Chipotle CFO Jack Hartung joins Yahoo Finance Live to discuss company earnings, menu price increases, inflation, consumer demand, integrating generative AI into the business, and the outlook for profit growth.
Price Increases
Hartung said, “In our case, we don't have any plans to take any price increases.”
Integrating AI
Hartung added, “We want to be very careful, very thoughtful, but … if the end result is we can run better restaurants and serve the customers in a better way, we're certainly gonna look at any technology.”
Video highlights:
00:00:39 - Price increases
00:01:43 - Fresh ingredients
00:04:04 - Impact of inflation
00:05:24 - New products
00:06:58 - Possibility of integrating AI
Video Transcript
[AUDIO LOGO]
JULIE HYMAN: Chipotle is proving its pricing power once again. The fast casual chain saw same store sales rise nearly 11% year-over-year, including a nearly 23% boost to in-restaurant sales despite or maybe partly thanks to price hikes. Chipotle CFO Jack Hartung joins us now alongside Yahoo Finance executive editor Brian Sozzi.
Jack, it's great to see you as always here. And it looks like you guys are seeing strong demand. Talk to us about, we've been talking a lot about the volume price equation this earnings season, or in your case, I guess, also the traffic price equation. How did that break down for you guys last quarter?
JACK HARTUNG: Yeah. So we did have to take prices last year. And we haven't raised prices in around five or six months. We did have to combat inflation like every other restaurant company. But the best thing about this quarter is the fact that despite some of those price increases, our transactions were up 4%. And that tells us that customers still think of Chipotle as the meal that they want to eat at a great value. And so they're coming back in greater numbers.
And probably a little topspin to that is what we saw in the fourth quarter of last year, second half of last year, we saw low income consumers who were starting to visit a little less often. We saw them come back in the first quarter in a big way. So again, we feel like we're great value. And I think our customers, more importantly, they believe we're great value. And I think that's a big part of our first quarter results.
BRIAN SOZZI: Jack, Brian here, always good to see you. To the extent you're able to, I need a hot take on this. Why are we not seeing resistance to your higher prices at Chipotle? But when I hop on that McDonald's conference call, they are saying consumers are pushing back on their price increases. Is it I get more food at Chipotle? Is your food better compared to a Big Mac? Take me through it.
JACK HARTUNG: Well, listen, first of all, I'm a little biased on this, but yeah, our food is better. We start with real whole ingredients, we only have 53 ingredients. We start at the morning. Our crews are in our restaurant right now early in the morning. They're chopping onions, they're mashing avocados, they're marinating, and they'll begin in a few hours cooking steak, cooking chicken fresh. And so we're a real restaurant that served great culinary.
We also have great customization, and so you get exactly what you want, whether that's ordering through the app or whether you want to walk down the line and interact with our team. And then we're great value. I mean our chicken burrito, which more than half of our customers get either chicken burrito or chicken bowl is still right around $9.
And if you try to get that kind of meal with that kind of quality and that kind of customization and as much food as we offer, you're going to pay a lot more than $9 anywhere else. And so I think in today's environment, customers realize they've gone to other restaurants, they've tried cooking at home, and Chipotle is a great place to enjoy a great meal and a great value.
BRAD SMITH: And so even within that, have you seen any signs that there are certain items on the menu that customers are not adding on to their ticket? At this point in time, we're just looking across a consumer that is being more decisive or at least kind of scrutinous about their spend even if they do continue to come back into the doors of Chipotle or order via the app.
JACK HARTUNG: No, not really. I mean, the thing about our customers is they lock into what they love at Chipotle. And if it's a chicken burrito with pinto beans and tomato, whatever their order is. And we know this because we talk to our customers, and they tell us, here's what they get every single time. And I get guac on the side. And they get it every single time. So when they choose to come to Chipotle, they crave the food, and they're getting exactly what they wanted to. So we're not really seeing that trade now.
JULIE HYMAN: I want to get back into pricing here. And I'm not talking about the prices that I'm paying. I'm talking about the prices that you're paying, Jack, at Chipotle for your input costs. Because we went and looked at some of the PPI data to try and figure out at least for writ large for companies in America where are prices going up and where price going down.
And a lot of prices are going down generally, right? We know avocado prices are going down, you guys talked about that. Chicken prices are going down. Beef is still going up, rice is still going up as we're showing here in a graphic. And I know you guys negotiate things differently from the sort of generalizations. But what can you tell us about what's going up, what's going down, what we can kind of extrapolate for what's happening with inflation?
