Everyone breathe a sigh of relief: Chipotle’s menu prices (mostly) aren’t going anywhere in 2015. That’s what executives had to say Tuesday afternoon during the company’s fourth-quarter and full-year earnings call, and it should be a welcome update for consumers. After all, it was less than a year ago that Chipotle, in response to rising ingredient costs, boosted its entrée prices by 4 percent for chicken and 8 percent for beef. In New York City, the price of a steak burrito was suddenly bumping up against $9, and other options weren’t much cheaper. With many food prices expected to keep rising this calendar year, it wouldn’t have been at all surprising if Chipotle said menu items were getting more expensive again.
So maybe that’s also why analysts seemed to be thrown for such a loop by Chipotle’s statements. Yes, executives said the company might consider raising prices on its steak and barbacoa entrées later in the year (the cost of beef is expected to soar in 2015), but those on the call wanted to know why Chipotle wasn’t considering a more holistic increase. Past experience certainly suggests that it could. As executives pointed out on Tuesday’s call, Chipotle was one of the last restaurants to see any impact on its sales from the recession, and one of the first to see sales increase as the economy slowly rebounded. Concerns that price changes in 2014 would drive customers away also proved largely unfounded; when Chipotle’s third-quarter results rolled around, it reported that sales had jumped nearly 20 percent. “We have very loyal customers such that they don’t stop coming to Chipotle when they have a few less dollars in their pocket,” a Chipotle executive said.
Which goes back to the original question: If all of that is true, why wouldn’t Chipotle just push up its menu prices to offset continued increases in food costs? Well, a lot of it has to do with branding. Chipotle is arguably the front-runner of the fast-casual movement—a dining sector that aims to provide the speed of fast-food with higher-quality ingredients and a nicer atmosphere for only slightly more money. So far, the fast-casual model has been incredibly successful for Chipotle and its peers (Five Guys, Shake Shack, Panera, to name a few). But it also takes a lot of careful and sometimes tough business decisions to maintain.
Just three weeks ago, for example, Chipotle announced that it had stopped serving carnitas at one-third of its more than 1,700 restaurants because a pork supplier violated its animal welfare standards. The decision is expected to cost Chipotle $2 million in the first quarter of 2015, but co-CEO Steve Ells emphasized that it was important for the chain to stand by its values. Chipotle’s vision, he said, is “really resonating” with teens, millennials, and generation X—consumer segments that just about everyone is trying to win over. So it stands to reason that Chipotle might see another key component of its image as prices. That’s not to say it wants to have dirt-cheap offerings like McDonald’s, but it also seems reluctant to continuing hiking costs, even if customers would probably be OK with the increases. For Chipotle to keep winning at fast casual, it’s important for the chain to remain being seen as “accessible and affordable” for customers, as the company put it on the call.
All of this might not have been exactly what Wall Street wanted to hear. Chipotle shares are down about 7 percent after sales at stores open for at least 13 months grew a bit slower than expected in the latest quarter, and revenue also missed slightly. That said, earnings were rosy, and same-store sales still grew 16.1 percent in the fourth quarter. Compared to the ugly numbers fast-food chains like McDonald’s have been seeing lately, Chipotle is still doing great.
