Chipotle tacked on a 3 percent price increase in October, but CEO Brian Niccol believes the brand’s value proposition has never been stronger.

The executive has data to back up the claim. Firstly, the price hike was the brand’s first move in over a year. Additionally, when the fast casual compares its relative price position to competitors, it’s a 15–30 percent discount. Chipotle also has studies showing it’s the best value for 18- to 34-year-olds who have student debt. CFO Jack Hartung noted the chain is doing well across all income levels, including the lower portion that’s “holding up really well” and “hanging in there at about the same level as our medium and high-income levels.”

These realities translated to a 5 percent rise in same-store sales in the third quarter, fueled by more than 4 percent growth in transactions and about 2.8 percent pricing. Restaurant-level margin was 26.3 percent, an increase of 100 basis points year-over-year. In the fourth quarter, Chipotle is looking at mid-single-digit transaction comps and same-store sales in the mid-to-high single-digit range, inclusive of the 3 percent price bump.

But Niccol also recognizes value isn’t just about keeping menu prices accessible. Operational execution is a big part of the puzzle as well.

“What we center on is providing a great experience,” Niccol told investors during Chipotle’s Q3 earnings call. “And what we’ve seen is that results in superior value. And unfortunately, we aren’t doing it through price promotion, rather we’re doing it through great culinary, lots of customization, terrific speed. And that’s where our value for the consumer really shines through. And then given the scale that we have, we’re able to buy ingredients and provide people with a clean eating experience that frankly you can’t get anywhere else for the price at which we charge it. So very affordable, very customizable, super high quality is resulting in really strong value scores from consumers.”

With that said, more menu price increases are inevitably coming.

That 3 percent hike does not consider what’s coming down the pipe in California. The Golden State recently passed a new law that will create a council to monitor quick-service pay, beginning with a minimum wage increase to $20 per hour. Unsurprisingly, Hartung said this will have a “pretty significant increase to our labor,” meaning wage inflation in the high teens to 20 percent range. Only 15 percent of the brand’s footprint is in the state, but this will still lead to about a 2.5 percent to 3 percent rise in labor costs for the company overall. Labor costs in Q3 were 24.9 percent, a decrease of about 20 basis points versus 2022. In Q4, expenses are expected to be in the mid-25 percent range.

“We haven’t made a decision on exactly what level of pricing we’re going to take,” Hartung said. “But to take care of the dollar cost of that and/or the margin part of that, we haven’t decided yet where we will land with that. It’s going to be a mid-to-high single-digit price increase, but we are definitely going to pass this on. We just haven’t made a final decision as to what level yet.”

Chipotle is working on two initiatives to improve throughput and mitigate the price of labor. The first is adjusting the cadence of digital orders to better balance labor deployment and not pulling employees from the front make line to the digital make line during peak periods. Another is bringing back a coaching tool that was in place before COVID. These objectives have resulted in four to five additional entrées per peak 15-minute stretch.

“When we drive better throughput, we know with a 40 percent flow-through and we know with our ability to lever labor that that labor percent will go down,” Hartung said. ” … Rest assured that there’s a lot of things that as we’re working on investments that can make not just reduced hours, but also make the jobs of our crew easier, better and free them up so they can provide better customer service, we’re definitely going to invest in that.”


Chipotle is Working to Get Customers Through Restaurants Faster

Chipotle Gets Back to ‘Project Square One’

As for the long-term outlook, Chipotle is using technology to streamline labor, including a robotic digital make line in partnership with Hyphen. The brand recently began testing the equipment at its Cultivate Center in Irvine, California. Bowls or salads in digital orders are routed to the robotic make line on the bottom, which dispenses precise ingredients in an assembly line format. Meanwhile up, top, an employee prepares any other portion of the meal, like a burrito, taco, or quesadilla. At the end, the bowl or salad is pushed up and the worker packages all items. The fast casual also teamed with Vebu—a product development company— to create the Autocado, a robot prototype that automatically cuts, cores, and peels avocados. This machine is at the Cultivate Center as well.

Digital mixed 37 percent in the third quarter. Roughly 65 percent of digital orders are bowls or salads, making the robotic make line a worthwhile endeavor. Niccol said there are adjustments to be made around the automated make line and Autocado before they’re ready to be tested in a restaurant. For the make line specifically, the company is learning how to properly expo things, how to clean it, and how to provide portions. Still, the CEO is “excited about the progress the team is making.”

“This is why we use the stage gate process. So that we learn, we iterate, and then hopefully we get to a faster solution,” Niccol said. “So I’m excited to see what the next prototype holds. But the team is working on some of those key things that we learned on. But yes, look, all signs are really promising that as we continue to work on this in the stage gate, what we’re after is accuracy, speed, and then the ability for the team member to execute this both at the expo station and then keep it clean and food safe. So we’re working through those things. But for a very first prototype, the team did a great job. And I loved everybody’s passion to learn so that we get to an even better second generation prototype.”

Chipotle opened 62 restaurants in Q3, 54 of which were Chipotlanes. The fast casual is on track to reach its 2023 guidance of 255 to 285 new stores, which would be a record for the company. The chain also surpassed 700 Chipotlanes in the quarter. Systemwide, the brand finished with 3,321 restaurants.

In 2024, Chipotle is eyeing 285 to 315 new outlets, with at least 80 percent having a Chipotlane. By 2025, it expects 10 percent annual unit growth.

Fast Casual, Finance, Growth, Story, Chipotle