We decided to let our intern, Allen Davis, away from the desk for a few hours to check out some Chipotle locations.
Despite the heat, he was enthusiastic about the idea of visiting as many Chipotle stores as possible in Manhattan. While he likes to eat, being a Yale football player, he wasn’t being sent to sample the food. His job was to speak to store employees about the impact on traffic, if any, of the recently reported $0.50 increase in prices implemented at the company’s NYC restaurants. Below is his account of the experience.
“Wednesday was a big day for me. I had squat clean and bench for my workout after market close, but a day long warm-up walking the streets of New York (not in the classical sense). My mission: visit every Chipotle on the island of Manhattan in an effort to gain some insight into recent traffic trends following the reported $0.50 increase in prices at New York City Chipotle restaurants. Major roadblocks would include annoyed managers, midday lunch rushes, and a general fear of subways. In the end, it was impossible to make it to every store on Manhattan but I managed to survey 19 stores and got a response 74% of the time. The general consensus was that, following the price increase, not much had changed.
The $.50 price increase, partially necessitated by Chipotle’s continued commitment to buying as much of its meat and produce as it can from local organic sources, didn’t seem to be a headwind to traffic, according to the managers I spoke with. None reported a decrease in sales and the only location that would provide me with a rough weekly sales average said that they had done 1-2k incremental sales following the price increase. While a lot of this is probably just the $.50 price jump pushing revenue, it does suggest that traffic is staying consistent, another point that many managers made. This makes sense when you consider the consumer that Chipotle typically services and, of course, the location of the stores I surveyed.
As the CEO of Taco Bell recently admitted via a now-infamous BMW vs Hyundai metaphor, CMG doesn’t have a product that sells to the same people that would run out to Taco Bell and get 8 burritos for a buck each (source). They sell a higher quality product to a more upscale, and perhaps more eco-conscious, consumer. Before CMG took price, a burrito with guacamole, which costs $2.25 extra, was around $8.50 for chicken, closer to $9.00 for steak. While this isn’t an extravagant expense for some, it isn’t a totally insignificant one either. $8 is more than an hour’s work for many workers and, in cities like NYC where the cost of living is high, many may balk at paying such an amount for a meal. On aggregate, though, people who spend $8-$10 at Chipotle in New York seem to be loyal to the brand, have the willingness and ability to pay the price. In fact, many of the managers I discussed the price increase with told me that the majority of customers did not notice the change and, among the small number that did, very few complained.
Just today, the results of an Eco Pulse survey found that, when asked “Which is the best description to read on a food label,” the terms “natural,” “organic,” and “grown in the USA” accounted for 76% or responses (source). From a marketing perspective, this bodes well for CMG even when they bump their prices because, since the Chipotle customer is willing to go to the expense to buy the product, the company can reap the benefits of touching on all of these target marketing terms. They can afford to pass off price to a greater extent, and do it in a more up front manner, than a company like McDonald’s. When MCD started charging $.19 more for the second slice of cheese on double cheeseburgers, the reaction was negative, but that wasn’t indicative of reactions to all price increases. MCD had bumped the price of a favored item by almost 20% to a lower income-bracket consumer. CMG’s change was blanket and on a more upscale consumer which I think is the reason it is having little effect on anything according to the managers."