Chipotle's Response to Potential Tariffs on Ingredients

Chipotle Mexican Grill announced on Tuesday that it does not anticipate significant cost increases even if tariffs on key imported ingredients are implemented next month. The company highlighted that approximately half of its avocados are sourced from outside of Mexico, as a key factor in managing potential tariff impacts.

Recently, President Donald Trump delayed his intention to impose a 25% tariff on imports from Mexico and Canada. Should these tariffs become active after the one-month grace period, imported goods like avocados and beef could see price hikes, which may lead restaurants to pass those costs onto customers.

During an earnings conference call, Chipotle executives addressed concerns regarding the tariffs. Chief Financial Officer Adam Rymer mentioned that if tariffs affecting Mexico, Canada, and China are enacted, Chipotle expects only a slight increase in its cost of sales—around 60 basis points, or 0.6 percentage points.

Rymer further explained that Chipotle relies on imports from Mexico for about 2% of its sales, which include avocados, tomatoes, limes, and peppers. While the U.S. depends on Mexico for about 90% of its avocado consumption, Chipotle secures around half of its avocado supply from countries like Colombia, Peru, and the Dominican Republic. CEO Scott Boatwright disclosed that the company has been strategically increasing its supply from countries outside Mexico in recent years.

In addition, less than 0.5% of Chipotle’s sales can be attributed to Canadian and Chinese sources. It is noteworthy that Trump has already imposed a 10% tariff on Chinese imports.

Chipotle has demonstrated strong pricing power in recent quarters, even with changing consumer attitudes toward value-seeking. For the fourth quarter, the company reported a same-store sales growth of 5.4%, driven by a 4% increase in customer traffic. Although Chipotle’s earnings surpassed Wall Street projections, a cautious outlook on same-store sales growth led to a 5% decline in shares during extended trading hours.

Notably, the earnings outlook provided did not account for the potential effects of the tariffs.

Chipotle, Tariffs, Imports