Despite continued commodity inflation expected in 2012, Chipotle Mexican Grill is not planning a systemwide menu price increase except on the West Coast where restaurant pricing is still catching up to the rest of the system.
In a call with analysts Wednesday to discuss fourth-quarter results, Chipotle reported its sixth consecutive quarter of double-digit increases in same-store sales.
Officials said a menu price increase last summer contributed about 4.9 percent to the 11.1-percent increase in same-store sales the chain recorded during the Dec. 31-ended quarter.
For the year, menu pricing added 2.9 percent to the 11.2 percent same-store sales increase.
Jack Hartung, Chipotle’s chief financial officer, said there has been no consumer push back as a result of the higher menu prices, either on average check or transactions.
In the chain’s Pacific region, however, menu prices have been historically lower. A price increase there in the first quarter is expected to add about 1 percent to same-store sales, Hartung said.
The menu price increases taken last summer, however, did not cover the 9.3-percent increase in commodity inflation seen in 2011, he added.
In 2012, the company expects to see lower costs for basics like avocados, dairy and produce, but that benefit will be offset by higher costs for beef, chicken, rice and beans.
Hartung said overall food inflation will be in the mid-single-digit range in 2012.
Also discussed in the call Wednesday was:
• All natural meat: As of the fourth quarter, all of the meat served at Chipotle is all natural, meaning it comes from animals that have not been treated with antibiotics or added hormones, and were raised humanely, said Steve Ells, Chipotle’s founder, chair and co-chief executive.
“Today, we are the only national restaurant company to serve all naturally raised meat,” he said.
A cornerstone of the chain’s Food With Integrity program, Chipotle has been moving slowly toward its goal of offering only all-natural meat over the past decade. Ells, however, said occasional supply shortages may force the chain to revert to conventionally raised meats in some markets.
• Menu expansion: When asked if Chipotle would expand its menu with new items or by adding breakfast, Ells pointed to the strong sales growth the chain has seen offering the same menu for 19 years.
Chipotle has experimented with the addition of soups, chili and smaller items like tacos, and that will continue, he said. The chain also tested chorizo in the New York marketplace last year, but discontinued the test after several months.
In the end, Ells said, people keep coming back for their chicken burrito or barbacoa tacos.
“I think we’ve done a very good job of staying focused, which makes the food taste better and allows us to have this very, very efficient economic engine, which allowed us to invest disproportionately back into the quality raw ingredients and our top-performing people,” Ells said.
“I think it’s a good system, and I don’t see that there’s any reason to add something like shrimp tacos or roll out breakfast now,” he added. “In fact, maybe something like that could even be detrimental to the model.”
• Throughput: Investments in improving throughput have boosted sales during peak hours, said Monty Moran, Chipotle’s co-chief executive.
Peak transactions have grown from the typical 100 per hour range to about 110 to 115, Moran said.
“Our throughput was faster in December than our previous December and even quicker than it was during our best work in 2007,” he said. “It’s really all just getting ready for game time, which is sort of April/May/June, when seasonality dictates that we have a lot more people coming into our restaurants.”
• Marketing: Chipotle has been underspending on marketing in recent years, Hartung said, and though the company may invest a bit more, marketing efforts will continue to focus on building a more sustainable relationship with customers.
Last year, for example, Chipotle’s short film “Back to the Start,” which tells the story of a farmer’s move away from factory farming, has been viewed online about 4.5 million times and has been seen by an estimated 26 million in movie theaters across the country.
Rather than quick advertizing blitzes, Ells said the chain is looking for ways to connect emotionally with customers.
“It’s marketing this way that I think is more sustainable long term,” he said. “It’s not about a marketing blitz or limited time offer that might provide a blip or move the needle, as you say, in a jerky way. Rather, it’s something calculating and sustainable.”
Contact Lisa Jennings at lisa.jennings@penton.com.
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