JACK HARTUNG: Yeah. I mean, Julie, I think the chart that you just showed and what you just mentioned is exactly what's happening. Three or four, five months ago, kind of everything was going up. And as everything was going up, the outlook was that it's going to go up even more. And it was a very tough environment.
Now we're seeing some items are going up, some are going down. For example, we did have a number of items, some of our oils, some of our salsas or tortillas and the first quarter did go up. But they were offset by lower avocado costs. And so this balancing out has made it kind of a flattish or I'll call it a stable overall inflation period.
Our hope is-- we obviously don't have a great crystal ball in this kind of environment-- our hope is there's that kind of stabilization. We still think there's likely to be some pressure on beef. There's still a little bit more demand than supply. We haven't seen that inflation in what we've bought so far in the first quarter, but we think that may come down the road.
But so far, there is at least some offsets along the road. So in our case, we don't have any plans to take any price increases. We're going to watch what happens with all of our ingredients, not just if some go up. Hopefully, some will go down. But so far, it's a lot more stable now than it had been in the last 18 months.
BRIAN SOZZI: Jack, I was really intrigued by what you talked about in the earnings call last night about this new oven or grill that you're starting to implement or roll out to your restaurants. What will that allow you to do in terms of cooking your food?
JACK HARTUNG: So first of all, the food is much, much better. It is very, very precise, it's double-sided. It cooks our food faster. And so, for example, chicken is I mentioned, more than half of our customers get chicken, it cooks the chicken perfectly to the perfect temperature inside and out. One of the challenges, if you overcook chicken just a little bit, it tends to dry out. You also lose yield as well.
So it's a win-win for our teams where you can cook the chicken faster, so that means customers are going to have freshly cooked chicken more than ever before. We're constantly cooking chicken on our grills, but now the chicken you get is going to be coming from the grill even faster, even fresher. It means it's going to be juicier because it's going to be cooked to the exact right temperature.
And we're not going to have the yield loss, which means our economic model and our ability to continue to deliver value to our customers is going to be better than ever. And it's also better for our crews. We've only had it in one restaurant, we're now rolling it out to 10. But our crews say they love it. It is a lot more precise, it requires less attention, less judgment along the way in terms of when they pull the chicken off, when they turn the chicken, things like that. So it's really a win-win for us, our business, our crews, and our customers.
BRAD SMITH: Jack, under your and Brian's leadership, there's been far more kind of advancement of a digital strategy at Chipotle, and whether that's over the past couple of years accepting crypto via Flexa or having a metaverse play within Roblox. You hear all the talk now about generative AI. Do you start to think about how that can be integrated into Chipotle's business?
JACK HARTUNG: Yeah. Listen, we're starting to talk about it. And there are like endless possibilities. In fact even yesterday at dinner, we were talking about it. There are endless possibilities. And so we're going to take a close look, just like we have at a lot of our technology, just like we have with some of the investments we started to make in our cultivate next fund. We want to be on our front foot, and we want to be ahead of these types of things. And so there's a lot of possibilities.
There's also a lot of pitfalls as well. So we want to be very careful, very thoughtful. But certainly, if there's ways we can make the job that our crews, do the jobs that our support staff do to support a restaurant easier, better. And if the end result is we can run better restaurants and serve the customers in a better way, we're certainly going to look at any technology.
BRAD SMITH: You know, even in those conversations, I wonder when you are talking about or even thinking through where it sits within the operation, what's the delta for the customer? How does the customer go into a Chipotle or order and ultimately say, you know, this experience was different because of artificial intelligence?
JACK HARTUNG: Yeah. You know, it's likely to be something the customer wouldn't see necessarily. There could be some ordering opportunities. But what would be some unlocks for us is if our teams can run a better restaurant-- and listen, everything we do is on a foundation of great operations. And so if our teams can prep the exact right amount of food for the sales that they're going to have for that day,
If the food is cooked closer to when our customers are coming in the door, so the chicken that they're eating is going to be fresh off the grill. If we can make sure that we can anticipate when customers are coming so we can have the right deployment so that they can have a fast experience for the front line, their experience on the digital make line is going to be accurate.
So we make sure we don't miss anything, we don't miss an ingredient, and it's on time as well. If we can just dial up the execution so all the little things that customers may not notice but when they have a great experience where it's fast and they get exactly what they want, they tend to come back to Chipotle. So that would be the things that we would look at behind the scenes. Customers wouldn't necessarily see AI and a lot of these applications, but they certainly would get a better experience out of it.
BRAD SMITH: All right. Well, I'm officially hungry. Chipotle CFO, Jack Hartung alongside Yahoo Finance's executive editor Brian Sozzi, thanks so much for the time today.
JACK HARTUNG: Thank you.