Dive Brief:

• Chipotle's menu prices are roughly 10% higher overall compared with 2020's prices, the burrito chain confirmed during its Q4 2021 earnings call on Tuesday. The chain hiked prices 4% in December to offset wage pressure and the cost of food items like beef and avocados.
• The menu price increases contributed to strong quarterly sales: Comparable restaurant sales rose 15% over Q4 2020, and total revenue rose 22%, to $2 billion, topping analyst predictions. Chipotle's quarterly profit was about $58 million below Q1 2020's net income, however. 
• Chipotle CEO Brian Niccol told The Wall Street Journal that the restaurant will probably raise menu prices again this year as wage, food cost and inflation pressure persist. Niccol said on the earnings call that Chipotle has seen little diner resistance to the higher prices, based on analysis of its loyalty data. 

Dive Insight:

Inflation is squeezing all segments of the restaurant industry with no sign of abating in the near term, pushing chains to increase their prices and trim their operations to protect their bottom line. Limited-service restaurants have been hit especially hard by inflation, with prices up about 8%. While many restaurants are cutting menu offerings to tighten their belts, Chipotle continues to roll out new products. 

"Enhancing our marketing efforts is a consistent cadence of 2 to 3 new menu items per year, using a disciplined approach to innovation. Not only do these items help bring new guests into the Chipotle family, but they also drive frequency with existing users and give us another opportunity to highlight the brand," Niccol said on the earnings call. 

Earlier this year, the Mexican chain debuted plant-based chorizo for a limited time in its U.S. restaurants, which Niccol said on the earnings call "is off to a terrific start." The restaurant is preparing to launch pollo asado next, which will mark Chipotle's first chicken menu innovation, and it has additional new menu items in early stages of development, Niccol said. 

These menu items could draw new customers and deepen engagement with existing ones despite higher prices. Yelp finds that though diners are sensitive to inflation — descriptions of inflationary experiences in Yelp reviews were more frequent last year than ever before — more people searched for high-priced restaurants in 2021 than the year prior. 

Higher menu prices could also mitigate the impact of rising labor costs. For Q4 2021, Chipotle's labor costs rose roughly 100 basis points from Q4 2020, to 26.4%, following the chain's move to raise average U.S. wages to $15 per hour. Chipotle expects wage inflation to hold steady, "especially given higher exclusion and overtime pay because of the Omicron variant," but it hopes its December menu price increase will offset that expense to bring labor costs down to the low 26% range this quarter.

Chipotle has also increased menu prices on third-party delivery apps over the cost of its food in stores to help improve off-premise margins. Digital currently makes up 42% of Chipotle's business, and delivery makes up a little less than 20%.

"If you want that convenience, it comes with some additional costs," Niccol said. "And what we've seen is people recognize that and are willing to accept that for those occasions."