Chipotle Pumps Brakes On Price Hikes After Finding That Sales Lacked 'Pop'
Chipotle Mexican Grill was among the restaurants to raise wages in 2022 in response to inflation. But those extra payroll dollars had to come from somewhere. The same was true as Chipotle faced skyrocketing supply chain costs throughout the same time period, including higher costs of beef and cooking oil, per Bloomberg. The bottom line is that any increase will eat into a company's profits — unless, of course, the company can shift those costs elsewhere.
There are many ways to shift inflation-related expenses, including tinkering with the menu and its ingredients and raising menu prices per Sculpture Hospitality. In August 2022, Chipotle made the decision to shift some of its increased costs to the consumer by raising menu prices by about 4%. For a time, namely during the remainder of the third quarter of 2022, higher menu prices seemed to be working for Chipotle, at least to the extent they weren't driving away business. Indeed, same-store sales of 7.6% exceeded third quarter expectations, allowing Chipotle to clock impressive earnings per share for the quarter of $9.51 (per Bloomberg).
However, by early November, industry experts were questioning whether Chipotle's menu price hikes were more an attempt to grab greater profits than to break even amid extreme inflation (via The New York Times). Chipotle declined the outlet's request for comment. But actions may speak louder than words, and in early February 2023, amid disappointing fourth quarter sales, Chipotle pledged to pump the breaks on 2023 menu price hikes. (per Yahoo! Finance).
Are Chipotle customers crying uncle?
Chipotle lost investor confidence to the tune of 5% throughout trading on February 8, the day after the fast-casual Mexican burrito, bowl, and taco emporium announced its fourth quarter 2022 financial results — during which sales volume was down. "We started the quarter soft, and we ended the quarter soft," Chipotle CFO Jack Hartung conceded during an earnings call (via CNBC). Specifically, and among other disappointing figures Hartung was referring to, same-store sales fell to 5.6%, markedly from the third quarter's 7.6% but also well below Wall Street's fourth quarter estimate of 6.9%.
Company CEO Brian Niccol denies that Chipotle's fourth quarter's failure to "pop," as Hartung characterized it, stemmed from customer resistance to menu price hikes; his fellow C-suiters cast blame, instead, on inclement weather and one limited-edition menu item that failed to meet expectations. And one financial analyst blamed downward stock price movement on "extra scrutiny" paid to the company in 2023 thanks to overall stock price gains of 22%, Yahoo! Finance reported Wednesday. Further, Yahoo Finance notes that, at least unofficially, Chipotle's same-store sales are doing just fine, thank you very much, in 2023.
However, it's difficult not to speculate whether Chipotle's diminished third quarter sales resulted from lower- and middle-income consumers refusing to pony up more for the same food. Even as Chipotle talks about extraordinary growth plans for 2023, the word from Hartung is that Chipotle has issued a moratorium on 2023 menu price increases.