Chipotle customers were undeterred by the company’s first hike in prices in three years. The fast food chain raised prices across the board in the spring to offset higher food costs for beef, cheese and avocados. Consumers are willing to pay more because of Chipotle’s emphasis on healthy, high-quality ingredients, which is a big hit with its core demographic, young adults, said Yahoo Finance Senior Columnist Michael Santoli.
“Chipotle is in the perfect spot for consumer preferences right now, and they are in the really interesting part of their growth trajectory where their pricing power actually matters now," Santoli said.
The burrito king reported same-stores sales rose a better-than-expected 17.3% in the quarter. The company reported profits rose 26% percent, and both earnings and revenue blew past estimates. It also opened 45 new restaurants in the second quarter, and plans to open up to 195 restaurants this year.
McDonald’s, on the other hand, has its work cut out for it. The fast food giant reported earnings and revenue that missed analysts’ estimates in the second quarter. McDonald’s global same-store sales were “relatively flat,” while U.S. same-store sales fell 1.5%. Santoli thinks McDonald’s domestic picture does not look bright. The company said that it plans to improve its performance in the U.S. "Key areas of focus include service excellence, enhanced marketing, and value, core menu and breakfast daypart initiatives,” McDonald's said in a statement.
In a big contrast to Chipotle, Santoli said that McDonald’s has really been forced to play the value game. The burger chain has also botched its product assortment, making its menu cluttered and the service inefficient.
Chipotle raised its sales outlook for the full-year. McDonald's doesn't expect to see much in the way of growth this year.
And not to dwell on the past, but maybe McDonald's should have held on to its majority stake in Chipotle, which it unloaded in 2006 when the company went public.