Chipotle (CMG) assures customers that potential tariffs on Mexican imports won’t lead to immediate price hikes on menu items, including guacamole. CFO Adam Rymer, in a recent interview with Yahoo Finance, emphasized the company’s commitment to maintaining affordable prices despite the looming threat of tariffs.
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Rymer explained that Chipotle is closely monitoring the evolving tariff situation following the Trump administration’s announcement of a potential 25% tariff on Mexican imports and an additional 10% on Chinese goods. While these tariffs could impact food costs, Chipotle is committed to absorbing these costs for as long as possible.
A Patient Approach to Pricing
“We don’t necessarily want to act quickly with price,” Rymer stated, reinforcing that there are no immediate plans for price increases. The company is adopting a wait-and-see approach to determine if the tariffs will be permanent or if they will be rescinded. Chipotle is prepared to absorb these increased costs for a significant period before considering price adjustments.
Only if the tariffs become a permanent fixture will Chipotle consider raising prices. Even then, price increases would only offset the increased costs, not to expand profit margins. The potential impact of the tariffs is estimated to be around 60 basis points on the company’s cost of sales.
Diversification as a Buffer Against Tariff Impacts
Chipotle has strategically diversified its sourcing to mitigate its reliance on Mexican imports. While Mexico still supplies key ingredients like avocados, tomatoes, limes, and peppers, representing 2% of total sales, the company has broadened its avocado sourcing. Previously reliant on Mexico for 90% of its avocados, Chipotle now imports half from other countries like Colombia, Peru, and the Dominican Republic. This diversification strategy provides a buffer against potential price fluctuations due to tariffs or other disruptions.
“We’re not completely dependent on one region…we’ll continue to make sure that we’re diversified,” Rymer affirmed, underscoring the company’s long-term commitment to a diversified supply chain. Chipotle’s exposure to Canadian and Chinese imports is negligible, representing less than 0.5% of its cost of sales.
Positive Outlook for Future Margins
Industry analysts suggest that if the proposed tariffs are not implemented, Chipotle’s food margins could see improvement in 2025 compared to the previous year. This positive outlook is based on the assumption that the company will not face the added cost burden of tariffs, allowing for improved profitability.
Continued Focus on Value
Chipotle remains committed to providing value to its customers. Despite a recent 2% price increase in December 2024, the company maintains a significant price advantage compared to its competitors, with menu prices averaging 30% lower. This value proposition is a key component of Chipotle’s strategy to attract and retain customers.
In conclusion, Chipotle is confident in its ability to navigate the current tariff landscape without compromising its commitment to value or impacting customer prices in the near term. The company’s diversified sourcing strategy and patient approach to pricing provide a buffer against potential cost increases, positioning it for continued success.
