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- Chipotle’s stock slid 2% in pre-market trading Friday amid fears that tariffs on Mexican avocados will drive up its guacamole costs.
- "We’re paying a lot more right now," Chipotle’s CFO said earlier this year.
- Chipotle imports many of its avocados from Mexico and uses 450,000 of the fruits daily.
- The Trump administration plans to slap 5% tariffs on all imports from Mexico, rising to 25% in October if illegal crossings at the southern border aren’t halted.
- Watch Chipotle Mexican Grill trade live.
Chipotle’s stock slid 2% early Friday as investors feared higher guacamole costs would eat into profits. Avocado prices are poised to jump after President Donald Trump announced plans to slap tariffs on all imports from Mexico.
The Trump administration announced it would introduce duties of 5% in less than two weeks’ time, and steadily ratchet them up to 25% by October — Mexico "substantially stops the illegal inflow of aliens coming through its territory," a White House statement said.
The tariffs will have a significant impact on the avocado trade. The US imported more than 85% of its Hass avocados from Mexico last year, bringing in nearly 2 billion pounds of the most-popular variety of the soft fruit, according to the Hass Avocado Board. Avocado prices have more than doubled in the past two months to almost 550 Mexican pesos ($28) for a 10-kilogram box, according to Bloomberg.
The most dramatic increase came in April, when Trump threatened to close the border with Mexico. The Hass price from Michoacan — the heartland of Mexico’s avocado industry — surged by 34% in a single day, its biggest rise in a decade, according to Bloomberg.
The spike probably reflected importers bringing forward purchases to avoid border disruptions, and a heatwave in California that delayed the state’s avocado harvest, according to Bloomberg. The prospect of 25% tariffs on Mexican avocados could also spur buyers to rush orders, driving up prices and forcing supermarkets and restaurants to pass on those higher costs to consumers, likely reducing demand.
Pricier avocados are bad news for Chipotle, which goes through more than 450,000 of them daily. The fast-casual restaurant chain already expects food costs to rise 1% quarter-on-quarter in the three months to June, as the supply of avocados hasn’t kept up with demand this year, CFO John Hartung said on the first-quarter earnings call in late April.
"We’re paying a lot more right now," Hartung said at the time, adding that he expected prices to normalize later this year following Chipotle’s seasonal shift to Mexican suppliers. News of the tariffs may well have dashed those hopes.
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SEE ALSO: Avocados are being recalled in 6 states after a batch tested positive for listeria
Source: Business Insider – tmohamed@businessinsider.com (Theron Mohamed)