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Chipotle Plans Waste Diversion as Environmental Initiative

Zacks Equity Research
Updated

Chipotle Mexican Grill, Inc. CMG announced its plan to reduce its waste stream to landfills by 50%. Since 2015, the company is taking noteworthy steps to reduce the amount of food and packaging waste to be disposed in landfills and has increased its diversion rate from 31% in 2015 to 40% in 2017.

Landfills emit greenhouse gases that are hazardous for the environment. By diverting waste materials and limiting them for landfills, the company is trying to contribute to the environment and posit a distinct value to its customers.

To reach this goal, Chipotle is implementing practices like minimal food waste disposal during the preparation process, recycling as well as compost programs for food packages, use of reusable lids replacing plastic wraps and participation in the Harvest Program to donate leftover food to local communities. The company is also increasing composting convenience in its restaurants to 20% by 2020.

The move underscores Chipotle’s undying keenness in restoring the company’s economic model by regaining customer trust that was widely affected throughout 2016, due to an issue of food-borne illness.

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Notably, shares of Chipotle have lost 30.2% in the past year, underperforming its industry’s gain of 10.9%.


Attracting Customers to Aid Sales

Chipotle has been looking for ways to recover its lost traffic. To this end, the company has been undertaking aggressive efforts to enhance customer experience. Waste reduction and diversification would only add to the company’s initiatives to regain faith and build a better environment for its guests. Through environment friendly measures, the company can attract more guests that would eventually build up sales.

Alongside this environment friendly commitment, the company has adopted new food safety protocols. In March 2017, Chipotle fulfilled its pledge to use no added colors, flavors or preservatives of any kind in any of its ingredients. In fact, the company now makes use of only 51 real ingredients to prepare all of its food, in stark contrast to most other fast food chains.

Chipotle’s enhanced focus on making food accessible to everyone and the environment-friendly efforts should thus aid in driving traffic and sales.

Our Take

Chipotle’s food integrity mission is not just about ingredients but also concerning the broader environment.

However, the company’s continued efforts to connect with its customers, and retrieve their trust and loyalty involve increased costs. The company is already incurring additional costs to support its newly designed food safety program. In addition to wages, Chipotle is also facing high labor costs from training its workers to aptly implementing food safety practices.

Zacks Rank & Stocks to Consider

Chipotle carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the restaurant space include Dine Brands DIN, Arcos Dorados Holdings ARCO and Ruth's Hospitality Group RUTH, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While both Dine Brands and Ruth’s earnings for 2018 are expected to grow 22.7%, Arcos Dorados’ earnings for 2019 are expected to increase 23.7%.

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Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
 
Ruth's Hospitality Group, Inc. (RUTH) : Free Stock Analysis Report
 
DineEquity, Inc (DIN) : Free Stock Analysis Report
 
Arcos Dorados Holdings Inc. (ARCO) : Free Stock Analysis Report
 
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Zacks Investment Research