Chipotle Says No To Fake Meat

It's been four years since Chipotle Mexican Grill (NYSE:CMG) was rocked by a string of food safety problems, including a multistate outbreak of E. coli. Sales plunged in the aftermath of those revelations, and Chipotle's "food with integrity" motto became an empty promise.

The company has painstakingly clawed its way back since then. It's installed a new CEO, expanded its digital ordering service, launched a loyalty program, and invested in better food safety training. New advertising campaigns doubled down on "food with integrity" and reminded consumers about the quality and simplicity of its ingredients. Although Chipotle's per-store sales and earnings are still depressed, the stock has now fully recovered.

A smart move

The last thing Chipotle should do now is give its customers any reason to question its commitment to simple, high-quality ingredients. The company's brand is its most important asset, and protecting that brand is the key to making a full-scale comeback.

That's why Chipotle has decided to keep Beyond Meat (NASDAQ:BYND), the trendy peddler of ultra-processed imitation meat, away from its burritos. Despite other restaurant chains embracing fake meat products from Beyond Meat and competitor Impossible Foods, Chipotle isn't interested.

"We have spoken to those folks and unfortunately it wouldn't fit in our 'food with integrity' principles because of the processing, as I understand it, that it takes to make a plant taste like a burger," said Chipotle CEO Brian Niccol in an interview with Bloomberg.

Niccol has a point. Chipotle's entire menu features just 51 ingredients, and that number includes individual seasonings and spices. Almost all of Chipotle's ingredients are simple and minimally processed. A Beyond Burger from Beyond Meat, on the other hand, contains nearly 20 ingredients, some of which are themselves heavily processed. You don't find pea protein isolate in nature or in people's kitchens.

Chipotle shunning fake meat is great news for shareholders for two reasons. First, it's the strongest sign yet that Chipotle's new leadership won't sacrifice the company's core principles. Second, it shows that Chipotle won't turn to gimmicks to boost sales. Gimmicks can work for some restaurant chains, but Chipotle probably isn't one of them.

Denting the fake meat narrative

In response to Niccol's interview, Beyond Meat CEO Ethan Brown invited Chipotle to visit its factory and suggested that meat producers are worse. Worse in what sense is unclear. No matter how you assemble nearly 20 heavily processed ingredients into an end product, the end product is inherently heavily processed.

Part of the narrative around fake meat products like the Beyond Burger is that they may be healthier than real meat. Chipotle keeping fake meat off its menu due to its extensive processing puts at least a small dent in that idea.

Beyond Meat is set to report its second-quarter results Monday, July 29. The stock is trading at all-time highs, and the company is valued at over $12 billion. That's a ludicrous valuation given expected 2019 sales of just $210 million.

Will Chipotle turning down fake meat matter at all to Beyond Meat investors? Probably not, given how detached the stock is from its fundamentals. This is a story stock, and the story is apparently still compelling enough to keep the rally going.

This article originally appeared in The Motley Fool.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.