Chipotle’s Q3 same-store sales increased 5% year over year, the company announced yesterday. Traffic also held steady, including with low-income consumers and younger adults with student debt, CEO Brian Niccol said on the company’s earnings call.
Niccol said the chain’s “operators have done a terrific job of getting back to the basics of staffing, training, deploying, and then holding ourselves accountable to great throughput.”
Chipotle's same-store sales growth
Year-over-year percent change in sales at Chipotle stores open for at least 12 months
Chipotle’s visits were up throughout the third quarter compared to overall dining, per Placer.ai data. Visits rose 11.6%, 9.9% and 4.7% in July, August and September, respectively, compared to last year.
But there were three labor-related areas where the chain’s outlook is less optimistic.
A 20% wage hike in California
In California, where QSR brands will have to pay a $20-hourly-minimum wage beginning in April in the wake of AB 1228, Chipotle’s average wages are about $17.
“It's going to be a pretty significant increase to our labor,” Chief Financial Officer Jack Hartung said.
Because the average wage at Chipotle is below the new minimum, the chain will have to increase pay above that level for some workers to compensate for wage compression. Hartung said the chain intends to pass the cost of the wage increase on to consumers.
“We are definitely going to pass this on,” Hartung said. “We just haven't made a final decision as to what level yet.”
Hartung predicted the price increase would be in the mid-to-high single digits. The company clarified in an email to Restaurant Dive that the price increases would be restricted to California.
Given that California makes up roughly 15% of the company’s system and the chain’s labor costs are 24.9% of total revenue, according the chain’s most recent 10-Q, California labor currently is equal to at least 3.75% of total revenue, likely more given that California is already a relatively high wage state. This means the wage hike due to AB 1228 would, at a minimum, account for about 0.75% of the chain’s total revenue, equivalent to about $18,539,610 in Q3 2023, or $74 million annually, likely more.
Power hungry grills
The chain has been testing dual-sided grills at 10 units. Analyst BTIG previously predicted that “with $1.8B in cash, we believe Chipotle could aggressively roll out these grills in the near future.” The grills speed up the cook time for meat, potentially aiding the chain’s effort to drive throughput and speed up its operations during peak hours.