Chipotle has tweaked its menu prices for food inflation—but it still needs to revise it for rising labor costs.
Last week, Chipotle’s menu boards started showing slightly higher prices. At one Brooklyn eatery, a $10.95 chicken burrito bowl’s price suddenly cost $11.35—without extra guac, cheese, or anything. The Mexican grill chain also hiked prices for soft drinks, as Reddit users pointed out. But this hike “does not consider any part of the California wages that’ll happen next year,” chief financial officer Jack Hartung said during the company’s third-quarter earnings call on Oct. 26.
Starting in April 2024, fast food workers employed at quick-serve restaurants that have 60 locations or more in California will be eligible for a minimum wage of $20 per hour, up from the current $15.50. For Chipotle, the jump will be a little less jarring considering it already pays $17 as starting wage in the state. But the effect won’t be insignificant.
Around 15% of Chipotle’s 3,300 stores are located in California. The minimum wage increase will add between 2.5% and 3% to the company’s overall labor costs.
While Chipotle hasn’t disclosed the exact level of pricing to combat this cost pressure, it’s sure that it won’t absorb it all. For customers, “it’s going to be a mid- to high-single-digit price increase, but we are definitely going to pass this on,” the CFO said.
A brief roundup of Chipotle’s four price increases in two years
Worker pay triggered menu pricing changes in October 2021 as well. Back then, it attributed a 4% hike in menu prices to hourly wages for employees rising to $15 an hour.
Between then and now, the company has raised prices three more times, including earlier this month, citing inflation and rising ingredient costs. However, it claims that the benefit from last year’s menu price increases was “mostly offset by inflation across several food costs,” including beef, cheese, and avocado, as well as high gas prices.
Chipotle’s financial results, by the digits
11%: Year-on-year increase in sales, to reach $2.5 billion
37%: Digital sales made via the Chipotle website, Chipotle app or third-party delivery aggregators
285-315: Stores Chipotle expects to open in 2024, with 80% of them having digital order drive-thru pickup lane “Chipotlanes”
114,000: Total number of Chipotle employees
3%: Chipotle’s price increase earlier this month
Quotable: Demand for Chipotle’s holds strong
“The consumer is clearly under pressure with inflation over the past year and pretty much everything with gas and groceries and really across the board higher interest rates. We continue to do well not just across our income levels, but with the lower income. They’re holding up really well. They’re really hanging in there at about the same level as our medium and high income levels.”
—CFO Jack Hartung on the Oct. 26 earnings call
One more thing: Chipotle isn’t worried about Ozempic or Wegovy
The rising popularity of weight-management drugs like Ozempic and WeGovy has dimmed the outlook for several food companies—especially fast- and junk-food. Walmart, far instance, warned of a slight pullback in sales as baskets evolved. Packaged food giant Conagra said it’ll consider changing portion sizes if the obesity drugs have an impact. PepsiCo and Coca-Cola have downplayed the threat, but they do have plenty of low-cal options on offer.
Industry watchers are encouraging fast-food chains like Domino’s Pizza, McDonald’s, KFC, and Krispy Kreme to rethink their menu offerings, tilting toward a healthier palate. Chipotle, which claims to have seen no material impact from the drugs yet, says its food already complements weight-loss goals.
“Our food is a good solution. Because it’s clean, it’s not fried,” CEO Brian Niccols said on the earnings call. “It allows people then to customize a meal that would fit their diet that they’re trying to achieve, whether they’re on GLP-1 drugs or whether they’re on a keto diet, or a Whole30 diet, or insert the lifestyle diet that they’re on, or the lifestyle drug that they might be on. The good news is we’re positioned to be able to customize that diet for you with clean food done in a very healthy way.”