Chipotle Raises Menu Prices to Combat Inflation

Key Takeaways:

• Chipotle announced Thursday that it would be raising its menu prices to offset rising costs due to inflation.
• The chain has not yet indicated how much prices will increase.
• This is the fourth price increase in two years, the last one being in August 2022.

Chipotle announced on Thursday that it’s planning a “modest price increase” to combat its rising expenses due to inflation.

This will be the fourth price increase over the past two years, indicating that Chipotle is struggling to keep up with inflationary pressures and reduced consumer spending.

The chain announced its last price increase in July 2022 during an earnings call and put it into effect the following month. Before that, Chipotle increased its prices by 4% in June 2021 due to the cost of increased employee compensation.

Chipotle has not yet announced when it will implement the price change or given details about exactly how much prices will rise.

Chipotle faces challenges alongside the rest of the food industry

Restaurants have been taking a beating since the beginning of the pandemic, first as a result of lockdowns and restrictions, then as reaction to inflation and the increased cost of living, which left consumers with a smaller appetite for discretionary spending. Some have also blamed weight loss drug Ozempic, but the relation is dubious.

Food stocks and ETFs are down practically across the board, and Chipotle stock (NYSE: CMG) has followed suit, dropping 7.21% over the past month.

Chipotle finds itself in a difficult position, in which failing to raise prices would make its expenses too high and cut into its profit, but increasing prices may make consumers even less likely to pop into their nearest store.

As indicated by its 2021 price hike, Chipotle is also struggling with compensating its workers fairly, which is part of maintaining its reputation as the “Food with Integrity” company.

Investor outlook

Following the announcement, Chipotle stock closed down 1.63% at $1,793.68 in its third day of consecutive losses. Despite the decline, the stock outperformed some of its competitors, such as McDonalds (NYSE: MCD).

Historically, Chipotle’s price change announcements haven’t had a clear effect on the stock, which indicates that this announcement in itself isn’t enough to base an investment decision on.

Given the difficult position Chipotle is in, investors would be wise to approach this stock cautiously.

However, on a technical level, Chipotle is in a long-term uptrend, which may be a bullish sign.

The bottom line

Chipotle plans to raise its menu prices to offset inflation and rising expenses. The company hasn’t given an indication of when or how much the increase will be.

In itself, this news doesn’t say much about the future of the stock. Investors will need to weigh the prospect of gains from a continuing uptrend versus the risks from Chitpotle’s somewhat precarious situation when making an investment decision.