Chipotle Q1 2015 earnings: A tough quarter, but people still love burritos.

Chipotle Plans to Raise Prices on Its Steak and Barbacoa Burritos

Chipotle Plans to Raise Prices on Its Steak and Barbacoa Burritos

Moneybox
A blog about business and economics.
April 21 2015 5:49 PM

Chipotle Plans to Raise Prices on Its Steak and Barbacoa Burritos

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Wall Street’s burrito craving is cooling.

Photo by Joe Raedle/Getty Images

Chipotle’s usual burrito magic isn’t working on Wall Street this time around. The fast-casual chain fell short of expectations for first-quarter revenue, and sales at stores open at least 13 months also missed their target. Chipotle also says a carnitas shortage that began in early 2015 and has affected roughly one-third of its restaurants will last through the “peak” spring and summer periods. Shares are down approximately 5 percent—or $35 and change—in after-hours trading.

The current carnitas crisis hit in mid-January after the company discovered and suspended a supplier that had violated its animal-welfare standards. The choice—while potentially smart given Chipotle’s ethics-minded branding—has been disruptive to restaurants in the short term. Some 1,700 Chipotle locations are no longer carrying carnitas, which makes up between 6 and 7 percent of entree orders. Had carnitas been available at all restaurants, Chipotle executives said on the earnings call that they believe same-stores sales could have finished higher.

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All of this was the backdrop for the big news of the call: Some Chipotle prices are going up. That’s a slightly awkward pivot for the chain. When Chipotle reported last year’s Q4 earnings in February, it said entree prices were expected to remain mostly the same in 2015. Analysts found this statement confusing, as ingredient costs were expected to keep rising, but Chipotle defended its decision as partly about its  “accessible and affordable” branding. Just because the chain could eke a few more dollars out of its loyal patrons (which it certainly can) didn’t mean it ought to.

Now, though, Chipotle says prices on steak and barbacoa orders will likely rise 4 to 6 percent before the end of the year because it “undershot” when pricing in the inflationary costs of beef. Food costs made up 34 percent of Chipotle’s revenue in the latest quarter, with increases hitting beef and, somewhat inexplicably, tortillas. Keeping Chipotle accessible is important, the company explained on its earnings call, but menu prices need to stay in line with ingredient costs. “We’re underpriced on steak right now,” an exec admitted. Between that and the carnitas shortage, maybe it’s time to switch to chicken or sofritas.

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