What Chipotle Says About Its Avocados

Investors have been told that Avocado prices are nudging food costs up at Chipotle.

At the end of last March, aggressive demand and lower supply from California made avocados more expensive. In its most recent Annual Report, the company even named the avocado among its “risk factors.”

This is what the Chipotle CFO said during their most recent earnings call:

Where are we going? To Chipotle’s avocado supply.

Avocado Facts

In just one week, total Hass avocado sales in the U.S. exceeded 41 million pounds:

At 75% to 80%, Mexican avocados are the main source in the U.S. Next, dropping to 16% is California, and then Chile and Peru.

Meanwhile, as Chipotle told us, the price has been rising:

Our Bottom Line: Chipotle’s Avocado Supply

On a supply and demand graph, the position of the Chipotle supply curve relates to the cost of production.

And that takes us to their land, labor, and capital.

For Chipotle, we have the land on which its restaurants are located. Its labor is composed of the people who work for the chain. And then we have capital. Defined as buildings, tools, and inventory, Chipotle’s capital includes the avocado.

Like carmakers have tires and seatbelts in their inventory. And like those tires and seatbelts eventually become a part of an entire car, so too with the avocado. But instead of a car, we wind up with guacamole.

To represent the change in the cost of production, we can shift our supply curve. As a supply decrease, the Chipotle guacamole supply curve shifts upward when its production cost rises from more expensive avocados. Correspondingly, equilibrium price moves up from #1 to #2:

Or maybe this T-shirt says it all:

My sources and more: CNBC had the Chipotle earnings facts while SeekingAlpha is a handy place for earnings call transcripts. Then, for more, restaurantbusinessonline is a possibility as are the Hass Avocado Board, BusinessInsider, and  Fortune .