DENVER Chipotle Mexican Grill Inc. said this week it would increase menu prices by 6 percent in the current fourth quarter to help counter rising costs that led to a dent in third quarter profit.
The increase, which is on top of the current 4-percent year-to-year price increase already in effect from previous quarters, is not without risks, according to both company management and industry analysts. Customer traffic, already trending negative for the 800-unit burrito chain, may take an additional hit, as consumers continue to feel financial pressures that already have caused dining-out cutbacks.
Chipotle said the menu price increases are necessary to improve unit-level profit margins, which fell to 21.4 percent in the third quarter, from 23 percent last year. The company’s food, labor, occupancy and other operating costs together rose nearly 18 percent in the third quarter, the company’s report shows.
“We do not predict that there will be no resistance,” Steve Ells, Chipotle's chief executive and founder, said, “but we’ve got confidence that our customers understand that we haven’t raised prices [often in the past] and we’ve been very hesitant to do so, that they understand that our ingredients are better, that they’re very loyal and they’ll understand our doing this. So we are cautiously optimistic that this will be well-received.”
The company also said it planned to increase marketing efforts to reach more potential customers. Chipotle is currently looking for an advertising agency to assist with an expanded outreach.
For the third quarter ended Sept. 30, Chipotle reported net income of $19.5 million, a 5.5-percent drop from the third quarter a year ago. Earnings per share in the latest quarter fell 4.8 percent to 59 cents, the company reported.
Revenue increased 18.9 percent to $340.5 million, in part because of same-store sales increases of 3.1 percent and the opening of 20 additional stores, including the chain’s first unit in Toronto in August.
The company said it planned to continue opening restaurants to reach a goal of between 130 and 140 new stores this year.
Chipotle also said Thursday it planned to invest up to $100 million toward the repurchasing of shares of the company’s Class B common stock, which in aggregate would be equivalent to about 7.5 percent of the company’s total outstanding stock.
