Rising commodity costs lead to price hikes in Northeast and Southeast
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Lisa Jennings
Pressured by rising commodity costs, Chipotle Mexican Grill raised prices at its restaurants in the Northeast and Southeast last week and company officials say more markets may see price hikes in the months ahead.
Chris Arnold, spokesman for the Denver-based chain, said pricing is done on a market-by-market basis and price increases will vary. In the markets most recently affected, prices increased on average between 4 percent and 5 percent, he said.
It is the first price increase in three years for those markets, Arnold noted. He said it was too soon to gauge consumer reaction to the changes in pricing.
“Anecdotally, things look very much the same,” he said. “Generally speaking, we see little resistance to price increases.”
During the first quarter, higher menu prices at Chipotle added 0.7 percent to a same-store sales increase of 12.4 percent. That price increase was taken in a few markets in the second quarter of 2010.
Earlier this year, Chipotle also raised prices in West Coast markets in part because menu prices there have lagged behind the rest of the country. In that market, the cost of a burrito went up 4.5 percent, company officials said.
During Chipotle’s most recent call to analysts following first-quarter results in April, John Hartung, Chipotle’s chief financial officer, said the company planned to hold off on price increases for the rest of the country until the third quarter to assess consumer reaction to such changes.
“We continue to believe we have pricing power,” he said at the time, “but we want to be patient and allow our transactions to hold as strong as possible in this still recovering economy.”
During the first quarter, restaurant-level operating margins declined 90 basis points, or 0.9 percent, to 25.2 percent of sales, largely because of increased food costs, the company reported.
The cost of avocados alone was expected to add between 50 and 60 basis points, or between 0.5 and 0.6 percent, to food costs during the summer because of lower-than-expected harvests of the key ingredient for guacamole.
At the end of the March-ended quarter, Chipotle operated 1,095 restaurants.
Contact Lisa Jennings at [email protected].
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