Commodity shortages and price increases will mostly cancel out a 3.5% to 4% menu price hike Chipotle Mexican Grill announced in May to pay for higher employee wages, the company's CFO, Jack Hartung, told analysts this week.
Even with the price of ingredients rising, the company stands by its decision to raise the average wage to $15 by June, which Hartung called "a very bold move" that has paid off in staffing retention that's "as good or better" than it was before the pandemic.
Chipotle reported $188 million in quarterly net income, compared with $8.2 million the same quarter last year, and a 24.5% operating margin, a twofold year-over-year jump, and its highest quarterly gain since 2015.
"There is so much going on right now with inflation, and the question about whether inflation is transitory or permanent," Hartung said. "And now [with] the Delta variant, there's a lot of unknowns, so we don't want to declare, with certainty, what we’ll do between now and the end of the year."
Consumers have been "really, really good" with the elevated menu prices, Hartung said. "We're really seeing no resistance whatsoever." As for pricing decisions going forward, "let's see what happens to inflation and the economy over the next several months, and we'll make the appropriate decisions at the appropriate time."
The brand maintains pricing power and significant upward mobility on its margins, Hartung added. "Now, it's just a matter of how and when we decide to use that pricing power to either protect margins or to invest in our people, like we just did with the wages."
Digital sales, which account for nearly 50% of Chipotle's business, grew 10.5% in the second quarter even as dining rooms reopened, and it opened 56 new restaurants, 45 of which include a Chipotlane drive-thru. Locations with Chipotlanes have 20% higher sales than those without, Hartung said.
"What we had hoped would happen is happening — we're holding onto these digital transactions while people's previous habits are returning when they feel comfortable going out and about," he said.
