Fast food is getting more expensive as minimum wages rise
- Chains including Chipotle, Texas Roadhouse, and Habit Burger have recently mentioned plans to explore raising prices.
- The cost of eating out is expected to rise by 2 to 3% in 2018, after growing 2.8% in 2018, according to US Department of Labor data.
- The rising prices come as minimum wages rise and unemployment remains low.
Rising minimum wages might mean a pricier burrito in 2019.
Chipotle has hired an outside consultant to analyze the menu's pricing, item by item."We're behind on raising prices," Chipotle CFO Jack Hartung told Business Insider. "I think we want to say we're always behind. What that means is we're making Chipotle accessible to everybody."
And, Chipotle isn't alone.
Chains including Texas Roadhouse and Habit Burger mentioned recent or upcoming price increases in presentations at the ICR Conference in Orlando, Florida, earlier in January. The cost of food away from home increased 2.8% in 2018, according to data from the US Bureau of Labor Statistics. The Department of Labor anticipates prices to grow another 2 to 3% in 2019.
The cost of eating out has been ballooning for years. Median fast-food hamburger prices have increased by 54%, while chicken sandwich prices have jumped by 27%, Bloomberg reported in December, citing Datassential data.
The rising prices come as minimum wages increase.21 states and Washington, DC, raised their minimum wages to start off 2019. On Wednesday, House Democrats introduced a bill that would raise the federal minimum wage to $15 per hour, more than double its current rate. Even without legislation, companies are paying workers more as they scramble to hire and retain talent in a period of low unemployment.
"Every cost in the business is a challenge," Chipotle CEO Brian Niccol said. "The good news is we have a model that we can invest in our labor. And, we will use sales growth coupled with some pricing to handle it."
Rising minimum wages have contributed to a significant increase in the cost of dining out, especially in relation to food you can buy at grocery stores. In 2018, the cost of food at home grew just 0.6%, according to Bureau of Labor Statistics data.
Cheaper groceries have held back some chains from raising prices as much as they may want to, out of a fear that shoppers will ditch eating out entirely. And, when some chains keep prices low, others are forced to follow suit.
"We're beating each other's brains out," Denny's CEO John Miller said of the restaurant industry's attempts to undercut competitors' prices.
But, the battle to keep prices low can't continue forever. While chains will continue to tout deals - especially bundled offers like 4 for $4 or $5 boxes - customers will likely find themselves paying more for their burgers and burritos in 2019.