Saturday, 7 December 2024
by BD Banks
This year, Costco raised its membership fees, and Spotify increased its subscription costs. Now, Chipotle lovers will have to pay a little extra for their burrito bowl and guac.
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Chipotle Mexican Grill (CMG) said on Dec. 4 that it’s raising menu prices 2% nationwide. “For the first time in over a year, we have taken a modest price increase of approximately 2% nationally to offset inflation,” said Laurie Schalow, Chipotle’s chief corporate affairs officer.
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This marks the fifth price increase in four years, with the company previously raising prices in June 2021, December 2021, August 2022 and October 2023.
What might surprise customers about this price hike is that Chipotle had reduced prices 3% in mid-October.
Most major fast-food chains, including Chipotle, have raised their prices over the past decade at nearly double the rate of inflation, FinanceBuzz reported in November.
Related: Analysts revise Chipotle stock price targets after CEO’s startling exit
Chipotle attributed the increase to “several ingredient costs,” particularly avocado, beef and dairy. It also cited higher ingredient usage as it prioritized “generous portions.”
Meanwhile, many of Chipotle’s competitors are pursuing more strategies to cater to inflation-weary consumers by stabilizing food prices or offering more budget-friendly options.
McDonald’s (MCD) , for example, in recent years had significantly raised prices but recently introduced $5 value meal deals to remain attractive to customers. Starbucks, which just hired former Chipotle CEO Brian Niccol as its chief, said in October that it would pause price increases for this year.
Chipotle’s decision comes after it reported mixed third-quarter earnings results.
In its October earnings report, Chipotle reported adjusted earnings per share of 27 cents, topping the 25 cents analysts expected. Revenue jumped 13% to $2.79 billion, short of analysts’ estimate of $2.82 billion.
Same-store sales rose 6% and also missed Wall Street’s expectations.
In the October earnings call, Chipotle Chief Financial Officer Adam Rymer suggested a potential 2% to 3% price increase might be in the offing. He cited not only higher food costs but also rising sales, labor and operational expenses as reasons for the move.
Related: Chipotle faces lawsuit for serving ‘inconsistent’ portion sizes
The price hike comes as Chipotle continues to demonstrate its strength in attracting customers. Chipotle’s Q3 restaurant traffic grew 3.3% year-over-year, underscoring the chain’s resilience amid a broader industry trend of fewer people eating out.
Restaurant operators reported that October still represented the 19th consecutive month of net declines in customer traffic, according to National Restaurant Association data.
Despite headwinds from higher costs and tighter consumer budgets, Chipotle remains strongly able to attract customers across income levels. “We’re seeing growth across all income groups right now,” CEO Scott Boatwright, who recently succeeded Niccol, said in an interview with CNBC.
Chipotle affirmed its full-year forecast, expecting same-store sales to increase by a mid- to high-single-digit percentage.
Truist raised Chipotle’s price target to $74 from $72 with a buy rating, thefly.com reported.
The firm said the price increase, which came earlier than expected, was a positive sign for the stock.
Chipotle is lifting menu prices “from a point of strength,” with credit card data showing solid customer traffic in November and no significant concerns about rising operating costs, Truist argued.
Truist has updated its earnings estimates, noting that the December price increase isn’t yet reflected in Chipotle’s Q4 guidance or its previous 2025 projections.
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Evercore ISI analyst David Palmer raised the firm’s Chipotle price target to $72 from $70 and affirmed an outperform rating.
Chipotle has implemented price increases of 2% to 3% in about 35% of locations so far, the investment firm said, adding that it was raising its Q4 and 2025 EPS estimates for Chipotle.
Chipotle stock closed at $65.22 on Dec. 5 and is up 42.6% year-to-date.
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