Dive Brief:

• Chipotle is 10.7% and 9.2% cheaper, respectively, for consumers than its national category peers, Qdoba and Moe’s Southwest Grill,  a survey from BTIG emailed to Restaurant Dive reveals. The analyst surveyed menu prices across 25 cities. It is also about 5% cheaper than Baja Fresh.
• BTIG predicts that menu prices will be about 20% higher than they were at the end of 2020, but anticipates the chain will remain a value leader with other brands taking higher pricing. 
• During Q1, Chipotle raised menu prices by over 4%, which put its menu prices about 10% higher over 2020, as a way to protect its margins in the inflationary environment. 

Dive Insight:

BTIG’s research found that since 2018, Qdoba and Moe’s have raised prices on their chicken entrees by 21.5% and 28.1%, respectively, versus the 19% price increase taken by Chipotle. For steak items, Qdoba and Moe’s have hiked prices by 25.8% and 32.8%, respectively, versus 23% at Chipotle.

Chipotle was also found to be cheaper than emerging fast casual concepts in similar markets, including Chopt, Sweetgreen, with these concepts being 12% to 13% more expensive than Chipotle. The survey also found that Chipotle is relatively cheaper than Shake Shake, with a value gap in the mid-to-high single-digit range.

The discrepancy perhaps illustrates why Chipotle has gained traffic despite the inflationary environment causing consumers to otherwise rein in their discretionary spending. Placer.ai data found that Chipotle visits increased by over 17% the first week of June, when national average gas prices surpassed $5. Consumers will perceive the brand as a value leader if it maintains this pricing gap relative to its peers, and Chipotle has some room to take a little more pricing given the current differences.

It may need to do just that, as margins have eroded despite price increases. Restaurant level margins decreased 160 basis points last quarter to 20.7%, due to higher-than-expected commodity inflation, CEO Brian Niccol said during the company’s Q1 earnings call. 

During the earnings call, CFO Jack Hartung called this “the most difficult period I’ve ever seen in terms of commodity month-to-month, quarter-to-quarter.” Chipotle expects margins to be around 25% at the end of Q2 and previously shared a goal of reaching about 27% margins.

BTIG also notes that the widened value gap between Chipotle and its competitors should allow the chain to take more market share, adding that since its initial survey in 2018, many of Chipotle’s competitors have pared down. Moe’s closed nearly 6% of its restaurants from 2019 to 2020, for example. 

Meanwhile, Chipotle — which currently has about 3,000 restaurants — has shared a goal of reaching 7,000 restaurants in North America and is targeting 8% to 10% new unit growth a year. More than 80% of those will include a Chipotlane and the model has been proven to generate sales up to 20% higher than traditional stores, and represents the company’s highest margin transaction.

BTIG analyst Peter Saleh notes Chipotle has “considerable momentum on initiatives like menu innovation, expanding digital sales and stronger marketing.”