What Taco Bell Can Learn from Chipotle Mexican Grill, Inc. (CMG)

When it comes to fast food, people tend not to question what they’re eating, choosing instead to go for taste and affordability. But all it takes is for one person to reveal your food’s real ingredients, and you’re suddenly in the middle of a fast food controversy.

For fast-casual restaurant Chipotle Mexican Grill, Inc. (NYSE:CMG), the person who revealed the truth was the restaurant chain itself. The company chose to label items on its menu that contained Genetically Modified Organisms (GMOs), leading investors to worry the news might have an impact on its stock. But the revelation appeared to have no immediate impact on the stock, which has enjoyed a seven percent increase in earnings in the past year.

Honesty is the best policy

Chipotle Mexican Grill, Inc. (NYSE:CMG) was wise to fully disclose the GMOs on their items, coming on the heels of consumer demand. With GMOs, vegetables are genetically altered, often to prevent damage from pests. Because of uncertainty about the impact of GMOs on those who ingest them, nutrition-savvy consumers are understandably interested in learning as much as possible about its presence in various foods.

Taco Bell, on the other hand, found itself in the heat of controversy in 2011 when an Alabama law firm sued the company over its claims that each of its products was made with seasoned beef. The fast food chain’s parent company, Yum! Brands, Inc. (NYSE:YUM), was in the process of an expansion overseas, so the bad publicity reached new markets.

Be proactive

Perhaps the biggest lesson Yum! Brands, Inc. (NYSE:YUM) could learn from Chipotle Mexican Grill, Inc. (NYSE:CMG) is to be proactive in disclosing information that might impact its brand. In the wake of the controversy, Taco Bell issued a statement that its meat was 88-percent beef, rather than the 36 percent alleged in the lawsuit. The company fully disclosed its recipe, stating that the other 12 percent is made up of water, spices, and ingredients like oats, starch, and yeast.

However, it was a little too late for the company. Profits dropped 13 percent in the U.S., where sales account for 60 percent of its bottom line.

Another shining example

Natural food grocer Whole Foods Market, Inc. (NASDAQ:WFM) is another company that embraces the full-disclosure idea. When consumers became concerned about pink slime in meat products, the grocery store chain announced that it had already demanded its suppliers disclose and discontinue any products containing pink slime.