Additional instances of avian flu, "mad cow" disease or other food-borne illnesses could adversely affect the price and availability of chicken, beef or other meat, cause the temporary
closure of some stores and result in negative publicity, thereby resulting in a decline in our sales.
In 2004 and 2005, Asian and European countries experienced outbreaks of avian flu, and incidents of "mad cow" disease have occurred in Canadian and U.S. cattle
herds. These problems, other food-borne illnesses (such as e-coli, hepatitis A, trichinosis or salmonella) and injuries caused by food tampering have in the past, and could in
the future, adversely affect the price and availability of affected ingredients and cause customers to shift their preferences, particularly if we choose to pass any higher ingredient costs along to
consumers. As a result, our sales may decline.
of food-borne illnesses, whether at our stores or those of our competitors, could also result in negative publicity about us or the restaurant industry, which could
adversely affect sales. If we react to negative publicity by changing our menu or other key aspects of the Chipotle experience, we may lose customers who do not accept those changes, and may not be
able to attract enough new customers to produce the revenue needed to make our stores profitable. In addition, we may have different or additional competitors for our intended customers as a result of
making these changes and may not be able to compete successfully against those competitors. If our customers become ill from food-borne illnesses, we could be forced to temporarily close
some stores. For example, in June 2004, Texas health officials investigated reports that customers and employees had become ill with flu-like symptoms after spending time in one of
our stores, and we closed that store for less than a week. A decrease in customer traffic as a result of these health concerns or negative publicity, or as a result of a change in our menu or dining
experience or a temporary closure of any of our stores, could materially harm our business.
Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs. Any increase in the prices of the ingredients most
critical to our menu, such as beef, chicken, cheese, avocados, beans, tomatoes and pork, could adversely affect our operating results. Although we try to manage the impact that these fluctuations have
on our operating results, we remain susceptible to increases in food costs as a result of factors beyond our control, such as general economic conditions, seasonal fluctuations, weather conditions,
demand, food safety concerns, product recalls and government regulations. For example, higher diesel prices have in some cases resulted in the imposition of surcharges on the delivery of commodities
to our distributors, which they have generally passed on to us to the extent permitted under our arrangements with them. In 2004, hurricanes in some parts of the United States damaged tomato crops and
drove prices higher. Similarly, in 2005, hurricane Katrina destroyed a number of chickens raised by one of our chicken suppliers and increased our short-term chicken prices. Both
hurricanes Katrina and Rita have resulted in higher diesel and gasoline prices, are affecting consumer confidence and are likely to affect our supply costs,
near-term construction costs for our new stores and may affect our sales going forward. We do not have long-term supply contracts or guaranteed purchase amounts. As a result,
we may not be able to anticipate or react to changing food costs by adjusting our purchasing practices or menu prices, which could cause our operating results to deteriorate. In addition, because we
provide moderately priced food, we may choose not to, or be unable to, pass along commodity price increases to our customers.
We may have experienced a security breach with respect to certain customer credit and debit card data, and we have incurred and may continue to incur substantial costs as a result of this matter. We
may also incur costs resulting from other security risks we may face in connection with our electronic processing and transmission of confidential customer information.
In August 2004, the merchant bank that processes our credit and debit card transactions (the "acquiring bank") informed us that we may have been the victim
of a possible theft of credit and debit card data. Together with two forensic auditing firms, we investigated the alleged theft and reviewed our information systems and information security
procedures. We also reported the problem to federal law