If you enjoy grabbing your favorite bites from restaurants, you should brace yourself for Chipotle’s increased prices starting this August. Chipotle is a fast food restaurant specializing in burritos, bowls, tacos, and quesadillas. 

In the past, Chipotle customers have enjoyed reasonably low prices for their dishes. It is one of the benefits the company boasts about, as many people opt for its dishes because they are affordable and of better quality than its competitors. That, however, is about to change because of the recent announcement about Chipotle’s increased prices that is due in August.

 

Reasons for Chipotle’s Increased Prices

The increase in the price of Chipotle products is a result of two factors:

• Inflation 
• Implementing a new labor management system

Let’s look at each in detail.

 

Inflation

For Chipotle, the increased prices should compensate for the current inflation. The COVID-19 pandemic and the Russian-Ukraine War have recently shaken the world economy. The two scenarios led to increased demand for raw materials with limited supply leading to inflation. 

Inflation has meant increased prices of raw materials. In the case of Chipotle, it has meant increased prices of ingredients they use for most of their dishes, such as dairy ingredients, tortillas, and avocados, as well as the packaging they use. The cost of dairy ingredients is among those at the highest, with around an 11.8% increase. Chipotle’s increased prices will help keep a healthy profit margin amidst the inflation,

New Labor-Management Tool

Chipotle plans to introduce a new labor-development tool to improve its store’s productivity. The tool will be necessary for improving service delivery to customers by giving precedence to business necessities like employee skills to improve customer satisfaction.

With a better digital platform, the company will have better service delivery for in-restaurant and digital customers. Through the new labor development tool, Chipotle will reduce order wait times and improve the hospitality and accuracy of the orders placed by their customers. 

A concern for some customers is why Chipotle has to increase prices to implement the new labor development tool while making quarterly earnings of about 17% compared to last year.

 

Chipotle’s Increased Price: By How Much?

It’s not the first time we will be experiencing Chipotle’s increased prices. In the last two years, Chipotle has increased its prices three times. Chipotle increased the price of its meals by 4% in June last year, which would help raise the employee wages to $15 per hour. 

A looming Chipotle price increase in April this year did not materialize. But the one set for August will increase the price by 4% of the present menu costs. Jack Hartung, the CFO of Chipotle, said that their prices remain fair even after the increase compared to other restaurants dealing in either Mexican cuisine or salads. With the 4% rise in the prices, the prices of their burritos will still be lower than those of their competitors.

 

Customers’ Reaction to increased prices

In most cases, when prices go up, the market would be expected to shy away from Chipotle’s products. Despite this, after the news, and Chipotle disclosing its earnings, its shares rose by 14% on the same day. The reason is that investors believed that Chipotle’s increased prices would help increase its profits. 

In other reports, Chipotle said they had slow traffic because of inflation. Customers who earn less have reduced. They make the majority of the people who get Chipotle’s products. Those who used to take two different dishes also opt for one to keep the spending low. Increasing the prices of their products would worsen the situation. Also, the problem is a blessing in disguise for Chipotle and other similar restaurants as the inflation has caused people who were not their customers to opt for them- the cheaper alternatives. It is a trend that has been observed over a period that fast-food chains benefit during hard economic. In such times, it also becomes expensive to cook at home. 

 

Wrapping Up

Uncertain economic times lie ahead. 

Businesses are developing strategies to keep their market shares and make profits. Sometimes increasing prices of products can become inevitable, like in the case of Chipotle. The idea is not always welcomed by all but most understand why it needs to happen.

Chipotle’s increased prices shed light on the extent to which inflation has affected the economy of the US and the entire world. It might take longer for the economy to recover, but with time, you will be back to enjoying your favorite dishes at a price you can afford.