With the once soaring cost of avocados and other ingredients easing, Chipotle CFO Jack Hartung said the restaurant chain is pressing pause on its menu price hikes.
Overall the menu prices for the company’s fast casual Mexican food are currently about 10% higher year-over-year, though the last time it marked up its national prices was in August, he said. That is an unusually steep increase as compared to a 2% price hike seen in a typical year, CFO Dive previously reported.
Newport Beach, Calif.-based Chipotle doesn’t have any further price increases planned, Hartung told CFO Dive Friday. Hartung also noted a component of the price increases has also been higher delivery costs.
“Just no current plans, we’ll be data dependent to take a phrase from the Fed, but the data is going to be what’s happening to our ingredient costs, what’s happening to our labor costs but also what’s happening in our economy,” Hartung said.
If the economy softens Chipotle wants to be careful about more price hikes as it doesn't want to lose consumers who might then be pulling back on their budgets, he said.
Then too if the economy is softening, the company also wants to be careful not to change its menu prices quickly in reaction to sudden changes in certain ingredients because an overall fall in demand could mean that the higher ingredient prices won’t stick, he said.
“The thing we’d hate to do is take a pricing action based on beef rising in one quarter and then the very next quarter that increase goes right back down which would tell us we shouldn’t have raised prices in the first place,” he said. “So we’ll be patient.”
The company’s balance sheet and corporate structure puts it in a better position than some of its competitors to handle inflation in the short term without raising prices, he said.
For example, he said it doesn’t have any franchisees, who sometimes have a lot of debt which tends to lead them to raise prices pretty quickly when costs rise. In addition, the company has a credit line but no debt. “We can think long term,” he said, noting that some companies often pull back on their growth.
But he said Chipotle in contrast is not pulling back on its restaurant openings. It is anticipating opening 255 to 285 new restaurants this year, including 10-15 relocations, compared to 236 last year, according to the company’s first quarter earnings release.
That patience comes as the company has begun to see some relief on the inflation affecting its costs. During the first quarter of this year inflation has “behaved reasonably well,” Hartung said. Some increases in the costs of oils, salsa and tortillas was offset by lower prices in avocados, holding food costs at about the same levels they were at in the fourth quarter of 2022, he said. That’s the first time the company has seen pricing hold for two consecutive quarters in five or six quarters.
In contrast, labor inflation still running high, with Chipotle seeing mid-single digit percentage increases year-over year, he said in the interview. Inflation has pushed up wage costs about 20 to 25% over the past two years, bringing the average hourly wage in the restaurants to about $16 from $12 to $13 about two years ago. Still, Hartung said he’s “totally fine” with that level of labor inflation so long as the economy keeps ticking along and people still want to shop and eat at Chipotle.
Earlier this week Chipotle reported total revenue jumped 17.2% to $2.4 billion year-over-year in the first quarter and net income for the period of $291.6 million compared to $158.3 million in the year-earlier quarter.