(Bloomberg) — Chipotle Mexican Grill Inc. raised prices at about 440 of its locations in an attempt to shore up profit, a move that marks its first major increase since a food-safety crisis crushed sales in late 2015.
The restaurants, which represent about 20 percent of Chipotle’s total chain, boosted prices by about 5 percent on average on April 11, according to spokesman Chris Arnold. There are no plans to charge higher prices at all 2,200 Chipotle locations.
“The increase is our first in about three years, and was implemented to help offset labor and food inflation,” Arnold said. “Even with the new prices, our pricing remains very competitive, particularly if you factor in our ingredient quality.”
Still, the price hike may bring another obstacle to Chipotle’s efforts to win back customers. In the wake of foodborne-illness outbreaks in 2015, the company has offered free food, rolled out new ad campaigns and continued a push toward higher-quality ingredients. Through it all, the chain’s same-store sales have continued to slide: The drop in the most recently reported quarter was 4.8 percent.
In recent weeks, however, investors have grown more optimistic that Chipotle may have reached a turning point its comeback. The shares have gained 25 percent this year, including an increase of 1.7 percent to $471.50 on Monday.
Labor Market
The broader U.S. restaurant industry is grappling with higher employee costs and a tightening labor market. Unemployment fell to 4.5 percent in March, the lowest in almost a decade.
Chipotle also was targeted by activist investor Bill Ackman, who disclosed a stake of about 10 percent in the burrito chain last year. He pushed for a shake-up of the Denver-based company’s board, which has faced years of criticism for being too insular. The company named four new directors in December, and four current board members are departing.
As it works to repair the reputation of its Mexican-food chain, Chipotle is making a separate foray into burgers. The company launched a new offshoot called Tasty Made last year, with its first location opening in Ohio. Like Chipotle, the restaurant offers a limited food menu — this time with burgers, fries and milkshakes.
(Updates share price in fifth paragraph.)
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