With food prices rising sharply, Chipotle gets sent to increase their prices as well

When it comes to increasing food prices, consumers aren’t the only ones feeling the pinch.  Chipotle, one of the fastest-growing restaurant chains in the United States, is feeling the pain of food price increases as well and is set to pass along some of those increased costs to their customers, something they haven’t done in nearly 3 years.

On the company’s most recent earnings call, their chief financial officer, Jack Hartung, said that the price hike is likely to be “somewhere in the mid-single digits.”

Those increases will begin rolling out this quarter with their new menus and, by the third quarter of 2014, Chipotle will be installing new pricing boards with the increased prices reflected.

One of the reasons for the increase is due to the drop in margins that Chipotle had in his last report, nearly 40 points and blamed mostly on the fact that beef, avocados and cheese had all gone up in price.

Chipotle reported that their food costs rose to nearly 35% of their revenues in the first quarter of 2014 due to the jump in price of all three of those main ingredients and Hartung said that “beef prices are expected to continue to move higher as it remains tight.”

To make things worse, steak costs for the burrito chain are at an all-time high and their food costs could rise as high as 36% in April, further eating into their profits nationwide.

After their first quarter earnings report was released the chain’s shares initially gained but, after their conference call, quickly turned negative. Despite poor weather throughout most of the United States, sales jumped nearly 14% at comparable restaurants around the country.

Chipotle’s net income rose 8.5% however, to $83.1 million or $2.64 a share. Their overall revenue jumped nearly 25% to $904.2 million, up from 726.8 million during the same time period last year.

The chain expects to open just under 200 restaurants in 2014 and, excluding any price increases, also expects to generate a high single-digit comps sale increase.

It’s obvious that Chipotle is doing well and will continue to do so in the future. That being said, increasing food prices affect them just as much as they affect the average American family and, due to those increases, their prices have been forced to go up. This hasn’t affected the quality of their service or food however and, hopefully, won’t negatively affect it in the future either.

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