Chipotle’s burritos, and its stock, are getting more expensive

Chipotle and Cava just dropped some news that might make the country’s burrito-and-bowl lovers groan: both are raising prices in early 2025, with Chipotle announcing a 2% nationwide hike and Cava hinting at less than 3%, according to comments from its CFO on Wednesday at a Morgan Stanley conference.

The move isn’t particularly surprising, as quick-service restaurants scramble to keep up with inflation. Indeed, Chipotle has blamed the rising costs of avocado, beef, and dairy for weaker margins during recent earnings calls. That is perhaps why investors were thrilled about the extra cents added to Americans’ favorite bowls: shares of Chipotle jumped 7% in just two days following the announcement, while Cava’s rose 6%, suggesting that investors expect those price hikes to flow through to the bottom line.

Put simply, it seems unlikely that customers will turn their backs on Chipotle even with higher prices. So far, traffic at both chains has grown despite previous hikes. Take Cava: after a ~3% price increase earlier this year, traffic dipped a modest 1.2% in Q1 before rebounding to grow 9.5% in Q2 and 12.9% in Q3. Chipotle last lifted prices by 3% in October 2023, and traffic still rose 7.4% that quarter. Customers might make a fuss about how expensive their damn burrito is, but, when lunchtime rolls around, millions will still flock to the Mexican-inspired chain, which has grown relentlessly over the last 25 years.

Burrito-nomics

Both Cava and Chipotle are profitable — but given Chipotle’s maturity as a business, its ability to spread its corporate costs across its 3,600-plus locations (roughly 10x as many as Cava) helps it make some pretty exceptional profit margins for the food industry.

Many successful restaurants make a margin in the single-digit percentages... if they make any profit at all. Chipotle is on another level, reporting a 17.7% margin for the first nine months of this year, with operating profit of $1.5 billion on sales just shy of $8.5 billion.

Indeed, per its latest earnings, Chipotle’s food, beverage, and packaging costs only accounted for $2.5 billion out of its $8.5 billion in sales — around 30%.

We’re now living in the era of bowlification, where diners are trading up from $5 value meals to $13-$14 customizable creations piled high with premium ingredients. Chipotle’s limited-time-only smoked brisket and Cava’s grilled steak have driven demand and traffic in the latest quarter, despite its higher input costs — up to 30% more than other ingredients. For investors, that’s a bowl worth betting on.