Chipotle (CMG) has increased its menu prices 20%+ over the past two years and helped its margins, but the higher prices have not gone unnoticed by customers.
“Menu pricing only goes higher in the restaurant industry to ensure everyone gets paid, from restaurant managers to the CEO,” explains Consumables analyst Howard Penney in this clip from The Call @ Hedgeye. “They’re pushing the envelope on pricing, and it’s really starting to evolve into a problem for the company.”
“With pricing up so much at Chipotle, what you're starting to see on social media is what behavioral economists call the impact of anchor pricing,“ Penney adds. “Customers have a reference point or anchor, as they call it, that they're accustomed to. And if they remember paying X, and that goes up by 20, 25%, it triggers basically a re-evaluation. So we've been talking about the aggressive pricing that Chipotle is taking and the potential long-term impacts from that. And I just think it's really starting to evolve into a problem for the company.”
Chipotle is down -6.7% since being added as a Short to Investing Ideas on August 31. The restaurant is one of 12 names on the list of Keith McCullough’s highest-conviction Longs and Shorts.
“Currently, there are no losers in the Investing Ideas product,” McCullough adds. “Those are ALL of our current positions. Chipotle’s been fantastic. Nice call on that one (Howard).”
Get access to the weekly Investing Ideas newsletter and the names McCullough is adding and removing in real-time HERE.
