Despite having a successful run so far this year, Chipotle is looking to raise prices by another 4% this August. This is the third time such a move has been made by the popular fast-casual chain. Prices rose a total of 8.5% last year through multiple small increases. So far this year, prices have gone up a whopping 10.5%.
Reasons for the move center around continued supply-chain issues and inflation, both of which have conspired to raise costs for the chain’s core ingredients of beef, chicken, and avocados, among others. Chicken, in particular, has risen over 200% for some products. Also a problem is the cost of paper products and packaging, much of which is more expensive, but maybe worse, is harder to obtain.
However, not all is lost for Chipotle. Quite the contrary. Second-quarter results show a business running at full steam.
Halfway through the year and already they have opened 42 new locations, 32 of which include Chipotlanes. Revenue increased by 17% and their operating margin went from 13% to 15.3%. Those were no doubt helped by the 10.1% increase in same-store sales.
“We are pleased with our second quarter performance during a period of inflation and consumer uncertainty,” said Brian Niccol, Chairman and CEO, Chipotle. “Our pricing power and value proposition remain strong as our culinary and food with integrity commitment continues to be a key point of differentiation.”
Indeed, pricing power is an advantage that Chipotle has held over other businesses for the last couple of years. Multiple price hikes have done nothing to deter customers. This could be because Chipotle’s main demographic is the higher-earning customer. That fact also gives the company reassurance when presented with the possibility of losing lower-earning customers with this latest hike, which may be the one to finally price out a whole segment of people.
Going forward, the hope is to be able to open up between 235 and 250 new locations. But costs will continue to be a problem. This second quarter saw costs take up 30.4% of total revenue. Supply issues are likely to continue, with shortages of some agricultural products moving into the Fall and a coming energy shortage. Although, so far, war, rabid inflation, crazy gas prices, energy shortages, lockdowns, and supply chain problems have done nothing to stop the growth of Chipotle, so what’s more of the same going to do to slow them down? Not a damned thing, from the looks of it.