GMO Purge Could Create the 'Chipotle of' Supply Chain Challenges for Restaurants

Darren Tristano
Chipotle Mexican Grill and Panera Bread for years have led the fast-casual restaurant segment, and their moves away from genetically modified organisms (GMOs) and toward more natural ingredients are likely to remake and influence the industry once again.

Ask the leaders of most new restaurant brands with aspirations of rapid growth how they describe themselves, and they’ll invariably call themselves the “Chipotle of” their specialty. While many have adopted Chipotle’s build-your-own menu and service style, the burrito chain has proved much harder to emulate in terms of its meteoric expansion across the country. Now its “Food with Integrity” positioning will be even harder to replicate as well—for both Chipotle and its competitors.

Last week, Chipotle made major news again by setting a new benchmark for quality-focused restaurants to target: the elimination of genetically modified organisms, or GMOs, from the food it sells. Panera also has been at the forefront of this movement toward “cleaner” labels, pledging years ago to serve chicken that had not been treated with antibiotics. This month, the bakery-café chain will reintroduce its salad dressings free of artificial coloring, preservatives, flavors or sweeteners.

These initiatives are in keeping with consumers’ rising demand for food they classify as healthful, not just in the sense of calorie counts but also of “natural” foods with “clean” labels that make customers feel good about what they’re eating. Nearly two in three consumers (65 percent) agree that food or beverages described as GMO-free are slightly or much more healthy than typical foods, according to Technomic’s Healthy Eating Consumer Trend Report. That percentage was even higher for other “clean-eating” descriptors like natural or preservative-, antibiotic- or hormone-free.

But not so fast. Chipotle’s and Panera’s moves to phase out GMOs or antibiotics from their restaurants are laudable extensions of their high-quality positioning, but they will put a major strain on the restaurant industry’s food supply. If there were enough non-GMO corn and soybeans for Chipotle’s products today, the chain would already be using them in all its stores. In all likelihood, it will take years for the supply chain to meet the needs of Chipotle, Panera and other restaurants that take up the cause. The same is true for the biggest restaurants and producers, like McDonald’s and Tyson, which are phasing out human antibiotics from their poultry supply.

Genetically modified seeds increase crop yields for corn and soy, which not only made up the nation’s bread products and Chipotle’s tortillas and frying oils, but also are found in much of the animal feed that produces the beef, chicken and pork we eat. Chipotle is still allowing GMOs in animal feed for the meat it buys, but nobody would be shocked if the chain thought about ending that practice as well. When a move away from GMOs constrains the supply of grains and proteins, the ingredients restaurants need will command higher prices, which will translate to higher menu prices for a lot of consumers.

Will that upward pressure on menu prices unintentionally slow restaurants’ prospects for sales growth? Not necessarily. Chipotle’s same-store sales increase for fiscal 2014 of nearly 17 percent was well in excess of the menu price hikes it enacted last summer. More recently, when it pulled its popular carnitas from many locations because a pork supplier was not meeting Chipotle’s animal-welfare standards, the chain’s sales growth did decelerate a bit—but still ended up with an enviable 10.4 percent increase for the first quarter.

Other restaurants hoping to follow Chipotle and Panera to a GMO- or additive-free supply chain—and the high-quality reputation that comes with it—will have to build up to that over time, as those two brands have by getting a head start. By the time McDonald’s and other mega-chains can keep pace, perhaps the industry’s suppliers will have built up their capabilities as well.