WEBVTT - Chipotle CEO Scott Boatwright Talks Tariffs Impact, Plans for Growth

0:00:02.520 --> 0:00:08.119
<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. When we talk about

0:00:08.720 --> 0:00:11.360
<v Speaker 1>tariff risk, I mean, we've spoken so much about how

0:00:11.440 --> 0:00:13.560
<v Speaker 1>much it's going to cost US to import goods from

0:00:13.800 --> 0:00:16.960
<v Speaker 1>overseas because of potential retaliatory tariffs, but you kind of

0:00:16.960 --> 0:00:19.200
<v Speaker 1>forget we export a lot too. And I thought Bloomberg

0:00:19.200 --> 0:00:22.000
<v Speaker 1>had an interesting article today that talked about all of

0:00:22.040 --> 0:00:26.400
<v Speaker 1>these unfulfilled contracts for agriculture exports that could be in

0:00:26.440 --> 0:00:28.720
<v Speaker 1>jeopardy if Mexico wants to stick it to US. They

0:00:28.720 --> 0:00:31.600
<v Speaker 1>buy six billion dollars of corn from US, China buys

0:00:31.600 --> 0:00:33.320
<v Speaker 1>obviously a lot of soybean and a week from US,

0:00:33.320 --> 0:00:35.320
<v Speaker 1>and there are some concerns here that they might decide

0:00:35.360 --> 0:00:37.559
<v Speaker 1>to cancel or at least pair back some of those contracts.

0:00:37.600 --> 0:00:39.960
<v Speaker 2>Yeah, more than eleven million metric tons of grains have

0:00:40.000 --> 0:00:42.479
<v Speaker 2>been sold but not yet shipped to our top three

0:00:42.520 --> 0:00:44.519
<v Speaker 2>trading partners, China, Mexico, and Canada.

0:00:44.880 --> 0:00:46.479
<v Speaker 3>Let's see how it all shakes out.

0:00:46.520 --> 0:00:49.560
<v Speaker 2>Of course, President Trump has put on hold his plans

0:00:49.560 --> 0:00:52.640
<v Speaker 2>to tariff Mexican goods and services that are covered under

0:00:52.680 --> 0:00:56.640
<v Speaker 2>the USMC until April second, and then maybe new negotiations begin.

0:00:56.680 --> 0:00:57.959
<v Speaker 3>We're not sure how it's all going to play out,

0:00:57.960 --> 0:00:58.280
<v Speaker 3>just yell.

0:00:58.280 --> 0:00:59.480
<v Speaker 1>I just want to know, Scarlett, if I can get

0:00:59.480 --> 0:01:00.000
<v Speaker 1>my alvacada?

0:01:00.400 --> 0:01:00.680
<v Speaker 2>Are not?

0:01:00.960 --> 0:01:03.480
<v Speaker 3>Yeah? Well are you big avocado fans? I am all right?

0:01:03.520 --> 0:01:05.000
<v Speaker 3>So am I. So let's talk a little bit more

0:01:05.000 --> 0:01:06.240
<v Speaker 3>about avocado ocada.

0:01:06.920 --> 0:01:10.440
<v Speaker 2>Let's bring in right now someone who knows firsthand how

0:01:10.440 --> 0:01:12.720
<v Speaker 2>the price of avocados can change things up, and that

0:01:12.840 --> 0:01:13.600
<v Speaker 2>is Scott vote right.

0:01:13.640 --> 0:01:16.280
<v Speaker 3>He is CEO of Chipotle. Scott, welcome to the close.

0:01:16.319 --> 0:01:17.680
<v Speaker 3>Thank you so much for joining us today.

0:01:18.640 --> 0:01:20.840
<v Speaker 4>Thank you, Scarlet, Happy to be here with you this afternoon.

0:01:21.200 --> 0:01:23.679
<v Speaker 2>Let's start with tariffs, because we can't avoid the elephant

0:01:23.720 --> 0:01:26.000
<v Speaker 2>in the rooms here, the single biggest way that tariffs

0:01:26.040 --> 0:01:28.600
<v Speaker 2>are making your life actual pole more difficult.

0:01:30.480 --> 0:01:33.000
<v Speaker 5>Of course, tariff's impact everyone here in the US says

0:01:33.040 --> 0:01:36.000
<v Speaker 5>we think about. I know avocado supply is on the

0:01:36.000 --> 0:01:38.160
<v Speaker 5>top of mind for a lot of US consumers. It

0:01:38.240 --> 0:01:40.920
<v Speaker 5>is for us, as you can imagine, we've gone through

0:01:40.959 --> 0:01:44.040
<v Speaker 5>what we believe to be a very sound vendor diversification

0:01:44.200 --> 0:01:48.120
<v Speaker 5>program as it relates to buying avocados. We buy everything

0:01:48.120 --> 0:01:50.440
<v Speaker 5>that we can possibly pick up here in the US

0:01:50.520 --> 0:01:53.400
<v Speaker 5>as during the growing season that's.

