Fast food prices are jumping. They could go even higher

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CNN BUSINESS NEWS

180928171651-julia-horowitz-byline-small-11.jpg By Julia Horowitz, CNN Business

Updated 1317 GMT (2117 HKT) February 9, 2022

By Julia Horowitz, CNN Business

 

Buying a burrito bowl or a burger will hit your wallet a lot harder these days.

What’s happening: An order at Chipotle (CMG) costs about 10% more than it did one year ago, the restaurant chain said when reporting earnings on Tuesday. That means that if a steak burrito costs $8 this time in 2021, it’s now $8.80.

It’s not the only fast food option to get more expensive. McDonald’s (MCD) increased its menu prices by about 6% last year, while Starbucks (SBUX) hiked prices in October and again in January.

So far, that hasn’t hit sales. Chipotle reported revenue of $2 billion for the final three months of 2021, beating expectations. Comparable restaurant sales climbed by more than 15%. Shares of the company are up 6.5% in premarket trading.

“We’re pretty fortunate with the pricing power that we have,” CEO Brian Niccol said in an interview with CNBC. “Our brand is really strong.” He noted a chicken burrito is still less than $8 in most US markets.

Eating out has been a significant component of surging inflation. Food away from home got about 6% more expensive last year, according to the US Bureau of Labor Statistics.

Updated 1317 GMT (2117 HKT) February 9, 202

Driving the increase: Companies like Chipotle have had to pay workers a lot more to combat staff shortages. In May, the company increased the pay of its restaurant workers to an average of $15 per hour. Ingredients and transporting goods have also become more expensive.

These factors aren’t expected to dissipate any time soon. Food commodity prices have jumped 6% so far this year, according to Goldman Sachs. And workers continue to be in the driver’s seat as demand for labor stays high.

“We continue to see pressure on wages,” Niccol said on a call with analysts. “We want to make sure that we continue to be competitive on that front.”

With this in mind, restaurant executives are telling Wall Street they expect price hikes to continue.

Starbucks (SBUX) CEO Kevin Johnson told analysts last week that the company has “additional pricing actions planned through the balance of this year” in order to “mitigate cost pressures.”

Niccol also indicated additional price rises are on the table at Chipotle.

“Beef and freight and some of these other things that continue to stay elevated, if we don’t see it abate, we’ll have to take some additional pricing there,” he said.

Chipotle’s chief financial officer said they “keep thinking that beef is going to level off and then go down,” but “it just hasn’t happened yet.”

On the radar: The latest data on US consumer inflation arrives tomorrow. Climbing food prices — both inside and out of the home — are likely to be a big part of the story.

And while economists expect inflation to decline in the second half of the year, as central banks pull back support for the economy, executives in the restaurant industry don’t sound like they’re expecting much to change, at least for the time being.