Chipotle Mexican Grill to raise its prices in 2014; increase in 'mid-single digit range' in middle of next year 'a reasonable assumption,' executives say
October 21, 2013
(Los Angeles Times)
– A day after announcing plans to raise prices in 2014, Chipotle Mexican Grill watched its stock surge in intra-day trading to an all-time high.
The stock reached $511.10 a share on Friday before closing up 16%, or $70.67, at $509.74.
Investors were cheered by the fast-casual chain's decision to charge more for food next year. Executives said an increase in the "mid-single digit range," landing in the middle of the year, "is a reasonable assumption."
It's "likely that the entire menu will be touched," said Chief Financial Officer John Hartung in a conference call with analysts Thursday. He added that the "expectation is that we will have increases in every single market."
Most Chipotle locations across the country haven't seen price bumps in three years, he said. West Coast stores have gone two years without an upswing.
"What we do ... is we go market by market and we look at competitors and we look at what prices they're charging," Hartung said. "And we'll look at it item by item."
Chipotle said its food costs are growing, and that its salsa components, tomatoes, corn, dairy and chicken are all more expensive. Predicted avocado shortages in Mexico, combined with high demand, will cause "continued pressure," he said.
And as the chain makes the conversion from genetically modified ingredients to non-GMO products, upgrading from soy oil to sunflower and rice bran oil is making a dent in its balance sheets.
"We want to keep our prices low, so that our customers continue to enjoy this very different way of eating," said Steve Ells, co-chief executive of Chipotle. "But by the same token, we want to still have a very strong unit economic model."
The conference call followed Chipotle's release of its third-quarter results. Revenue soared 18% to $826.9 million. Same-store sales at restaurants open at least a year rose 6.2%.
Profit was up 17% to $83.4 million, or $2.66 a share, from $72.3 million, or $2.27, a year earlier.
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