Chipotle to Hike Prices Amid Higher Beef, Avocado Costs

By Retail FOXBusiness

A sign for a Chipotle Mexican restaurant is seen in Arlington, Virginia February 4, 2011. Upscale burrito chain Chipotle Mexican Grill Inc faces a wider probe of its hiring by U.S. immigration officials, after the company came under scrutiny in ... Minnesota and had to fire workers. Chipotle has received U.S. Immigration and Customs Enforcement (ICE) "notices of inspection" for restaurants in Washington, D.C., and Virginia, co-Chief Executive Monty Moran told Reuters on Friday. . REUTERS/Kevin Lamarque (UNITED STATES - Tags: BUSINESS FOOD SOCIETY EMPLOYMENT) - RTXXHC2 (Reuters)

Chipotle (CMG) is raising prices across its menu of Mexican-style food for the first time in three years, after a surge in beef and avocado prices lifted food costs in the first quarter.

Continue Reading Below

During a conference call with analysts on Thursday, chief financial officer Jack Hartung said Chipotle will start increasing menu prices in the mid-single-digits by the end of the current quarter.

The Denver-based restaurant chain reported first-quarter earnings that rose 8.5%. However, food costs were 34.5% of revenue, up from 33% a year ago, as inflationary pressures in beef, avocados and cheese drove commodity expenses higher.

Retail beef prices hit a 27-year high in February at an average of $5.28 per pound, according to the U.S. Department of Agriculture. Analysts have said a short supply of domestic cattle and continued export demand are contributing to the increase.

Chipotle’s steak costs are up 25% since the end of last year. The company has yet to see an increase in pork prices due to a widespread piglet virus that has killed thousands of young pigs over the last year.

Better traffic and sales at Chipotle, which helped popularize the “fast casual” restaurant segment, have offset pressures from food costs in recent quarters. The latest period saw 13% same-store sales growth, while revenue climbed 24% to $904.2 million.

Continue Reading Below

Chipotle expects a high-single-digit percentage increase in comparable restaurant sales this year, although that forecast excludes a change in menu prices.

The company also said the cost of providing health insurance to hourly workers will be the equivalent of 1% of sales.

Shares of Chipotle dropped 2.5% to $538.57, shedding gains from earlier in the session.

What do you think?

Click the button below to comment on this article.