Chipotle plans first price hike in 3 years

NEW YORK (AP) — Chipotle is feeling confident that customers are willing to pay more for its burritos, bowls and tacos.

The Mexican food chain said Thursday that it would raise prices for the first time in three years as its popularity continues to soar. Menu boards with the new prices should start rolling out in coming weeks and be in place at all restaurants by this summer.

Executives have said in the past they were considering a hike of about 3 percent to 5 percent. That translates to an extra 24 cents to 50 cents for an $8 burrito bowl.

Steve Ells, Chipotle's co-CEO, said during a conference call with analysts that price is not the main reason customers visit its restaurants anyway.

"Most of the value comes from the experience," he said.

Ells also noted that the company had earned "permission" from customers to raise prices because of that experience. And if needed, he said Chipotle still had the leeway to further raise prices without scaring off customers.

"We've still got room," he said.

The decision comes as higher costs for beef, avocados and cheese have pressured profit margins for the chain, with net income for the first quarter coming in below Wall Street expectations. Still, Chipotle said sales at established locations rose 13.4 percent during the period and it raised its outlook for the year. It now expects the sales figure to grow in the high-single digits, before factoring in the price hikes.

The Denver-based chain's popularity has surged in recent years because people like that they watch as they tell workers what toppings to put on their orders. The chain has also invested in marketing to build up its reputation as higher-quality alternative to places like Burger King and Wendy's.

Those traditional fast-food chains have struggled to grow sales as customers increasingly flock to foods they feel are fresh or higher in quality. In contrast to Chipotle, for instance, McDonald's has said it needs to focus on underscoring the value it offers.

McDonald's CEO Don Thompson has also noted that there is a bit of "bifurcation" in the fast-food industry, with better-off customers heading to the new breed of chains that charge more.

For the three months ended March 31, Chipotle Mexican Grill Inc. said net income rose 8 percent to $83.1 million, or $2.64 per share. That's up from $76.6 million, or $2.45 per share, a year ago. Analysts expected $2.86 per share, according to FactSet.

Revenue climbed a stronger-than-expected 24 percent to $904.2 million.

Chipotle has also been expanding rapidly. It opened 44 restaurants during the quarter and plans to open 180 to 195 restaurants during all of 2014. It already has more than 1,600 locations.

Its shares fell $9.26, or 1.7 percent, to $543.14 in afternoon trading. Its shares are up almost 70 percent since a year ago.

Source:

www.chron.com

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McDonald's game plan to win back customers

NEW YORK (AP) — McDonald's is fighting to hold onto customers amid intensifying competition.

On Monday, the world's biggest hamburger chain said an important sales figure fell again in the U.S. The company blamed bad winter weather in part, but also conceded that "challenging industry dynamics" played a role.

At a time when chains like Chipotle and smaller players like Five Guys Burgers and Fries are growing, here are a few strategies McDonald's Corp. is focusing on:

CUSTOMIZATION

People want to be able to dictate exactly what they want on their orders. It's why chains like Chipotle and Subway have done so well in recent years.

So McDonald's is trying to allow for more customization, in part by rolling out new prep tables at its more than 14,000 U.S. locations. The new tables can hold many more toppings and sauces than the old tables, signaling that McDonald's plans to offer greater variety.

The chain is also testing a "build-your-own-burger" concept in Southern California. Even if the test is successful, however, don't expect to see it at a McDonald's near you anytime soon — rolling out that kind of product across all restaurants would require considerable changes in the kitchens.

BREAKFAST

McDonald's has long dominated the breakfast hours and plans to play up favorites like the Egg McMuffin as it faces more competition as people increasingly buy breakfast on the go.

Taco Bell, for instance, is readying for its national breakfast rollout, and Starbucks recently revamped its sandwiches.

To strengthen its No. 1 position in the morning, McDonald's says it will also push the quality of its coffee in marketing. Executives note that quality coffee has become a priority for many people and that it can bring them in the door. It's one of the reasons the chain's coffee cups were recently redesigned.

McDonald's is also testing breakfast pastries in San Diego.

CORE MENU

McDonald's executives have conceded that they rolled out too many new items too quickly in the past year. That led to kitchen operations becoming too complicated and orders taking too long to fill.

So the chain says it will slow its pace of new offerings. It's also trying to add variety using items already on its menu. That might mean introducing McWraps and Quarter Pounders with different toppings and sauces, rather than new burgers entirely.

News Source:www.sfgate.com

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