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Mexico’s Tight Avocado Supply Has Chipotle Looking Elsewhere

Leslie Patton

(Bloomberg) -- With avocado prices surging in the U.S., Chipotle Mexican Grill Inc. is looking for new sources of supply.

“The whole country seems to be in love with the avocado,” Chief Executive Officer Brian Niccol said in an interview, noting the fruit has seen the most price volatility in Chipotle’s basket of ingredients. “We’re continuing to work in our supply chain to hopefully not have such big swings.”

Chipotle’s food costs rose last quarter, in part due to higher avocado prices, which have spiked amid limited supply from Mexico.

The burrito chain still gets most of its avocados from Mexico, which is by far the world’s biggest producer. But Chipotle is looking at sourcing more from California, Chile, Peru and Colombia to reduce its dependence on Mexico, Niccol said.

“We’re starting to really reach out to folks in all these different places that are really starting to develop a stronger system to provide great avocados,” he said.

Hass avocados from the Mexican state of Michoacan, which has the lion’s share of the nation’s production, recently hit record prices, and as of mid-July were twice as expensive as at the start of 2019, according to an index of prices from the Mexican government.

Last year, the U.S. got the vast majority of its imported avocados -- nearly 2 billion pounds -- from Mexico, U.S. Department of Agriculture data show. That’s 87% of of total avocado imports. Overall, imports grew 15% in 2018 from the previous year, with Mexico’s volume rising 17%.

The U.S. also imports a small but growing quantity from Peru, Chile, and the Dominican Republic.

Chipotle has increased prices this year amid rising ingredient costs. Customers have been willing to pay more, however, with comparable sales jumping 10% in the second quarter as the company invests in digital ordering, delivery and advertising.

(Adds details about U.S. avocado imports and Chipotle earnings in final paragraphs. A previous version of this story corrected the number of avocados U.S. imported from Mexico.)

--With assistance from James Attwood.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Jonathan Roeder, Rob Golum

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