Inflation hits fast food stalls

On a chilly Tuesday afternoon this month, James Marsh stopped by a Chipotle near his suburban Chicago home to grab something to eat.

It’s been a while since Mr. Marsh has been to Chipotle – he estimates he goes five times a year – and he can’t help but get chills when he sees the prices.

“I got a steak burrito, maybe $8 on average,” said Mr. Marsh, who trades stock options at his home in Hinsdale, I’ll.

He stepped outside.

“I think I’ll find something at home,” he said.

The pandemic has caused prices of everything from slice of pizza in Manhattan arrive beef in Colorado. And it has led to more expensive menu items at fast-food chains, traditionally, where people are used to eating a quick bite without hurting their wallets.

At a Chipotle store in Costa Mesa, California, the price of a chicken burrito—nothing fancy, with guacamole—about a year ago was $7.25. Today, that same burrito costs about $7.95, according to price data collected by analysts. In Ann Arbor, Mich., a ShackBurger at Shake Shack used to cost $5.69; now $6.09. And in Oklahoma City, an order of 50 bone wings from Wingstop that cost $41.99 early last year is now $47.49, up 13%.

Follow government data. And, in some cases, sections have shrunk.

“In recent years, most fast food restaurants have probably raised prices at the lowest rates per year,” said Matthew Goodman, an analyst at M Science, an alternative data research and analysis firm. five. “What we’ve seen over the last six months is that restaurants are actively pushing up prices.”

This comes at a time when the super competitive fast food market is booming.

Chains like McDonald’s, Chipotle and Wingstop are big winners in the pandemic as consumers, who are stuck at home working and tired of cooking multiple meals for their family, increasingly look to them for food. Find convenient solutions. But in the last year, as the cost of ingredients rose and average hourly wages rose 16% to $16.10 in November from a year earlier, according to government data, restaurants started to go negative. silently raise prices.

But getting customers to pay more for a burger or a burger is a difficult art. For many restaurants, it involves complex algorithms and test markets. They need to cross the line between raising prices enough to cover costs while not scaring customers away. Furthermore, there is no one-size-fits-all approach. Chains run by franchisees often allow individual owners to determine pricing. And national chains, like Chipotle and Shake Shack, charge different prices in different parts of the country.

When Carrols Restaurant Group, which operates more than 1,000 Burger Kings, raised prices in the second half of last year, customer traffic actually improved from the third quarter to the fourth quarter. Carrols CEO Daniel T. Accordino told analysts at a conference in early January that, “Over time, we generally don’t see much of a reaction from consumers to high prices. than.

Menu prices are likely to continue to rise this year. Many restaurants say they are still paying higher wages to attract staff and expect food prices to rise.

Ritch Allison, chief executive officer of Domino’s Pizza, told Wall Street analysts at a conference this month: “We expect our food basket costs to increase like never before compared to 2021. While Domino’s isn’t raising prices, it’s changing its promotions – offering only $7.99 pizza deals to customers ordering online and reducing the number of chicken wings in promotions. forever down to 8 from 10 – in an effort to maintain profit margins.

Despite higher food and labor costs, some restaurants are seeing revenue and profits rebound to pre-pandemic levels.

When McDonald’s reports earnings this month, Wall Street analysts expect its revenue to hit a five-year high of more than $23 billion, up $2 billion from 2019. Net income was announced. predicted to be $7 billion, up from $6 billion in 2019 Other chains such as Cracker Barrel and Darden Restaurants, which own Olive Garden and Longhorn Steakhouse, have continued to pay dividends or repurchase shares in cash later. when halting those activities early in the pandemic to save cash.

And next month, when Chipotle reports results for 2021, analysts expect revenue to hit $7.5 billion, up 34% from 2019. Net income is expected to come in. nearly doubled from pre-pandemic levels. In the third quarter, the company bought back nearly $100 million of its stock. Chipotle declined to have an executive present for an interview, citing a period of silence before announcing its earnings.

While Chipotle executives blame higher labor costs for the 4% increase in menu items prices this summer, the company is still looking for ways to boost its bottom line.

One way is to charge a higher price for delivery. Delivery orders through vendors like DoorDash and Uber Eats have exploded for Chipotle and other fast food chains during the pandemic. But so are the commissions that Chipotle pays its suppliers. So, in the fall of 2020, they started running tests to see what would happen if they increased the prices of burritos, guacamoles and chips that customers ordered for delivery, executives told manufacturers. Wall Street analysis in an earnings call. It basically means that the customer has covered the delivery costs for Chipotle.

The company discovered that customers were willing to pay for convenient delivery. According to analysis by Jeff Farmer, an analyst at Gordon Haskett Research Advisors, customers who order Chipotle for delivery pay about 21% more than if they ordered and selected food in the store.

“I would say our ultimate goal, so this in the long term, maybe medium term, is to completely protect our bottom line,” said Jack Hartung, chief financial officer of Chipotle. ” Jack Hartung, chief financial officer of Chipotle, said on a call with Wall Street analysts. Fall. “When you look at our prices compared to other restaurant companies in terms of the quality of the food, the quantity of the food and the quality and convenience of the experience, we deliver great value. Therefore, we believe that we have the ability to fully protect the deposit.”

That doesn’t mean customers get excited about the additional costs.

This month, Jacob Herlin, a data scientist in Lakewood, Colo., ordered: steak burrito and guacamole for $11.95, Coca-Cola for $3, and fries and guacamole, Free with birthday coupon. The total is $14.95, before taxes.

But when he clicked for food delivery, the price of the burrito rose to $14.45 and the soft drink to $3.65, bringing the total to $18.10 before tax, 21 more percent compared to when you get your own food.

There’s more. Mr. Herlin was charged a $1 delivery fee and another $2.32 “service fee”, bringing the total for the meal delivered to $23.20. He tipped the driver an extra $3.

Mr Herlin said he doesn’t mind paying on delivery and wants drivers to be paid a decent salary. But he feels that Chipotle is not upfront with customers about the extra costs.

“They are essentially masking the fees in two different ways, through base price increases and through ‘hidden service fees’,” Herlin said in an email. “I would love if they had the same price and were only honest about the $5 delivery fee.” Inflation hits fast food stalls

Fry Electronics Team

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