Can Chipotle Afford to Pay $15/hr?

Nov 1, 2022 | Corporate Insights, No Bull Economics

Chipotle Banner

Chipotle’s recently reported 3Q22 results highlight an interesting test that the chain embarked upon last year (one which is very important for everyone to observe). In an effort to cover the chain’s pay hike to $15/hr during 2Q21 (or higher in certain high-cost markets), Chipotle took a +15% menu price increase (which ran +13% during 3Q22). At the time, the premise was that Chipotle enjoyed sufficient pricing power among its customers to pass along this hike in its labor costs.  

So, what we find is that during 3Q22 Chipotle generated +7.6% same-store-sales growth with traffic down -1% and order mix down another -4.4%. This phenomenon was attributed to a return to the normal dining patterns of its guests which translated into fewer high-ticket digital orders and more low-ticket in-store visits. Also, this reflected fewer group orders as customers were just shopping for themselves whereas in the past they were buying for larger groups. In defense of its past strategy, Chipotle pointed out that despite the menu price hike, it still offers value as represented by its $9 Chicken Burrito Bowl which represents 50% of its orders (of course, maybe that’s all some of its guests can afford).

Judging by a -7% drop in CMG shares 2 days after reporting, it seems like the market was not buying Chipotle’s confidence that its massive menu price increase was well tolerated by its high-income $75k+ guests. Could it be that it has become too expensive for Chipotle’s customers to pick up the tab for family & friends? We understand that the chain sought to become a first mover in hiking its pay, and perhaps that was effective at minimizing turnover during a time when industry players struggled to maintain required staffing levels. But now the chain must recognize that even its own menu is not price inelastic and a +15% price hike has implications, but hopefully not for its brand reputation.

Chipotle Stock Performance and Financials
CMG Stock Performance & Financials

Follow us on LinkedInTwitterFacebook, and YouTube!

Disclaimer of Liability
Restaurant Research

Email Sign-up

15 Second Posts

What is the Federal Government’s Job?

A couple of weeks ago we conducted a thought experiment in which the government became a nonprofit, and this week we propose another thought experiment in which the government becomes a public corporation. We suggest that this could provide very useful input into the debt ceiling debate.

The Importance of the Balance Sheet in Financial Analysis

While most investors are focused on sales growth & margins, they would be well served to further consider the strength of a company’s balance sheet. We look at BlackRock’s financial condition as an illustrative point.

The Importance of Free Cash Flow in Financial Analysis

Cash represents the lifeblood of all business enterprises which is why it is important to analyze free cash flow which we define as operating cash flow minus capex, dividends, and stock buybacks. We illustrate DoorDash as an example of why cash flow analysis is so important. 

Lessons From Tucker Carlson

There are many theories about why Fox booted Tucker Carlson, but it may be a very simple reason which can instruct everyone involved in the consumer retail segment.

It is Imperative that Climate Change Regs Incorporate Economic Reality

This week we spotlight efforts by international agencies to lower the earth’s temperature by imposing onerous regulations on energy producers. We suggest it will be better to: begin a process of implementing continuous improvements designed to support both economic & climate progress; and use international organizations to share tech & best practices as opposed to providing them with regulatory powers best left to individual nation-states.   

Part 3 – It’s Nice for the US to Save the Climate, But What About the Rest of the World?

In our last 2 posts, we outlined the probability that the UN’s push to lower the world’s temperature by -2 degrees Celsius could drive significant U.S. energy price hikes & shortages. How is this going to help as Asia ramps up the use of coal? Can humans lower the earth’s temperature anyhow?

Part 2: Who is Left to Make Investments in Fossil Fuels & Clean Energy?

There is not a lot of incentive for profit-seeking companies to invest in demonized fossil fuels or in clean energy projects lacking ROI. This points to substantially higher energy prices and supply shortages that will have a profound economic impact.

Part 1: Ramping Energy Demand Clashes with UN’s Environmental Goals

From 2021 to 2050, ExxonMobil forecasts that 85% of the population growth will be driven by developing countries, which in turn, will drive a +15% increase in energy demand.

What if the Federal Government Was Turned into a 501c3 Non-Profit?

Given all the focus on the debt ceiling, we propose a thought experiment in which all 100 federal agencies must compete for charitable donations. If taxpayers get to choose for themselves what to fund, what might we learn? 

Like Sinatra Croons: “So you see it’s all up to you, you can be better than you are.”

The top-paid hourly workers are currently enjoying the fastest wage growth, indicative of the current challenge to recruit & retain a skilled labor force.

Digital Marketing Opportunities
Restaurant Research

A Restaurant Research LLC Company