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Chipotle's Menu Price Hike: A Sign of Its Business Momentum

By Daniel Sparks - Updated Jun 9, 2021 at 12:30PM

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Strong demand is giving the fast-casual burrito chain flexibility.

Chipotle Mexican Grill (CMG -2.25%) recently announced an increase in restaurant employee wages. While it was a positive move for employees, it could be bad news for profitability. Chipotle's strong sales momentum and its powerful digital relationships with customers, however, give the company enough confidence in its pricing power that it believes it can make up for its wage hike with higher menu prices.

The two moves -- a wage hike and an increase to its menu prices -- come as Chipotle's business is firing on all cylinders.

A group of people eating Chipotle at home.

Image source: Chipotle.

Competitive wages and career paths

Chipotle isn't just increasing its hourly wages. It's on a hiring spree, too. The fast-casual burrito chain announced last month that it was aiming to hire 20,000 employees in the U.S "to support current demand and future growth." These employees will get the company's increased wage rate of between $11 and $18 per hour for restaurant workers. The average hourly rate for Chipotle's restaurant wages will be $15 by the end of June, the company said in the press release about the wage hike. 

Chipotle also laid out the path by which these employees can get to the company's highest general manager position -- "restauranteur" -- in as little as three and a half years. These positions boast an average compensation of $100,000, putting employees at the helm of "a multi-million-dollar growing business," Chipotle says.

To help stoke the fire, the company is offering $200 employee referral bonuses for entry-level crew members and $750 referral bonuses for higher-level restaurant positions and managers.

Pricing power

To pay for its wage hikes, Chipotle raised its menu prices by 4% this week. Executives previously announced plans for higher menu prices, saying that it would essentially pass the costs of higher wages on to consumers. 

It's unlikely these higher prices will deter consumers. Not only has Chipotle successfully implemented price increases in the past, but the burrito chain's sales are soaring as the company benefits from a combination of drive-thrus at many of its new stores, investments in its digital sales channel, recent menu innovations, and a reopening economy.

Capturing Chipotle's momentum, its first-quarter revenue rose 23% year over year, fueled by 17.2% comparable restaurant sales and 40 new restaurants. Digital sales notably rose 134% year over year.

"As vaccines roll out and we get closer to moving past this pandemic, I believe Chipotle is well positioned for growth," said Chipotle CEO Brian Niccol in the company's first-quarter earnings release.

Chipotle's ability to roll out higher wages for its restaurant workers without skipping a beat offers investors a glimpse into the fast-casual restaurant's incredible momentum.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

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