Must-know: Chipotle Mexican Grill’s key costs of operations

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Must-know: Chipotle Mexican Grill quarterly overview 2Q14 (Part 7 of 14)

(Continued from Part 6)

Four key costs of operations

Food, labor, occupancy, and other operating costs are the four key costs of operations for Chipotle Mexican Grill (CMG).

Food, beverage, and packaging costs

Chipotle Mexican Grill reported $363 million in food costs. Food costs accounted for 34.6% of the revenue, which increased year-over-year, compared to 33.1% in the second quarter of 2013. This increase was due to inflation on food items such as beef, dairy products, and avocados. The increase was partially offset by an increase in menu prices and lower tomatillo costs.

Food costs for Panera Bread (PNRA) also increased by 30 (or 0.30%) basis points (which is calculated as 0.01% or 1 basis points =1/100 of 1%) year-over-year in the second quarter of 2014. Potbelly (PBPB), however, reported a decrease in food costs by 50 basis points to 28.1% in the second quarter of 2014, compared to 29.1% in the second quarter of 2013 as a percentage of sales.

By further drilling down the food costs, Chipotle Mexican Grill increased by 10 basis points, compared to that in the first quarter. The increase in menu prices, however, reduced the food cost by 80 basis points over the same period. On a year-over-year basis, the food costs were 150 basis points, or 1.5%, higher compared to the second quarter in 2013. This increase was primarily due to higher beef, dairy, and avocado costs.

The situation with beef

The company expects beef prices to remain elevated. Compared to last year, beef prices were 20% higher due to supply shortages, according to the company. Among other restaurant chains in the restaurant industry—which can be found in ETFs such as the Consumer Discretionary Select Sector SPDR Fund (XLY) and the PowerShares Dynamic Food & Beverage ETF (PBJ ) —McDonald’s, Burger King, and other chains have also faced increasing pressure due to beef shortages.

The remaining three costs of operation—labor costs, occupancy costs, and other operating costs—are discussed in the next part of this series.

Continue to Part 8

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