What is in this article?:
- Chipotle grows traffic 12.3% in 2Q
- Higher prices, higher standards
Company officials say customers aren't showing resistance to menu price hikes.
Chipotle Mexican Grill boasted a near record same-store sales increase for its second quarter based largely on traffic growth, indicating that price increases that began in April have done little to discourage the burrito habits of guests.
In a call with analysts following the release of second quarter earnings on Monday, Chipotle officials said the 17.3-percent increase in same-store sales was the highest since the company’s very first quarter as a public company in 2006, when same-store sales rose an impressive 19.7 percent.
At the time, however, the chain had fewer than 500 restaurants, which averaged about $1.5 million in sales. Chipotle finished the June 30-ended second quarter this year with 1,681 restaurants, which averaged $2.3 million in annual sales.
The second-quarter comp increase was largely driven by a 12.3-percent increase in traffic, at a time when other chains across the industry overall are struggling to increase the number of customers coming through the door.
Company officials attributed the brand’s Food with Integrity positioning, as well as its strong “people culture,” which develops top performers in restaurants. But Chipotle also spent more on advertising during the summer months, which will continue into the fall.
Monty Moran, Chipotle’s co-chief executive, said the Denver-based chain’s audience is broad based, but recently the company has seen an increase in teens specifically -- and especially male teens -- across all economic backgrounds.
“Those kids become lifelong customers and they bring their kids and their parents as well,” he said.
While teens can be particularly price sensitive, Chipotle’s customers did not appear to balk at menu price hikes over the past few months.
The same-store sales increase was boosted by a 5-percent increase in average check, of which about 2.5 percent was attributed to the price hikes, which the chain completed in June.
Prices were increased roughly 6 percent on average in an effort to address higher commodity costs. Pricing varied by ingredient and by market. Because beef commodity prices have gotten so high, for example, Chipotle increased the price of its steak an average of 9 percent, while chicken prices were up about 5 percent on average.
As a result, some consumers shifted from steak to chicken, but there was little to no resistance to the new pricing otherwise, said Jack Hartung, Chipotle’s chief financial officer.
Also helping build the average check was growth in catering, which during the quarter contributed about 1.6 percent of revenue, up from 0.3 percent a year ago. Hartung noted that Chipotle had a busy graduation season, and catering trends may quiet somewhat during the second half of the year.
Strong sales have continued into July, Hartung said, but the third and fourth quarter will have tougher comparisons with last year, when same-store sales were up 6.2 percent and 9.3 percent in the third and fourth quarters, respectively.
Still, assuming the menu price hikes continue to be accepted by consumers, the company is projecting same-store sales for the year to be up in the mid teens, Hartung said. Previous estimates put same-store-sales up in the high-single digits for the year.
The chain has also continued to improve throughput during the second quarter, adding eight transactions during peak lunch hours and another eight transactions during dinner peaks.