McDonald’s, Starbucks Jump on Board Chipotle’s Green Machine

Restaurant chains like Chipotle (NYSE:CMG), McDonald’s (NYSE:MCD) and Starbucks (NASDAQ:SBUX) are trying to be more green to win the hearts and minds of customers by sourcing natural ingredients and promoting recyclability. Such moves will increasingly have a greater impact going forward as the regulations are bound to get tougher. Moreover, these restaurants are likely to get future tax benefits as well. While these moves are unlikely to save on costs in the near term, they could pay off longer term as the input costs have soared for many restaurants. More importantly, an improved image in the eyes of the customers could be the ultimate pay off.

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Consumers Want Green

Consumers today want to visit restaurants which serve them food made up of naturally grown, chemical-free and environmentally friendly ingredients. According to a recent study, a whopping 75% of Americans want legislation passed to restrict the use of antibiotics at animal farms. ^[1] Epitomizing this success is Chipotle, which claims to use hormone-free and antibiotic-free ingredients. The restaurant claims that serve the food just as good using only naturally grown ingredients.

Chipotle has performed exceptionally well this year and yielded more than 50% year-to-date (YTD) return. Chipotle has seen the number of restaurants increase sharply from 700 back in 2007 to around 1200 currently. We expect the number of restaurants to increase to 1500 by the end of 2013.

Starbucks has an ambitious goal to have all of its cups reusable or recyclable by year 2015. ^[2] Recently, the company also opened its green-designed store in Chicago’s O’Hare International Airport that is entirely made up of sustainable materials and is environmentally friendly. ^[3]

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Part of Marketing Strategy

Restaurants take pride in using natural ingredients and promoting recyclability. In fact, customer loyalty is higher for restaurant chains viewed as green and environment friendly. The latest McDonald commercial focuses on the brand’s ingredients and recognizes the farmers and ranchers in its chain supply. Last month, the company also cut ties with its (then) supplier Spargoe Egg Farms, after a footage revealed the cruel conditions at Spargoe’s facilities. ^[4]

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Chipotle’s marketing tagline ‘Food with Integrity’ is more than a decade long and is still going strong. Just one visit to their official website makes you realize just how proud they are of using the best possible ingredients. The company’s CEO, Mr. Steve Ells, even visited Capitol Hill this week to support the bill limiting the subtherapeutic use of antibiotics in meat production. ^[1]

Regulations Getting Tougher

Internationally, Germany, Russia and South Korea are implementing bans on the use of antibiotics in animals. Farmers usually feed cattle with antibiotics to attack bacteria so that the animal can grow quickly. Recently, the U.S. Food and Drug Administration denied two petitions on subtherapeutic use. The future is certainly tougher for restaurants not willing to make the required changes now.

However, we expect to see more moves like this going forward as it wins favor with customers and could lead to other benefits such as tax credits in the future.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Chipotle CEO Gets Political, Calls for Clean Food, QSRmagazine.com, December 13, 2011 [↩] [↩]
2. Giant Leap Forward for Starbucks and Its 2015 Goal, QSRmagazine.com, December 3, 2011 [↩]
3. Green-Designed Starbucks Flies into O’Hare Airport, QSRmagazine.com, November 10, 2011 [↩]
4. McDonald’s cuts egg supplier after undercover animal cruelty video, LA Times, November 18, 2011 [↩]