0:01:53.200 --> 0:01:54.480
<v Speaker 4>Here in California.

0:01:54.840 --> 0:01:58.040
<v Speaker 5>But we've also moved out of Mexico, which was about

0:01:58.080 --> 0:02:01.320
<v Speaker 5>eighty percent of our supply, the other cuntry trees like Peru,

0:02:01.480 --> 0:02:05.360
<v Speaker 5>Dominican Republic and even Columbia, and reduce the reliance to

0:02:05.400 --> 0:02:09.240
<v Speaker 5>about fifty percent with further diversification efforts underway.

0:02:09.840 --> 0:02:13.320
<v Speaker 2>So the diversification effort and the sourcing inside the US,

0:02:13.400 --> 0:02:16.560
<v Speaker 2>how has that affected the cost? Has it increased costs

0:02:16.600 --> 0:02:18.760
<v Speaker 2>for you?

0:02:18.800 --> 0:02:18.920
<v Speaker 3>Now?

0:02:19.080 --> 0:02:22.160
<v Speaker 5>Actually, we've been able to maintain costs by bringing in

0:02:22.240 --> 0:02:25.320
<v Speaker 5>other countries of origin, which has helped support our margin.

0:02:25.800 --> 0:02:29.320
<v Speaker 5>Tariff impacts will be felt. As you can imagine, I

0:02:29.360 --> 0:02:29.960
<v Speaker 5>sit on our.

0:02:29.880 --> 0:02:32.800
<v Speaker 4>Last earnings call that if all tariffs go in into

0:02:32.800 --> 0:02:33.600
<v Speaker 4>place with.

0:02:33.919 --> 0:02:37.600
<v Speaker 5>Mexico, Canada, and China, it will impact our margin by

0:02:37.600 --> 0:02:39.600
<v Speaker 5>about sixty basis points in total.

0:02:40.000 --> 0:02:42.800
<v Speaker 4>Not immateial, but not the end of the world either.

0:02:43.320 --> 0:02:45.760
<v Speaker 1>You also said on that call, Scott, that you as

0:02:45.760 --> 0:02:48.119
<v Speaker 1>a company were willing to eat that, meaning not necessarily

0:02:48.200 --> 0:02:50.880
<v Speaker 1>pass that directly on to the consumer. You still stand

0:02:50.880 --> 0:02:51.120
<v Speaker 1>by that.

0:02:52.320 --> 0:02:53.640
<v Speaker 4>I do stand by that, Romaine.

0:02:53.680 --> 0:02:56.880
<v Speaker 5>And here's why the consumer today, we recognize fully is

0:02:57.000 --> 0:03:01.720
<v Speaker 5>under pressure. Specifically, the low income consumer is finding this

0:03:01.800 --> 0:03:04.680
<v Speaker 5>economy tough to navigate and we want to continue to

0:03:04.680 --> 0:03:08.880
<v Speaker 5>deliver extraordinary values value to our consumer, primarily because we

0:03:08.880 --> 0:03:11.480
<v Speaker 5>don't know which of vin tariffs will be transitory or

0:03:11.480 --> 0:03:14.760
<v Speaker 5>which will be permanent. That all remains to be seen,

0:03:15.040 --> 0:03:17.000
<v Speaker 5>So we're going to remain patient. We're going to continue

0:03:17.000 --> 0:03:19.720
<v Speaker 5>to deliver great value for the consumer and ensure that

0:03:19.960 --> 0:03:23.280
<v Speaker 5>the Chipotle customer feels that benefit when they come into

0:03:23.320 --> 0:03:23.840
<v Speaker 5>our business.

0:03:24.040 --> 0:03:25.840
<v Speaker 1>And of course a lot of your customers come to

0:03:26.440 --> 0:03:29.560
<v Speaker 1>Chipotle specifically for that, they also come to it, as

0:03:29.560 --> 0:03:32.680
<v Speaker 1>you know, Scott, for what's on the menu, and prior

0:03:32.720 --> 0:03:35.760
<v Speaker 1>to you taking over, there was some tinckering with the menu. Obviously,

0:03:35.800 --> 0:03:38.920
<v Speaker 1>now that you've permanently been installed in CEO since November,

0:03:39.040 --> 0:03:41.480
<v Speaker 1>you've had a chance to now guide this going forward.

