Please ensure Javascript is enabled for purposes of website accessibility

Brace Yourself for a Chipotle Price Hike

By Demitri Kalogeropoulos - Apr 19, 2013 at 6:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Get ready to start paying more for those massive burritos.

It's getting more expensive to make a good burrito. Chipotle Mexican Grill (CMG -2.74%) just reported earnings for the first quarter and, while the results were generally good, the company saw its food costs tick up, yet again.

Ingredient prices rose by almost a full percentage point compared to the prior year, hitting 33% of sales. The culprit this time? Chipotle says it was the spiking cost of salsa and other produce that led the way. Still, that bounce was better than last quarter's rise, when beef price inflation was responsible for a 1.3 percentage point rise in costs.

Whatever the reason behind the spiking costs, Chipotle is overdue for a price hike to counteract those nasty trends. Competitors sure haven't missed a beat in passing along extra costs to their customers. McDonald's, for example, raised average menu prices in every region of the world last year. And Panera Bread's prices crept up by 2.5% just last quarter.

However, Chipotle hasn't had as much freedom to raise its own prices. After all, the company's sales growth has been falling for much of the last year. And the middle of a slowdown is just about the worst time you could pick to ask your customers to pay higher prices.

While Chipotle's not completely out of the woods on that score yet, sales are stabilizing. After setting a recent high of 12.7% a year ago, comparable sales growth fell to 3.8% by the fourth quarter. Last quarter, that figure was about 3% -- after accounting for a few lost business days.

Get it while it's hot
Now might be the right time for the company to roll out a modest boost in menu prices. Sure enough, while it didn't specify a concrete date in its earnings release, Chipotle did say that, "any price increase we decide to take won't occur before late summer or early in the fall."

When those taco and burrito prices finally rise, investors can expect profitability and sales to both benefit. Chipotle says it expects flat to low growth in 2013. But that uninspiring outlook doesn't include any help from potential menu price increases.

Chipotle's on a roll

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
$1,254.50 (-2.74%) $-35.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.