Chipotle Mexican Grill’s pricing policy ensures profit growth
Chipotle Mexican Grill Inc. (CMG), a chain of Mexican restaurants, is still suffering from accelerating inflation to a lesser extent than its competitors. The reason lies in the competent pricing policy of the company’s ability to maintain the audience’s loyalty. Like many other catering companies, Chipotle Mexican Grill is facing the problem of rising costs against the background of more expensive food, fuel, and labor. However, to solve this problem, the company chose the path of a gradual price increase.
It allowed us to maintain customer loyalty and avoid a sharp outflow of visitors. Chipotle Mexican Grill as a whole can work with the audience because even reputational scandals have slightly affected the strength of its brand. The company can also use the loyalty of its audience during a period of inflation when an increase in prices for ready meals is almost inevitable. At this stage, despite rising costs, Chipotle Mexican Grill does not notice a decrease in demand. Comparable sales in the past quarter increased by 10% year-on-year, and the operating margin increased from 13% in the second quarter of 2021. up to 15.3% in the second quarter of 2022, net profit increased by 38% to $260 million.
In August, the restaurant chain again planned another increase. That is, the Chipotle Mexican Grill brand remains so strong that even after several quarters of price increases, the company considers it possible to continue this practice without fear of a decrease in demand. Management also noted that the customer base is shifting towards higher-income people. As a result, the company compensates for the reduced demand from the low-income population with more frequent purchases by consumers with higher incomes.
Chipotle Mexican Grill continues to invest in digital sales, which can become a source of profit growth in the long term. In the second quarter, digital sales accounted for 39% of food and beverage revenue. Mobile orders help to increase sales in new restaurants and, in addition, make the ordering process faster and more convenient for digital users. Thus, a loyal audience and a competent pricing policy allowed Chipotle Mexican Grill to cope successfully with the first stage of inflation. At the same time, some competitors have already noticed a sharp decline in demand.