0:03:41.680 --> 0:03:44.400
<v Speaker 1>When we talk about new product introduction to more importantly

0:03:44.720 --> 0:03:46.400
<v Speaker 1>not just what the uptake is going to be by

0:03:46.400 --> 0:03:49.040
<v Speaker 1>the consumer, but how you bring these products to the

0:03:49.040 --> 0:03:51.200
<v Speaker 1>market at a cost that's going to be favorable to

0:03:51.280 --> 0:03:52.960
<v Speaker 1>your own bottom line.

0:03:53.440 --> 0:03:54.200
<v Speaker 4>That's right Roumaine.

0:03:54.240 --> 0:03:57.840
<v Speaker 5>We continue to lean into product innovation and Black believe

0:03:58.080 --> 0:04:01.160
<v Speaker 5>to be the most meaningful, best in last version of

0:04:01.200 --> 0:04:02.720
<v Speaker 5>what we can put forward to our consumer.

0:04:03.000 --> 0:04:06.200
<v Speaker 4>We just launched a fully honey Chicken. It's in restaurants today.

0:04:06.240 --> 0:04:08.800
<v Speaker 5>You'll start to see that show up in national TV

0:04:09.000 --> 0:04:10.520
<v Speaker 5>ads later in the week.

0:04:10.920 --> 0:04:12.400
<v Speaker 4>It's a promising LTO.

0:04:12.600 --> 0:04:16.719
<v Speaker 5>We feel a limited time offering which tested off the charts.

0:04:16.720 --> 0:04:19.680
<v Speaker 5>As it relates to consumer testing back this summer when

0:04:19.680 --> 0:04:21.320
<v Speaker 5>we ran it.

0:04:20.720 --> 0:04:22.120
<v Speaker 4>It's a super exciting product.

0:04:22.240 --> 0:04:24.400
<v Speaker 5>It comes in kind of sweet on the front end

0:04:24.440 --> 0:04:26.960
<v Speaker 5>with a little back end eat. And what we do

0:04:27.080 --> 0:04:30.599
<v Speaker 5>with LTO specifically is try to give the consumer something

0:04:30.680 --> 0:04:34.480
<v Speaker 5>new and drive incremental transactions as well as you get

0:04:34.480 --> 0:04:36.600
<v Speaker 5>our current consumers to come in more frequently.

0:04:37.560 --> 0:04:40.040
<v Speaker 2>I look at your stock today, Scott, and it's down

0:04:40.120 --> 0:04:43.080
<v Speaker 2>one tenth of one percent, basically unchanged. You could even

0:04:43.080 --> 0:04:45.320
<v Speaker 2>say it's up in a market that is down about

0:04:45.320 --> 0:04:48.800
<v Speaker 2>two and a half percent, in part because analysts have

0:04:48.880 --> 0:04:52.960
<v Speaker 2>cited things like your enviable balance sheet, talking up your

0:04:52.960 --> 0:04:55.880
<v Speaker 2>ability to have optionality when it comes to investing in

0:04:55.960 --> 0:04:59.360
<v Speaker 2>stores or spending as you mentioned on technology.

0:04:58.920 --> 0:04:59.960
<v Speaker 3>And new development.

0:05:00.720 --> 0:05:03.480
<v Speaker 2>What is your single biggest priority when it comes to

0:05:03.520 --> 0:05:08.200
<v Speaker 2>spending on development. Is it to continue to expand our menu?

0:05:08.279 --> 0:05:10.479
<v Speaker 2>Is it something more internal back of the house.

0:05:12.760 --> 0:05:13.920
<v Speaker 4>Yeah, it's a great question.

0:05:14.080 --> 0:05:16.640
<v Speaker 5>So we think about every dollar that we have in

0:05:16.640 --> 0:05:18.840
<v Speaker 5>the business today, and you are correct. We have an

0:05:18.839 --> 0:05:22.200
<v Speaker 5>extraordinary balance sheet, a fortress balance sheet, if you will,

0:05:22.680 --> 0:05:25.599
<v Speaker 5>very little debt, and probably one and a half to

0:05:25.600 --> 0:05:28.599
<v Speaker 5>two billion in cash, and we believe that that preservation

0:05:28.680 --> 0:05:31.400
<v Speaker 5>of cash is important to weather tough times just like this.

