Must-know: Chipotle Mexican Grill’s food costs

Four key costs of operations

The four keys costs of operations for Chipotle Mexican Grill (CMG) are:

1. food
2. labor
3. occupancy
4. other operating costs

Food, beverage, and packaging costs

CMG reported $372 million in food costs in 3Q14. Food costs accounted for 34.3% of the revenue. It was an increase of 70 basis points year-over-year (or YoY)—100 basis points = 1%. It was 33.6% in 3Q13. The food costs declined 20 basis points—compared to 2Q14.

Although management increased the menu prices by 6.3%, it wasn’t enough to cover the 8% food inflation. The increase was due to inflation on food items like beef, dairy products, and avocados. We’ll discuss management’s expectations for food inflation later in this series.

Situation with beef and avocado

According to management, beef and avocado prices remain elevated. If these costs stabilized at the second quarter cost levels, the food costs would have been lower by 80–90 basis points.

Among other restaurant chains—that can be found in exchange-traded funds (or ETFs) like the Consumer Discretionary Select Sector SPDR Fund (XLY)—McDonald’s (MCD), Burger King (BKW), and Wendy’s (WEN) also faced more pressure due to beef shortages.

We recently covered the food cost trends for items like meat, poultry, fish and seafood, fruits, and vegetables on our key restaurant indicator series.

We’ll discuss the other three costs of operation—labor costs, occupancy costs, and other operating costs—in the next part of this series.