Chipotle plans first price hike in three years

NEW YORK (AP) — Chipotle is feeling confident that customers are willing to pay more for its burritos,
bowls and tacos.
The
Mexican food chain said Thursday that it would raise prices for the
first time in three years as its popularity continues to soar. Menu
boards with the new prices should start rolling out in coming weeks and
be in place at all restaurants by this summer.
Executives have
said in the past they were considering a hike of about 3 percent to 5
percent. That translates to an extra 24 cents to 50 cents for an $8
burrito bowl.
Steve Ells, Chipotle’s co-CEO, said during a
conference call with analysts that price is not the main reason
customers visit its restaurants anyway.
"Most of the value comes from the experience," he said.
Ells
also noted that the company had earned "permission" from customers to
raise prices because of that experience. And if needed, he said Chipotle
still had the leeway to further raise prices without scaring off
customers.
"We’ve still got room," he said.
The decision
comes as higher costs for beef, avocados and cheese have pressured
profit margins for the chain, with net income for the first quarter
coming in below Wall Street expectations. Still, Chipotle said sales at
established locations rose 13.4 percent during the period and it raised
its outlook for the year. It now expects the sales figure to grow in the
high-single digits, before factoring in the price hikes.
The
Denver-based chain’s popularity has surged in recent years because
people like that they watch as they tell workers what toppings to put on
their orders. The chain has also invested in marketing to build up its
reputation as higher-quality alternative to places like Burger King and
Wendy’s.
Those traditional fast-food chains have struggled to grow
sales as customers increasingly flock to foods they feel are fresh or
higher in quality. In contrast to Chipotle, for instance, McDonald’s has
said it needs to focus on underscoring the value it offers.
McDonald’s
CEO Don Thompson has also noted that there is a bit of "bifurcation" in
the fast-food industry, with better-off customers heading to the new
breed of chains that charge more.
For the three months ended March
31, Chipotle Mexican Grill Inc. said net income rose 8 percent to $83.1
million, or $2.64 per share. That’s up from $76.6 million, or $2.45 per
share, a year ago.
Analysts expected $2.86 per share, according to
FactSet.
Revenue climbed a stronger-than-expected 24 percent to $904.2 million.
Chipotle
has also been expanding rapidly. It opened 44 restaurants during the
quarter and plans to open 180 to 195 restaurants during all of 2014. It
already has more than 1,600 locations.
Its shares fell $9.26, or 1.7 percent, to $543.14 in afternoon trading. Its shares are up almost 70
percent since a year ago.
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