Chipotle doesn't need a dollar menu, CFO says

Brian Sozzi
Updated

Chipotle (CMG) has no plans to start offering McDonald's-like value meals to entice lower-income consumers back to its restaurants after implementing a series of inflation-driven price hikes this year.

"We don't think Chipotle is the brand where somebody is looking for a dollar menu or bundle meal," Chipotle CFO Jack Hartung said on Yahoo Finance Live (video above). "They look for customization. Most customers get the same exact entree every single time, and that's what they crave."

Chipotle last raised prices by a mid-to-high single-digit percentage in August to help offset higher costs for wages and food inputs. The company raised prices by about 4% in the first quarter as well.

HOUSTON, TEXAS - JUNE 09: People wait in line for food at a Chipotle Mexican Grill on June 09, 2021 in Houston, Texas. Menu prices at Chipotle Mexican Grill have risen by roughly four percent to cover the costs of raising its minimum wage to $15 an hour for employees. The restaurant industry has been boosting wages in the hopes of attracting workers during a labor crunch. (Photo by Brandon Bell/Getty Images)
People wait in line for food at a Chipotle Mexican Grill after the restaurant chain raised prices on June 09, 2021, in Houston, Texas. (Photo by Brandon Bell/Getty Images) (Brandon Bell via Getty Images)

The company told analysts on an earnings call late Tuesday that lower-income consumers were visiting the fast-casual chain less often due to the higher prices. At the same time, however, the company noted that Chipotle's same-store sales in October are trending up by a mid-single-digit percentage.

"We had this exact discussion [on value meals] the last time, during the Great Recession," Hartung said. "We saw consumers did start to reduce their dining experiences. And with Chipotle during that time, our comps held up better than every other restaurant company — our transactions were slightly negative. We did see some transactions dip. As the recession was starting to end, our transactions came roaring back and we had double-digit comps from there."

"So we have seen this before," Hartung added. "And during that time we did talk about should we offer value meals, should we offer a bundle meal where consumers can eat for at the time was less than $5. Our customers said great idea, go ahead and do it. When we tested it in restaurants, nobody bought it. Everybody said, 'I love my chicken burrito.'"

MIAMI, FL - APRIL 27: A customer carries a tray with his Chipotle food order, on the day that the company announced it will only use non-GMO ingredients in its food on April 27, 2015 in Miami, Florida. The company announced, that the Denver-based chain would not use the GMO's, which is an organism whose genome has been altered via genetic engineering in the food served at Chipotle Mexican Grills. (Photo by Joe Raedle/Getty Images)
A customer carries a tray with his Chipotle food order, on the day that the company announced it will only use non-GMO ingredients in its food on April 27, 2015 in Miami, Florida. (Photo by Joe Raedle/Getty Images) (Joe Raedle via Getty Images)

Fortunately for Chipotle, the burrito chain caters increasingly to a higher-income consumer that is able to absorb price hikes. In turn, that is allowing Chipotle to continue to deliver strong quarterly sales and profits.

Here is how Chipotle performed compared to Wall Street estimates in the third quarter:

  • Revenue: $2.2 billion versus $2.24 billion expected

  • Adjusted EPS: $9.51 versus $9.23 expected

  • Same-store sales: 7.6% versus 7.38% expected

Chipotle expects same-store sales to rise by a mid-to-high single-digit percentage for the fourth quarter, supported by its recent price hikes and the release of the new garlic steak menu offering.

Chipotle stock fell more than 5% on Wednesday as investors were disappointed by the traffic slowdown. Wall Street, however, is staying with Chipotle stock despite the pressures.

"We expect that the exact near-term traffic trajectory and the factors driving it (e.g., channel shifts vs macro vs price elasticity) remain points of debate, and we are always cautious of "you can't disprove the bear thesis" set-ups," Citi Analyst Jon Tower wrote in a note to clients. "However, we also expect improving data as brisket starts rolling off (mid-Nov) and abating inflationary pressures can help investors re-focus on the appealing long-term attributes of the brand that remain intact (e.g., throughput opportunities and executing on unit growth)."

Tower added that Chipotle "continues to outpace peers/win market share through consumers’ year to date challenges, and we believe Chipotle is one of the few large cap names in restaurants that could serve as a destination for dollars avoiding retail through the holidays."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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