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Chipotle: Customers don’t seem to mind higher prices

Chipotle: Customers don’t seem to mind higher prices

A Heard on the Call report following third-quarter earnings

Higher menu prices have helped offset rising food costs for Chipotle Mexican Grill, and customers have shown no pushback when asked to pay more, chain officials said Thursday.

The Denver-based fast-casual chain reported a 25-percent boost in profits for the quarter.

In a call with analysts following the report, Chipotle founder and co-chief executive Steve Ells said of the 11.3-percent increase in same-store sales during the quarter that about 4.6 percent was attributable to menu price increases. The remainder was the result of increased traffic.

John Hartung, Chipotle’s chief financial officer, said customers showed “no noticeable resistance” to menu price increases, either in average check or transaction trends.

The pricing efforts helped offset higher food costs, especially for avocados, chicken and beef, as well as cheese and sour cream. Food costs are expected to improve slightly for the fourth quarter, but continue to rise into next year, officials said.

Following are some key takeaways from Chipotle’s call to analysts:

--ShopHouse: Customers so far “just love” the company’s new Asian concept, ShopHouse Southeast Asian Kitchen, which opened in Washington, D.C. in September. But the company has no plans to open a second yet, Ells said.

Some guests have told Ells the food at ShopHouse is too spicy, he said, adding, “That’s exactly what I heard when I opened the first Chipotle 18 years ago.” The chain now boasts 1,163 units.

--Menu: Ells highlighted the improvement of ingredients, including upgrades to the green tomatillo salsa and the rollout of brown rice as an option.

Both brown and white rice are available in about a dozen markets around the country, he said, and brown rice is the choice for about one-third of transactions.

--Operations: Chipotle co-chief executive Monty Moran said the chain would continue efforts to improve throughput, which he said has a huge impact on customer service and the overall experience.

Last year, the company worked on deployment and scheduling to create a system where all hands would be on deck during peak hours at lunch and dinner.

Now, he said, employees need to again master basic techniques of proper throughput to further speed service.

“That’s not to say that we don’t have good throughput already,” said Moran. “It’s just that it’s not nearly what it could be, given the fact that our restaurants are the busiest they’ve ever been.”

--Loyalty: Chipotle’s new Farm Team loyalty program is in place. Rather than rewarding customers for frequency, customers can earn rewards by demonstrating their knowledge of Chipotle’s Food With Integrity program and sharing it with others.

“While most loyalty programs aim to get as many of their customers into their programs as possible, the Farm Team program is designed to attract a smaller number of very loyal customers who have the potential to be spokespeople for the brand,” Ells said. “We’ve deliberately started slowly, but we expect the membership to grow to around 25,000 or so by the end of the year.”

Contact Lisa Jennings at [email protected].
Follow her on Twitter: @livetodineout

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