It looks as though the power of burrito bowls are pulling through for Chipotle.
After San Francisco increased its minimum wage to $12.25 in May—an increase that will steadily continue until it reaches $15 in 2018—Chipotle needed to find a way to compensate for the higher wages it had to pay its workers. According to Quartz, Chipotle’s SF locations combated increased labor costs by jacking the prices of their products up an extra 10%.
The Chipotle price hike left the public concerned about the restaurant chain’s sales. Many believed that the price increase would discourage diners from hitting up Chipotle as a reasonably priced meal option. But the NY Post reports that lines still snake out the door, and the price increase resulted in minimum losses for the company and zero job cuts.
A Chipotle spokesperson credits the increase as a reflection of how the customer views their product. Howard Penney, the managing director for Hedgeye Risk Management says,
The restaurant has developed a cult-like following, leading certain superfans to plan their days around getting a burrito bowl. People such as Mark Randal and Andrew Hawryluk have even claimed their 15-minutes of fame by indulging in Chipotle every single day.
In more recent news, New York has agreed to raise minimum wage for fast-food workers to $15 an hour by 2018. Will NYC locations need to mimic San Francisco and up their prices to compensate for labor costs? Probably. Otherwise, the chain locations will have to think of alternate ways to absorb the increased labor costs, like scaling back workers or increasing automation.
Although San Francisco Chipotle sales were unharmed after the minimum wage increase, New York Chipotle stores might not be as lucky. But nothing is certain.
If customers continue to worship carnitas burrito bowls, then there is a good chance that a price increase will not effect New York sales either.
Chipotle investors are optimistic about the profitability of the company despite minimum wage increases. Chipotle stock prices continue to increase, and the NY Post notes that Chipotle’s ability to stay flexible with its product has given it a leg up in terms of its ability to cope with wage changes.
So while it’s possible Chipotle may take a small hit from the minimum-wage spike, other fast-food chains like McDonald’s will likely struggle even more.
[via NY Post]