Avocado Decline May Affect Chipotle

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Chipotle
A customer reads a sign posted on the door of a Chipotle Mexican Grill in New York February 8, 2016. Reuters/Brendan McDermid

Mexican-food chain Chipotle (CMG) is bracing for a sharp increase in the price of guacamole, a popular menu item.

An expected 5.8% decline in Hass Avocados could have a major effect on Chipotle's margins for the upcoming quarter, according to Truist analyst Jake Barlett. The Hass avocado is a large avocado, weighing about 250 grams.

A smaller supply of avocados forecasted by The Hass Avocado Board could cause prices to rise. Southern California-based Chipotle notes on its website that the company uses "only Hass avocados because they’re the creamiest, most delicious of all avocado varieties. They're dark green and bumpy on the outside and velvety smooth on the inside, with a high-fat content—but the good kind."

Guacamole accounts for 5%-10% of Chipotle's goods sold. Those numbers can have a major impact on earnings. 

Bartlett wrote in a client note that fewer avocado shipments could mean pressure on Chipotle’s margins and forecasted that the spike in avocado prices could hurt earnings by 10 to 12 cents per share in the third quarter.

Chipotle, which has over 2,600 locations, has dealt with fluctuating avocado prices for years. Chief financial officer Jack Hartung told analysts the company would be prepared after consistent seasonal shifts. 

Avocado suppliers from Mexico are known for slowing down shipments during the summer, while Peru usually ships more due to a Southern Hemisphere season shift. California’s peak avocado season is a 15-week period between April and August and accounts for about 12% of the U. S’s supply, according to West Pak avocados

Without Mexico as a major supplier of avocados, it is hard to keep up with the U.S. demand for the fruit.

Avocado prices change consistently but 2021 has seen more fluctuations. Higher shipments for the first quarter caused prices to fall 26% but climbed back up 4% for the second quarter. Now prices are inching up to 6% for the third quarter. 

Shares of Chipotle on Wednesday closed at $1,455.37, gaining $7.73, or 0.53%.

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