Chipotle hints at a price increase
As cheaper rivals elbow in, the burrito chain may risk a price hike to counter higher food costs.
One of America's favorite burritos might cost more later this year, as Chipotle Mexican Grill (CMG) is considering raising prices to cope with faster-than-expected food inflation.
The chain of 1,350 burrito restaurants "won't rush" into the decision, the company's chief financial officer Jack Hartung said on Thursday, according to the Wall Street Journal.
The problem? Fresh ingredients -- a point of pride for the chain -- are becoming pricier and may eat into profits, the company said this week.
The move comes at a risky time for the 20-year old chain: Taco Bell recently rolled out a similar menu at a much cheaper price than Chipotle's.
Yum Brand's (YUM) Taco Bell last year introduced the Cantina Bell menu, which includes a premium burrito with black beans, guacamole and citrus-herb marinated chicken or beef for less than $5. Chipotle's average meal, meanwhile, costs about $9.
With ingredients such as cilantro-lime rice and naturally raised pork, Chipotle spends about a third of its sales on food costs. That's jumped about 1.3% in the past year because of the rising price of food, the company said on Tuesday.
The price increase would come after the chain looked at other ways to wring more efficiencies from its operations, the Journal notes. For instance, it's sped up food assembly and uses hand-held devices to take orders while customers are in line, but analysts say Chipotle has maxed out its order-processing capacity.
While the chain continues to grow, its stock price has declined 18% in the past 12 months. The shares took a hit when the company missed second-quarter same-store sales growth last year, and then saw another drop when hedge fund manager David Einhorn recommended selling it short.
Einhorn asserted that Chipotle was losing customers to Taco Bell, which Chipotle disputed, according to the Journal. But with many people still feeling pinched by the economy, Chipotle might risk losing some customers if its burritos seem more like an indulgence than a moderately priced meal.
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Isn't this the same Chipotle that was fined "mucho dinero" for hiring illegal workers?
I wouldn't mind if they go out of business, actually
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