Trump tariffs could cost an extra nickel per burrito, says Chipotle

(Reuters) - Chipotle Mexican Grill Inc on Monday estimated a $15 million hit from President Donald Trump’s proposed tariffs on Mexican imports, and said it could cover that by raising burrito prices by around 5 cents.

FILE PHOTO: The logo of Chipotle Mexican Grill is seen at the Chipotle Next Kitchen in Manhattan, New York, U.S., June 28, 2018. REUTERS/Shannon Stapleton

The U.S.-based Mexican-themed chain’s finance chief Jack Hartung said its margins would be reduced by 20-30 basis points if the tariffs suggested by Trump go up to 25%, pushing up prices of avocados - the key ingredient in guacamole.

Mexico is the largest supplier of agricultural produce to the United States, exporting more than $8 billion worth of vegetables last year, including $2.07 billion worth of avocados, according to the U.S. census bureau.

“We know that we could easily solve the volatility in our supply chain by purchasing pre-mashed or processed avocados,” Hartung said in an email.

“But we ... believe that using whole, fresh ingredients ... leads to better tasting guacamole.”

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Chipotle is averse to switching to cheaper pre-mashed avocados, mainly as its marketing message centers around the use of fresh ingredients.

To reduce its dependence on Mexico - the world’s largest producer of avocados - the company has been sourcing the crop from other countries such as Peru and Chile in the last several months, spokeswoman Laurie Schalow told Reuters.

According to Chipotle’s last annual filing, a “substantial volume” of its produce is grown in Mexico and other countries, and any rise in prices of ingredients like avocados would affect its operating results.

Chipotle is among the first U.S. companies to warn of pressure on prices from Trump’s commitment last Thursday to impose a 5% tariff, rapidly ratcheting higher to 25% on Oct. 1, on all goods coming from Mexico unless illegal immigration across the southern U.S. border halts.

“We could also consider passing on these costs through a modest price increase, such as about a nickel on a burrito,” Hartung said.

Chipotle’s shares fell 1.6% on Monday, having lost 3% on a broadly weaker New York Stock Exchange on Friday.

Reporting by Uday Sampath in Bengaluru; editing by Patrick Graham and Saumyadeb Chakrabarty