Throughout the quarter, Chipotle saw lower-income consumers pull back their frequency, but Niccol emphasized this isn’t the chain’s primary customer. The majority are higher-end guests, a group that actually increased frequency and likely isn’t trading down.
Transactions grew 3.5 percent to 4 percent in the second quarter, but Chipotle anticipates that trend will ease in the coming weeks because of macroeconomic conditions. Average group sized decreased by 4.5 percent as more consumers move from digital to in-restaurant dining, but the brand believes this trend will ease going forward, too.
Cost of sales in Q2 were 30.4 percent, which is about flat compared to last year thanks to menu price increases offsetting rises in avocados, packaging, dairy, beef, and chicken. Labor costs were 24.8 percent, up 30 basis points from 2021 due to Chipotle’s decision in May of last year to grow wages.
To mitigate these pressures, the brand is planning a 4 percent menu price increase in August. The truth, Niccol said, is that a lot of inflation has stuck versus going away, placing Chipotle in the undesirable position of raising prices again. However, some parts of the business have plateaued, which gives the fast casual some hope that it’s turning a corner. Even with the increases, Niccol still believes Chipotle offers one of the best value propositions in the industry.
“Look, obviously, if our value proposition changes dramatically, we have to reevaluate how we’re providing our customers value,” Niccol said. “I haven’t seen it happen yet. And when you go back and look at the 20-plus years of the company, the thing that drives the best value with our customers is this commitment to food with integrity, it is this commitment to culinary, and then is this commitment to getting you exactly what you want. So I’d be hard-pressed to believe we would want to abandon what makes us Chipotle. And my experience as well as what I’ve seen in the company is our value proposition is very strong. So long as that is the case, we’re going to keep doing what we know drives value with our customers.”
Chipotle opened 42 restaurants in Q2, 32 of which were Chipotlanes. That puts the brand at 3,052 units (430 Chipotlanes) systemwide. The fast casual’s pipeline supports its target of 8-10 percent annual unit growth, with more than 80 percent being Chipotlanes, which generate higher AUV and margins. For the year, the company expects 235-250 openings, assuming construction, permit, and material supply delays don’t worsen.
With the planned price increase in August, Chipotle’s Q3 comps are expected to be in the mid- to high-single digits.