Chipotle Mexican Grill is planning a menu price increase in the mid-single-digit range for this year to help address rising food costs for key ingredients like beef, cheese and avocados.

To be rolled out by early in the third quarter, the price hike would be Chipotle’s first in nearly three years to impact the domestic system.

In a call Thursday with Wall Street analysts following the release of first-quarter results, Jack Hartung, Chipotle’s chief financial officer, said the Denver-based chain has plenty of pricing power, but the goal is to ensure the menu remains accessible to guests in what continues to be an uneven economic recovery.

“We feel very comfortable that if we raise prices in that mid-single-digit range, we’ve still got room,” he said. “We have built up quite a bit of permission to raise prices, but we won’t cash in all of that right now. We’ll still have some in the bank.”

The announcement came as Chipotle reported an 8.5-percent increase in net income for the quarter ended March 31.

The 1,637-unit chain’s same-store sales rose a whopping 13.5 percent, in part because of easy comparisons with the first quarter of 2013, when same-store sales increased a more modest 1 percent.

The 13.4-percent increase in the first quarter was driven primarily by traffic, though the average check also rose, and the chain reaped the benefit of an extra trading day with Easter falling in the second quarter this year.

Steve Ells, Chipotle’s founder, chairman and co-chief executive, credited the chain’s continued focus on quality of ingredients for the positive results. During the quarter, the chain launched a new marketing campaign called “Better Ingredients” that will be supported with print, online and outdoor advertising in 30 markets.

Ells also pointed to the success of Chipotle’s unbranded television show on Hulu called “Farmed and Dangerous,” which was among the website’s top five most watched programs in recent weeks. “’Farmed and Dangerous’ is an example of our commitment to entertain while teaching people about how food is raised in this country,” said Ells. “It creates curiosity and sparks a dialogue.”

Ells said the chain has achieved its goal of removing almost all genetically modified ingredients from the menu — though the corn and flour tortillas may still contain trace amounts. Chipotle is testing new non-GMO alternatives that it could roll out by the end of the year.

Chipotle is also working on improving its online ordering and will offer mobile payment for the first time in one market this summer.

The rising cost of food, however, is a concern as beef prices reach record highs following two years of drought, and cheese and avocado prices climb.

Food costs during the first quarter were 34.5 percent of revenue, rising 150 basis points, or 1.5 percent, over the prior year. Hartung said food costs are expected to reach 36 percent in April, and officials are expecting costs to push even higher later this year, prompting the decision to raise menu prices.

The company, however, revised its same-store sales projections for the year, saying it would be in the high-single-digit range, excluding menu price increases. Earlier, the company had projected same-store sales for the year to increase in the low- to mid-single-digit range.

Net income for the quarter was $83.1 million, or $2.64 per share, compared with $76.6 million, or $2.45 per share, in the prior-year period. Revenue was $904.2 million, increasing 24.4 percent from $726.8 percent a year ago.

During the quarter, Chipotle opened 44 restaurants, and the chain remains on target to open 180 to 195 units this year.

Contact Lisa Jennings at lisa.jennings@penton.com.
Follow her on Twitter: @livetodineout