Chipotle's Latest Earnings Show Its Customers Are Okay With Price Hikes

Price hikes have become a standard sight at fast-casual restaurants like Chipotle and Panera as food inflation continues to take its toll. Over the last year, grocery prices have jumped 13%, with Restaurant Business reporting that restaurants have seen an average price increase of 8.5%. Food service is being hit from every angle right now, as The Guardian notes that the entire industry is not only dealing with the rising price of important products like cooking oil, but also ongoing staffing shortages that don't show any signs of letting up. All this adds up to higher bottom-line costs that are getting passed on to consumers.

Not all the news is bad though, as higher price points have not completely driven people away from eating out, even as some households with lower incomes cut back. Restaurant Dive says 58% of people reported increasing the amount they were eating out this year even as costs went up. It turns out that people really like going to restaurants, and are willing to spend more money to support what they see as important parts of their community. While Chipotle may not be a local mom-and-pop shop, its $2.2 billion in earnings last quarter show that people still prize the convenience and pleasure of being able to grab a good meal on the go.

Chipotle's sales have jumped despite higher prices

Chipotle has not been shy about fighting the increased cost of meat and labor with price hikes, with CNBC reporting they have increased their prices three times over the past 15 months, for a total rise of 13% over the past year. Even with those increases, Chipotle fans have been staying loyal, with the fast-casual burrito purveyor seeing a 22% jump for in-store sales this past quarter, only slightly offset by fewer digital orders. However Barron's notes that the prices have not gone unnoticed, and with overall traffic down 1%, the chain is being held up by having enough customers who are willing to absorb those higher prices rather than by expanding the number of people visiting.

CEO Brian Niccol sees a few reasons for Chipotle's steady popularity through all the recent industry troubles. He told investors that while Chipotle's prices have increased, they are still lower than many fast-casual competitors, and their customer base remains more high-income, allowing them to absorb the extra cost without cutting back (via Seeking Alpha). Ironically the increase in overall inflation may be helping Chipotle and other take-out chains in some ways, as grocery prices have jumped even more and made them a better value in comparison (per U.S. Department of Agriculture). Still, people are always going to be price-conscious and it remains to be seen how high restaurants can raise their prices before people start abandoning them in higher numbers.