Chipotle says it may need to tick its food prices up to pay California wages
Chipotle, which just announced price hikes, said it will likely charge even more at its California restaurants, blaming a new law that raises minimum wages for fast food (and fast casual) workers in the state.
"We haven't made a decision on exactly what level of pricing we're going to take," said John Hartung, Chipotle's chief financial officer, during an analyst call discussing the company's third quarter results Thursday, adding that "we've been studying" the situation.
"But to take care of the dollar cost of that and/or the margin part of that … it's going to be a mid- to high single-digit price increase," he said. "We are definitely going to pass this on."
A company spokesperson later told CNN that Chipotle hadn't yet decided whether it will raise prices in California.
California Gov. Gavin Newsom in September signed legislation that raises the minimum wage to $20 an hour for fast food workers, and creates a council that can approve further increases in the future. The state's current minimum wage is $15.50 an hour and will increase to $16 an hour on January 1. Chipotle said on the call that it currently pays employees $17 an hour in California, where it has about 15% of its roughly 3,300 restaurants.
The new hourly wage for fast food workers will take effect on April 1 of next year. Employees who work at fast food restaurants with at least 60 locations nationwide are eligible.
Even as some consumers pull back on spending, Chipotle has been able to raise its prices without much consequence.
Chipotle's total revenues grew 11.3% to $2.5 billion in the quarter ending September 30, the company said Thursday. In that time, sales at restaurants open at least 13 months jumped 5%. And the company said that the increase was driven by transactions, meaning that growth was largely coming from people buying meals more often, not just because they were spending more due to high prices. Chipotle's stock was up about 2% after the market closed.
So if the chain does raise prices as a result of the new legislation in California, it might not make much of a difference to customers already willing to pay Chipotle's prices. If the company raises the price of a burrito by, say, 7% on a $9.95 burrito, the increase would come to less than a dollar.
But workers have said that the higher minimum wage will make a meaningful difference in their lives.
Anneisha Williams, who works for Jack in the Box in California and spoke to the public during the signing of the law, previously told CNN that the higher pay means more money toward bills, feeding her children and dog, and hopefully emerging from poverty. At the time, Williams said she makes $17 an hour.