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Chipotle says it's going to hike prices to help pay for new $20 per hour wage hike for workers in California

Grace Dean   

Chipotle says it's going to hike prices to help pay for new $20 per hour wage hike for workers in California
  • An exec said the chain would "definitely" pass the costs of higher wages in California to customers.
  • A new bill will raise wages to $20 an hour in April. Chipotle separately raised menu prices by 3%.

Chipotle execs have said the burrito chain will "definitely" pass on the costs of California's new fast-food minimum wage to customers by raising menu prices, even after the company posted impressive third-quarter results.

Minimum wages for fast-food workers in the state will increase to $20 an hour in April 2024 under a new law that Governor Gavin Newsom signed. California's current minimum wage is $15.50 and is set to rise to $16 in January — more than double the federal minimum wage of $7.25.

Chipotle execs said during the company's earnings call on Thursday that it had recently raised menu prices by 3%. It was the fifth menu-price increase the chain has made since June 2021.

Jack Hartung, the chief financial and administrative officer at Chipotle, told investors that this month's hike "does not consider any part of the California wages that'll happen next year."

"It's going to be a pretty significant increase to our labor," Hartung said, noting that the chain's average wage in California is about $17 an hour.

"We haven't made a decision on exactly what level of pricing we're going to take," he continued. "It's going to be a mid-to-high single-digit price increase, but we are definitely going to pass this on. We just haven't made a final decision as to what level yet."

Erin Wolford, a spokesperson for the company, told Insider after the call that Chipotle hasn't decided yet on the increase but that it would just be in California.

"We are studying it and we anticipate we would need to increase prices mid-to-high single digits, (ie mid is 4-5-6% and high is 7-8-9%), and that means prices will be that much higher as a %," she told Insider.

Chipotle has 457 restaurants in California, which Hartung said makes up about 15% of the chain's total store count, though it appears to be slightly less than this based on the company's stated restaurant count of more than 3,300 locations.

Chipotle posted impressive results on Thursday. It said that total revenue in the quarter to September 30 increased by 11.3% to $2.5 billion, which it attributed to new restaurant openings and a 5% jump in comparable sales, the latter of which it said came from increases in both transaction volume and average check size. The company posted a 21.8% jump in net income.

The fast-food-wage legislation replaces the FAST Recovery Act that Newsom signed into law last September, but still includes the creation of a fast-food council made up of both employers and workers.

Under the replacement act, AB 1228, the council will be able to increase the minimum fast-food wages in the state by up to 3.5% annually, depending on the Consumer Price Index, a federal measure of inflation.

Chipotle noted in its earnings release that its results could be affected by "increasing wage inflation and the competitive labor market, including as a result of regulations such as California AB 1228."

Chipotle, which has more than 110,000 employees, spent $616.3 million on labor globally in the quarter to September 30, an increase of more than 50% from the same period in 2020, not accounting for inflation.

Update October 27, 2023: This story has been updated with comment from Chipotle.