Mexican food chain, Chipotle recently announced that it would raise prices for the first time in three years.
Chipotle Chief Financial Officer, Jack Hartung during the quarterly earnings call on April 17th said that “We plan to increase prices on average somewhere in the mid-single digits. We expect we will start installing the menu boards with higher prces later this quarter and finish installation by early in the third quarter”.
Shortly after the price increase was announced, Las Vegas witnessed up to 17% price increase. According to Rewardable, the app that collects pricing data, Las Vegas Chipotle stores are now charging up to 17% more for chips, 14% increase in guacamole and large beverages, as well as 7% more for burritos. Hence, a meal of steak burrito, chips, guacamole and a large drink will now cost more from its earlier total cost of $11.20.
Giving in to inflationary pressue that affects profit margins for the company, Chipotle executives are considering an increase of 3% to 5% in its menu prices.
On the quarterly earnings conference call, Chipotle Co-CEO, Steve Ells, explained that, currently Chipotle’s major concern in the price increase in beef, avocados and cheese. While U.S. beef prices are expected to soar this year, at an all-time high, steak prices are also expected to rise up to 25% than that it was in the last quarter. Cheese prices are expected to increase up to 10% by the end of this year, while avocados prices are also set to rise, since the company will now enter the season of buying avocados from California again.
Chipotle Co-CEO Steve Ells is confident that the price increase won’t scare off customers. During the conference call, Ells noted that they had earned permission from its customer base to increase prices.
Chipotle’s demand as a favorable food chain for Mexican food lovers provides an advantageous position to the company despite the increase in its prices. The company is also a hot favorite among analysts and investors due to its robust comparable sales growth and the shares. It can be estimated that once the food prices subside, Chipotle is witness explosive earnings growth.