0:05:32.040 --> 0:05:35.440
<v Speaker 5>So we'll continue to lean into new restaurant development. We

0:05:35.480 --> 0:05:38.040
<v Speaker 5>said publicly we'll build three hundred and fifteen to three

0:05:38.080 --> 0:05:41.960
<v Speaker 5>hundred forty five new restaurants this year alone. We'll continue

0:05:42.000 --> 0:05:45.680
<v Speaker 5>our stock buyback programs and deliver more value to the shareholder,

0:05:46.440 --> 0:05:49.400
<v Speaker 5>but we'll also lean into what I'm calling back up

0:05:49.400 --> 0:05:52.960
<v Speaker 5>the house modernization, where we're going to bring forward equipment

0:05:52.960 --> 0:05:55.240
<v Speaker 5>innovation that has been in our stage getting paid now

0:05:55.320 --> 0:05:59.320
<v Speaker 5>for over two years to help drive more efficient efficiency

0:05:59.320 --> 0:06:01.440
<v Speaker 5>in the back of house. Else create a better team

0:06:01.480 --> 0:06:04.080
<v Speaker 5>member experience, which we know will always lot better to

0:06:04.120 --> 0:06:05.480
<v Speaker 5>a better consumer experience.

0:06:05.800 --> 0:06:07.880
<v Speaker 2>What does that mean for hiring as you continue to

0:06:07.920 --> 0:06:10.520
<v Speaker 2>expand that investment in the back of house operations, Because

0:06:10.520 --> 0:06:12.480
<v Speaker 2>there's a lot of concern now that the labor market's

0:06:12.480 --> 0:06:15.279
<v Speaker 2>going to get tighter if we see the pool of

0:06:15.360 --> 0:06:17.599
<v Speaker 2>labor workers in the labor market shrink.

0:06:19.560 --> 0:06:20.160
<v Speaker 4>You know, as we.

0:06:20.120 --> 0:06:22.040
<v Speaker 5>Stand here today, and we head into what we call

0:06:22.160 --> 0:06:25.760
<v Speaker 5>our Brito season, which is really springtime. We are better

0:06:25.839 --> 0:06:28.520
<v Speaker 5>staffed today at Chipotle than we've been in my eight

0:06:28.600 --> 0:06:31.680
<v Speaker 5>years with the brand, perhaps in the brand's history, and

0:06:31.760 --> 0:06:35.280
<v Speaker 5>I really think that's attributable to our investing class wages

0:06:35.600 --> 0:06:38.520
<v Speaker 5>and our industry leading benefits, and what I believe to

0:06:38.560 --> 0:06:42.279
<v Speaker 5>be a world class culture that we've created around people, people,

0:06:42.360 --> 0:06:46.239
<v Speaker 5>development and growth in the organization. We'll continue to invest

0:06:46.360 --> 0:06:48.960
<v Speaker 5>in our most important asset, which is the one hundred

0:06:48.960 --> 0:06:51.680
<v Speaker 5>and thirty thousand team members out in our restaurants, which

0:06:51.720 --> 0:06:54.480
<v Speaker 5>I've said before I'll say again are really the backbone

0:06:54.480 --> 0:06:55.479
<v Speaker 5>of our great organization.

0:06:56.000 --> 0:06:59.000
<v Speaker 1>Do you plan to expand the footprint of Chipotle more

0:06:59.040 --> 0:06:59.960
<v Speaker 1>stores this year?

0:07:01.000 --> 0:07:01.800
<v Speaker 4>We absolutely do.

0:07:01.920 --> 0:07:04.080
<v Speaker 5>Romaine, We're gonna build three hundred and fifteen to three

0:07:04.120 --> 0:07:06.720
<v Speaker 5>hundred and forty five new restaurants here in North America.

0:07:07.000 --> 0:07:10.360
<v Speaker 5>We'll have additional growth in Canada this year. We're looking

0:07:10.360 --> 0:07:14.000
<v Speaker 5>at expanding our footprint in Western Europe. Our partnership with

0:07:14.040 --> 0:07:17.320
<v Speaker 5>Alshai in the Middle East will produce additional Chipotle restaurants

0:07:17.320 --> 0:07:20.680
<v Speaker 5>in that region. We're also looking at additional partnerships around

0:07:20.680 --> 0:07:23.480
<v Speaker 5>the globe. As I stand here, today really in this

0:07:23.640 --> 0:07:27.080
<v Speaker 5>idea of really moving Chipotle into a global iconic brand.

0:07:27.600 --> 0:07:29.840
<v Speaker 1>All right, Scott, I really appreciate you taking time for us.

0:07:29.840 --> 0:07:33.200
<v Speaker 1>Scott Boat right here is the CEO of Chippotlan.