Chipotle is raising prices across it’s menu for the first time in three years as it passes on rising costs to consumers.
In a company earnings call made Thursday, chief financial officer Jack Hartung announced that the company will be raising prices by “somewhere in the mid-single digits.” The price rises will begin hitting customers’ wallets this quarter as Chipotle begins issuing its new menus with a full rollout of new signage to all 1539 locations, projected to be completed by the third quarter of 2014.
Chipotle, which has a value of $2.73 billion and counts McDonald’s as one of it’s principle investors, has seen the cost of its raw ingredients skyrocket — leading to a drop in margins by 40 basis points.
In October of 2013, Chipotle CEO Steve Ells warned of price increases, saying “I think that [the price increase is] probably in kind of a mid-single digit range, whether that’s 3, 4, 5 kind of percent. What it will depend on is what happens with general ingredient inflation between now and then and then what it costs us to remove GMOs from the rest of our ingredients.”
Since that original warning in October, ingredient inflation has jumped significantly with a spike in the prices of Chipotle’s ABCs — avocados, beef and cheese. In the first quarter alone, ingredient costs rose to 34.5% of Chipotle’s revenue and CNBC warns that if trends continue, they could reach as high as 36%. Speaking on the call, Hartung confirmed a grim outlook, saying, “beef prices are expected to continue to move higher as supply remains tight.”
Customers, however, appear to love their burritos and the accompanying “Chipotle Coma’s” that they induce. Despite government pressure from the First Lady and others to promote healthy eating, Chipotle has seen its profits rise with Hartung announcing an 8.5% jump in revenue up to $83.1 million and the opening of between 180 and 195 new locations in 2014 to cope with customer demand.