Why Chipotle Customers Don’t Care About Rising Burrito Costs

Moneybox
A blog about business and economics.
May 19 2014 6:02 PM

Why Chipotle Customers Don’t Care About Rising Burrito Costs

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As long as the guac is going nowhere, customers don't seem to care that prices are rising.

Photo by Joe Raedle/Getty Images

The burrito world shared a brief panic attack in March when Chipotle suggested in its latest annual report that rising prices could force it to temporarily stop serving guacamole. People calmed down once Chipotle reassured customers that the statement was "strictly routine 'risk factor' language" and that guacamole wasn't going anywhere in the foreseeable future.

So considering the angst sparked by that otherwise innocuous report, it's surprising that Chipotle's customers have barely batted an eye as a very real change—rising burrito prices!—has begun to take hold across the chain. Quartz reported this weekend that prices have increased on average 4 percent for chicken and 8 percent for beef and are rolling out faster than most had expected. But for the most part, customers don't seem to care. "According to stores surveyed by Credit Suisse, the price increases have barely registered," wrote Quartz's Max Nisen.

It's possible that people are willing to cut Chipotle some slack this time around because food prices are rising everywhere. Wholesale food prices jumped 2.1 percent in April, led by pressure on meat and processed poultry and dairy products. Prolonged droughts and a harsh winter have blighted fruits and vegetables and a deadly pig virus is ravaging the pork supply. Even strolling down the local grocery aisle, you're going to see higher prices.

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R.J. Hottovy, a senior restaurant analyst for Morningstar, outlines three other things that work in Chipotle's favor over other fast-food and fast-casual restaurants: (1) the food quality is thought to be higher; (2) the service is generally better; and (3) the customers that eat there tend to be more affluent. "With strong customer loyalty scores and a perception of higher-quality ingredients, we believe the Chipotle brand possesses more pricing power than other restaurant peers, as evidenced by an average check of more than $10 per customer and menu price increases in each of the last five years," Hottovy wrote in a report for Morningstar last month.

Chipotle is one of several chains that have taken the $34 billion domestic fast-casual food industry by storm. Because these restaurants use higher-quality ingredients than most fast-food chains do, they can draw in a more affluent clientele, even as their operating costs are still well below those of a traditional casual dining chain such as Darden Restaurants' Olive Garden. "This," Hottovy says of Chipotle, "is the sweet spot of the restaurant industry."

Alison Griswold is a Slate staff writer covering business and economics.

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