This is Why Chipotle Raised its Prices During the Pandemic

When you think of restaurants raising their prices during a pandemic, you wonder why on earth they would do that to struggling customers.

Chipotle (CMG) actually has had no other choice but to raise prices on takeout orders.

The company has raised menu prices for delivery an average of 13%, chain executives told analysts during a Q4 earnings call this week.

“It’s no surprise that delivery comes with an added cost. Our belief has been that’s a premium experience from a convenience standpoint. We want to make sure that channel covers the cost — we raised the prices 13% in our app [in the fourth quarter],” Chipotle CFO Jack Hartung told Yahoo Finance Live.

“We also lowered them before the pandemic, we were charging a $3 delivery fee, we lowered that to $1. If you were ordering in the app prior to the pandemic and now you’re ordering delivery through the app, the increase is 2% to 3%. The 13% increase all it does is allow us to cover most of our cost in delivery.”

According to Chipotle, there has not been much resistance to the higher online prices. Chipotle has seen “modest resistance thus far” from customers to the 13% price bump.

“In terms of pricing, I think in the delivery channel there is additional pricing potential there. We found that when people decide they want that channel they’re willing to pay a higher price. I don’t think we have reached the limit there. We’ll continue to experiment. We’re not going to go crazy on pricing because we think we can. We’ll try to understand when and where customers want that channel and how much they are willing to pay and we will act accordingly,” explained Hartung.

Chipotle has said that online sales skyrocketed 174.1% year-over-year to $2.8 billion in 2020, comprising 46% of Chipotle’s annual business. Fourth quarter online sales rose 177.2%.

For Q4, Chipotle saw restaurant-level margins of 19.5%, an increase of 30 basis points over the previous year.

For the whole of 2020, Chipotle’s margins were 17.4%, a decrease of 310 basis points. The chain’s goal is to have margins at or above 25%, Niccol said.

“I feel good about by the second half of the year, that we should be closing the gap,” Hartung said. “If not all the way, we’ll be knocking on the door on what the margin algorithm should be.”
Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.