U.S. markets close in 4 hours 31 minutes
  • S&P 500

    4,175.77
    +5.35 (+0.13%)
     
  • Dow 30

    34,137.74
    +101.75 (+0.30%)
     
  • Nasdaq

    14,014.24
    -24.53 (-0.17%)
     
  • Russell 2000

    2,258.94
    +1.87 (+0.08%)
     
  • Crude Oil

    63.03
    -0.43 (-0.68%)
     
  • Gold

    1,779.00
    +12.20 (+0.69%)
     
  • Silver

    26.11
    +0.15 (+0.58%)
     
  • EUR/USD

    1.1985
    +0.0009 (+0.07%)
     
  • 10-Yr Bond

    1.5820
    +0.0520 (+3.40%)
     
  • GBP/USD

    1.3824
    +0.0039 (+0.29%)
     
  • USD/JPY

    108.8270
    +0.1110 (+0.10%)
     
  • BTC-USD

    61,572.50
    -1,384.89 (-2.20%)
     
  • CMC Crypto 200

    1,378.52
    -13.19 (-0.95%)
     
  • FTSE 100

    7,015.35
    +31.85 (+0.46%)
     
  • Nikkei 225

    29,683.37
    +40.68 (+0.14%)
     
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Why Chipotle just raised prices

Brian Sozzi
·Editor-at-Large
·3 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

With third-party food delivery outfits such as Uber Eats and Grubhub having their moment during the pandemic — and flexing their pricing power as a result of everyone ordering for home delivery — Chipotle (CMG) has had no other choice but to raise prices on takeout orders.

After all, Chipotle is a for profit business and can’t be selling burritos online for deep losses while the delivery companies financially clean up.

“It’s no surprise that delivery comes with an added cost. Our belief has been that’s a premium experience from a convenience standpoint. We want to make sure that channel covers the cost — we raised the prices 13% in our app [in the fourth quarter],” Chipotle CFO Jack Hartung told Yahoo Finance Live. “We also lowered them before the pandemic, we were charging a $3 delivery fee, we lowered that to $1. If you were ordering in the app prior to the pandemic and now you’re ordering delivery through the app, the increase is 2% to 3%. The 13% increase all it does is allow us to cover most of our cost in delivery.”

Chipotle says it hasn’t seen much resistance to the higher online prices. Hartung fancies Chipotle will continue to toil around with online pricing.

“In terms of pricing, I think in the delivery channel there is additional pricing potential there. We found that when people decide they want that channel they’re willing to pay a higher price. I don’t think we have reached the limit there. We’ll continue to experiment. We’re not going to go crazy on pricing because we think we can. We’ll try to understand when and where customers want that channel and how much they are willing to pay and we will act accordingly,” explained Hartung.

A woman wearing a facemas exits a Chipotle Mexican Grill restaurant with her takeout order on January 14, 2021 in Monterey Park, California. - The national chain restaurant announced its first national hiring event of the year today with a goal of employing 15,000 people for its restaurants across the country. (Photo by Frederic J. BROWN / AFP) (Photo by FREDERIC J. BROWN/AFP via Getty Images)
A woman wearing a facemas exits a Chipotle Mexican Grill restaurant with her takeout order on January 14, 2021 in Monterey Park, California. - The national chain restaurant announced its first national hiring event of the year today with a goal of employing 15,000 people for its restaurants across the country. (Photo by Frederic J. BROWN / AFP) (Photo by FREDERIC J. BROWN/AFP via Getty Images)

Chipotle’s online business has surged during the pandemic with many restaurant interiors closed or operating under reduced capacity. The company’s online sales skyrocketed 174.1% year-over-year to $2.8 billion in 2020, comprising 46% of Chipotle’s annual business. Fourth quarter online sales rose 177.2%.

That type of growth makes it critical that Chipotle also focuses on online profitability, not unlike most bricks and mortar retailers.

Despite the heady digital growth in the fourth quarter, Chipotle’s shares fell slightly in Wednesday trading as it fell short of analyst profit forecasts due mostly to higher operating costs. Chipotle’s same-store sales in the fourth quarter rose 5.7%. In January, Chipotle’s same-store sales increased 11%.

“Chipotle remains a premium brand with strong digital/off-premise business helping it manage through the current environment better than most with continued unit growth in mid-single digit percentage range (70%+ Chipotlanes in '21), but we think much of this is already reflected in the stock,’ said Jefferies restaurant analyst Andy Barish in a note.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

Find the latest in business and finance news here.

What’s hot from Sozzi:

Watch Yahoo Finance’s live programming on Verizon FIOS channel 604, Apple TV, Amazon Fire TV, Roku, Samsung TV, Pluto TV, and YouTube. Online catch Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, and reddit.