Industry News | April 17, 2017 | By Danny Klein | QSR Exclusive Brief

Two Years After Crisis, Chipotle is Raising its Prices Again

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As investor optimism buoys Chipotle ahead of its upcoming financial review, the fast casual chain did something it hasn’t done since a food-safety crisis sent sales and sentiment plummeting in 2015.

Around 440 of Chipotle’s locations, or roughly 20 percent, increased prices by around 5 percent on April 11.

Brand spokesman Chris Arnold told Bloomberg that the boost, the first major increase since Chipotle's E. coli crisis, was made to offset labor and food inflation, and that, “Even with the new prices, our pricing remains very competitive, particularly if you factor in our ingredient quality.”

There are no current plans to hike menu prices at the remaining locations, he added.

Food cost has been a crutch for Chipotle in recent months, especially in regard to avocados. In January, the brand said sales at established restaurants were down 4.8 percent in the fourth quarter. A major culprit in its profit loss, according to Chipotle: avocados.

Food costs were 35 percent of Chipotle’s revenue in 2016, and the brand said at the time that it expects that to be lower by at least 1 percent in 2017.

There are positive signs, however, as Chipotle reported a revenue increase of 3.7 percent to 1 billion compared to the fourth quarter of 2015 at the time. Comparable restaurant sales for December were also up 14.7 percent, although they declined 4.8 percent over the entire quarter.

December’s rise in sales came after a stretch that saw comparable restaurant sales decrease 20.2 percent and 1.4 percent in October and November, respectively.

Chipotle’s shares have also gained 24 percent in 2017 so far, and were up to $470.34 on Monday.

How this move will play with consumers remains to be seen. Chipotle is releasing its first quarter financials on April 25, with many analysts expecting the sales to exceed Wall Street estimates.

One thing is certain: Chipotle can’t be accused of sitting on its laurels. The brand has been pushing its quality-driven platform in recent weeks, capping with the launch of its “As Real as It Gets” advertising campaign. The launch of the campaign followed the announcement that Chipotle had become the only national restaurant brand without added colors, flavors, or preservatives—artificial or natural—in any of the ingredients it uses to prepare food (except for lemon and lime juice, which can be used as preservatives, though Chipotle uses them only for taste).

“In a world full of fakery and half-truths, it’s invigorating to hear a brand tell it like it is,” said Mark Crumpacker, chief marketing and development officer for Chipotle, in a statement at the time. “This campaign challenges the conventions of fast food advertising by being completely real—not only about our food, but about the world we live in—and it does so with an optimism and playful humor that’s very much in line with our brand.”

Chipotle also released an online game called “Spot the Imposter,” designed to support the aforementioned menu milestone. Users search through Chipotle’s 51 real ingredients hunting for commonly used industrial additives—including added flavors, colors, preservatives, gluten and gums—masquerading as real ingredients. Successful players are rewarded with a mobile offer good for a free order of chips and guacamole, with purchase of an entrée, and a chance to enter the sweepstakes to win other food prizes.

Behind the scenes, Chipotle’s shareholders pulled a vote in late March to split the chief executive and chairman roles—both of which are occupied by founder Steve Ells. Earlier in the month, the chain announced that four of its 12 directors would not stand for board re-election at the company’s May 25 shareholder’s meeting.