emphasis on quality, sustainability and other
responsible practices. Growth rate and weight gain can be lower for chickens, cattle and pigs that are not fed sub-
therapeutic antibiotics and for cattle that are not given growth hormones. Crops grown organically or using other
responsible practices can take longer to grow and crop yields can be lower. It can take longer to identify and
secure relationships with suppliers that are able to meet our criteria for meat, dairy and produce ingredients.
Given the costs associated with what we believe are more responsible farming practices, and in some years due to
decreased demand as a result of the weak economic environment, many large suppliers have not found it
economical to pursue business in this area. Although all of our restaurants generally serve meat from animals
raised in accordance with criteria we’ve established in an effort to improve sustainability and promote animal
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Annual Report