Chipotle’s CFO on Avocado Prices, Inflation and TikTok-Inspired Menu Items

By Jennifer Williams-Alvarez May 1, 2023 5:31 pm ET WSJ

The burrito chain is seeing relief on avocado costs as other inflationary pressures remain, finance chief Jack Hartung says

Lower-than-expected avocado costs have helped Chipotle Mexican Grill’s margins, offsetting higher costs for other items such as oils and tortillas. PHOTO: BRANDON BELL/GETTY IMAGES

Chipotle Mexican Grill’s shares hit a record high last week after the fast-food chain reported first-quarter results that beat analysts’ expectations. Quarterly and comparable sales were up, and its restaurant-level operating margin improved by roughly 25%.

One reason behind the results: avocados.

Lower-than-expected avocado costs have helped the company’s margins, offsetting higher costs for other items such as oils and tortillas. The average price for each Hass variety of avocado was $1.32 last week, down around 18% from around a year ago, according to the U.S. Department of Agriculture.

This matters because the burrito chain buys more avocados than most if not all other U.S. restaurant companies, said Chief Financial Officer Jack Hartung. In restaurants across the U.S., Canada and Europe this year, Newport Beach, Calif.-based Chipotle expects to use roughly 4.5 million cases of avocados, which amounts to around 100 million pounds of fruit.

The company’s first-quarter results were also lifted by a new TikTok-inspired menu item, a so-called fajita quesadilla. The dish, made a part of Chipotle’s permanent menu in March, adds fresh fajita vegetables to the company’s quesadilla. The concept went viral after two TikTok influencers posted reviews of their versions of the newfangled quesadilla, leading to two top sales days for Chipotle’s digital business, which includes sales made online through its website or app.

CFO Journal talked to Mr. Hartung about food and labor inflation, pricing considerations as consumers face the potential of a recession and the new TikTok-inspired menu item. His responses have been edited for length and clarity.

WSJ: The price of avocados has recently dropped considerably, which has offset higher prices for other menu ingredients. Are you expecting that to continue?

Mr. Hartung: Around half of our transactions include guacamole, so when avocados are more expensive, that impacts us. Right now, we’re seeing avocado prices that are the lowest we’ve seen in a number of years, and that’s definitely helping us. While costs for some of our ingredients have gone up during the first quarter, avocados went down and it had an offsetting effect.

But that could change because the sourcing, where we get avocados from, changes quite a bit. We get most of them from Mexico, but we will shift where we’ll get more of them within the next month or so from California. Later in the summer and in the fall, we get them from Peru and Colombia. So it changes and that pricing can change as you move from season to season based on supply and demand from where you’re sourcing and weather conditions. (continue to The Wall Street Journal for full article)