Will Chipotle Fans Cut Back on Burritos as Student Loans Come Due? Its CFO Says No.

Chipotle Mexican Grill has held prices steady for nearly a year, but with costs for labor and several of its ingredients on the rise, lifting menu prices is potentially on the table for later this year. 

An increase would come as businesses are keeping a close eye on consumers’ spending habits. Americans have opened their wallets in recent months despite high interest rates and inflation, but whether they will spend at the same pace later this year is unclear. High interest rates likely will persist. And with tens of millions of federal student-loan borrowers to soon owe monthly payments for the first time in more than three years, some borrowers have started dialing back their spending. 

Newport Beach, Calif.-based Chipotle is sensitive to what menu price hikes may mean for its consumers, particularly for a key demographic that may soon resume with loan payments, said Chief Financial Officer Jack Hartung. But Hartung said he isn’t expecting the resumption of loan payments to have an impact on spending at Chipotle, even if the fast food chain’s prices climb.

“What some folks are predicting is that this will pull money out of normal consumer spending,” the finance chief said of the return of loan payments. “Then it’s a matter of, OK, where will they prioritize their expenditures?” said Hartung, adding that Chipotle customers haven’t historically pulled back on spending even as they have looked to otherwise tighten their belts. 

Price hikes possible

The CFO is weighing possible price hikes while some of Chipotle’s costs are up. The company’s food, beverage and packaging costs were lower in the second quarter than a year ago, benefiting from lower avocado prices and price increases taken last year. But those were partially offset by elevated costs for ingredients such as beef, tortillas, dairy, salsa, beans and rice.

Net inflation on ingredients was at about 2.5% for the quarter ended June 30 compared with last year, Hartung said. Taking out avocados, for which pricing can vary based on season and their origin, net ingredients inflation is at around 5%, he said. 

“The avocado benefit we’re seeing right now is likely to be cyclical,” Hartung said. At the same time, he is expecting costs on other ingredients to continue to rise, though at a slower pace than last year. Wage costs, meanwhile, were up by roughly 4% in the second quarter from a year earlier. 

While the inflation numbers are “very manageable,” according to Hartung, the CFO said the company is potentially considering price increases for later this year. From 2018 to 2021, the company lifted prices each year in December. That annual cadence changed in response to rising inflation, and from December 2021 through the last national price increase in August, there were four price increases, Hartung said. 

“We’ll study the next couple months to look at inflation, look at consumer demand, look at the strength of our business, and we’ll consider whether a pricing action is appropriate in the fourth quarter,” he said. 

The student-loan factor

If menu prices are increased, it will come as consumers continue feeling the pressures of higher costs for certain items and as many federal-student loan borrowers feel a pinch to their budgets when the payment pause ends this fall. Young customers, who tend to be fairly recent college graduates, are a “sweet spot” for Chipotle, according to Hartung.

The government’s pandemic-era halt on federal student-debt payments, which started in March 2020, meant extra cash in millions of people’s pockets that they tended to spend rather than save. The return of loan payments may mean an annual hit to restaurant sales of around $11 billion, or a roughly 2% headwind to industry sales, according to investment bank TD Cowen.  

Chipotle has tended to do well among consumers even as prices have increased, according to Andrew Charles,

Chipotle’s stock fell Wednesday and Thursday as the company reported sales for the quarter ended June 30 that missed Wall Street expectations, though shares are up compared with the beginning of the year. Shares were higher in midday trading Friday, adding 1.2% to $1,906.06.

Chipotle reported net income of $341.8 million for the quarter, up from $259.9 million a year ago. Revenue rose nearly 14% to $2.51 billion, with same-store sales up by 7.4%. Chipotle guided for third-quarter comparable-restaurant sales growth in the low to mid-single-digit range, compared with Wall Street expectations of around 6%.

For now, Hartung said he believes consumers will continue spending. “We’re not talking about buying a car or even a washing machine or a bike. We’re talking about a $9 burrito,” he said, referring to the average price of a chicken burrito in the U.S. “To the extent that folks have to cut back somewhere, I don’t expect it to be the $9 burrito.”

Write to Jennifer Williams-Alvarez at [email protected]