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Carnitas crisis: Chipotle pulls pork from menu

No Carnitas for you! At least not if you frequent any of the 600 Chipotle restaurants that just removed pork from its menu.

A routine audit of one of Chipotle's pork suppliers found pigs were not being kept in humane conditions, a violation of company standards. A spokesperson for Chipotle told the Associated Press the company learned of the violation Friday. About a third of the company's restaurants are affected.

Chipotle requires pigs to be raised in humane conditions with outdoor access, rather than tight, cramped pens. The audit found this was not the case. The name of the supplier was not released.

“This is a smart move by Chipotle,” says Yahoo Finance's Henry Blodget. “They have gone to great lengths to talk about how they are much better for the world and better for the animals and others. And if it had been discovered that they ignored an audit or some journalist did a story where they followed it and said it’s all a big sham and the pigs were being treated horribly, that would have been catastrophic.”

Chipotle has built its brand around higher quality food and it has created a loyal following, particularly among the Millennial set. Yahoo Finance's Chris Nichols believes Chipotle (CMG) can leverage this to the company's benefit.  Nichols says the move "effectively enhances their ongoing story line as a company that takes its supply practices seriously and is always working to ensure that customers get these better-for-you ingredients from environmentally-friendly sourcing."  In contrast, says Nichols, when a corporation like McDonald's (MCD) or KFC (YUM) has a supply issue, customers are up in arms because that story line isn't there.

This is the first time Chipotle has removed a featured topping for its burritos and bowls from its menu, but it’s not the first time the company has found suppliers in violation of its standards. Previously, Chipotle posted signs informing customers that it was serving meat that didn’t meet the company’s “responsibly-raised” standards. Chipotle says that happened when the restaurants had to serve conventionally-raised beef rather than Chipotle's standard hormone and antibiotic-free beef.

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But how will the Chipotle customer respond to the “pulled” pork?  

Last year, online panic broke out after talk that Chipotle was considering removing guacamole from its menu. The reason? Avocado prices jumped after a season of poor weather conditions. Deep within the company’s 10-K filing, the company said if weather-related conditions continued to make certain ingredients more expensive or harder to source, it “may choose to temporarily suspend serving menu items, such as guacamole or one or more of our salsas.” Loyal guac eaters protested loudly, but the company quickly calmed fears, pointing out it was just a routine risk-factor disclosure. Guacamole has remained on the menu since.

But is the pork supplier violation a sign of things to come? Chipotle is not the only chain touting natural, organic or humanely-raised foods. Growing chains like Shake Shack (which plans to IPO this year) and Bareburger that source premium or organic ingredients are taking bigger bites out of the $200-billion fast-food industry in the United States. The question becomes is there a big enough supply of higher quality meat and vegetables to serve all customers as chains expand?

Blodget says the push to higher quality may move the needle in food standards in the U.S. “The more that companies actually get aggressive about this and actually are very serious and talk with their money put their money behind their mouths and shut down supply if they are not meeting (standards), the more supply there will be.”

The decision may cause Chipotle to lose some customers initially, says Blodget, but it’s better than the long run cost to the business that would occur if consumers felt they had been lied to about high standards. “There are a lot of people who actually do have a little bit extra money. They are happy to spend a little more…to feel a little better about what they are eating both from a health prospective but also from a moral prospective.”

If you’re a Chipotle shareholder, you are pretty happy customer with or without a Carnitas taco in hand. Shares of Chipotle are up more than 34% from a year ago.  Shares were down Wednesday on word that the pork situation could hurt the chain's first quarter results.

Chipotle says it does not have a timeline for when the pork would return to its menu.

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