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Key Points
- Chipotle Mexican Grill Inc. (NYSE: CMG) has raised its prices because of rising costs.
- Will it run into the same problems its competitors face?
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Inflation may be low based on the consumer price index, which has risen by less than 3% in recent months. However, as Walmart CEO Doug McMillon recently observed, the costs of some foods continue to rise and will do so in 2025. Fast-food chain Chipotle Mexican Grill Inc. (NYSE: CMG) recently raised its prices because of the food price problem.
The increase will be about 2% across the Chipotle menu. Reuters reports that the company cited beef and dairy costs and added that it could get away with the increase because of demand increases at its locations.
While its management signaled that traffic to its locations is currently good, Chipotle faces problems that have plagued McDonald’s Corp. (NYSE: MCD) and Starbucks Inc. (NASDAQ: SBUX) recently. The prices of some of its items have risen enough to cut same-store sales, or what people will pay when they do come to their stores. The stocks of both companies have been hurt by customers who have become cautious about what they pay for fast food. McDonald’s stock is down 1% this year. Starbucks shares are up only 5%. Chipotle’s share price is 40% higher.
There is no way to gauge when fast-food customers believe menus have become too expensive. McDonald’s has tried to combat the problem with $5 meals and will launch even cheaper items next year. The risk, however, is that this action will eat into profits, particularly if food prices continue to rise.
Chipotle could face the McDonald’s problem. At some point, the cost of its food could erode customer demand.
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