Earlier this year, Chipotle warned that it planned to raise prices on steak and barbacoa entrées. The increase, forecast at between 4 and 6 percent, would offset the costs of beef, which the U.S. Department of Agriculture predicted will climb steadily throughout the year. So far, those higher prices have only taken effect in a few markets. But in San Francisco, an even bigger price increase has hit—and one that spans the whole menu, as a report from wealth management firm William Blair noted on Tuesday. The reason? Hikes in the local minimum wage.
Chipotles in San Francisco “saw across-the-board price increases averaging over 10 percent, including 10 percent increases on chicken, carnitas (pork), sofritas (tofu), and vegetarian entrées along with a 14 percent increase on steak and barbacoa,” the report stated. “We believe the outsized San Francisco price hike was likely because of increased minimum wages (which rose by 14 percent from $10.74 per hour to $12.25 on May 1) as well as scheduled minimum wage increases in future years (to $13 next year, $14 in 2017, and $15 in 2018).”
Chipotle spokesman Chris Arnold confirms that this is largely the case. In San Francisco, where Chipotle operates 10 restaurants, the 14 percent minimum wage hike that took effect this year contributed to a 10 percent price increase on the menu. In the East Bay, where Chipotle has 74 restaurants, the company raised menu prices 7 percent “in part to offset” steep wage hikes in Oakland (36 percent) and other municipalities. “California, and San Francisco in particular, have a high cost of doing business,” Arnold writes in an email. “In San Francisco, for example, our occupancy costs are about double the Chipotle average as a percentage of sales, and our menu prices there are right around the average for Chipotle restaurants around the country, so increases to wages can have a greater impact than they might elsewhere.”
Don't sound the burrito-flation alarm too quickly, because this might all be a decent thing. Yes, your burrito options in the Bay Area just got 7 to 14 percent more expensive. But on top of the aforementioned rising beef costs, wages in San Francisco and Oakland went up by 14 to 36 percent. The news for your wallet seems especially untroubling when you think about just how price-insensitive Chipotle burritos are. In the past, Chipotle has been able to raise prices between 4 and 8 percent without customers flinching. The thinking is that people who eat at Chipotle tend to have a bit more disposable income, so they find price increases less off-putting and are also generally willing to pay more for what the fast-casual dining experience offers.
Odds are Chipotle knows that, and could have gotten away with hiking its menu costs even more in the San Francisco area. But it didn’t. So for you, the price of workers getting paid more will be roughly a dollar. That seems like a pretty good deal.