Sticker shock on the menu
Fast-food restaurants raising their prices to counter higher costs for ingredients, labor
On a chilly afternoon this month, James Marsh stopped by a Chipotle near his suburban Chicago home to grab something to eat.
It had been a while since Marsh had been to Chipotle — he estimated he goes five times a year — and he stopped cold when he saw the prices.
“I had been getting my usual, a steak burrito, which had been maybe in the mid-$8 range,” said Marsh, who trades stock options at his home in Hinsdale, Illinois. “Now it was more than $9.”
Last year, the price of menu items at fast-food restaurants rose 8%, the biggest jump in more than 20 years, according to government data. And, in some cases, portions have shrunk.
“In recent years, most fast-food restaurants had, maybe, raised prices in the low single-digits each year,” said Matthew Goodman, an analyst at M Science, an alternative data research and analytics firm. “What we’ve seen over the last six-plus months are restaurants being aggressive in pushing through prices.”
Chains like McDonald’s, Chipotle and Wingstop were big winners of the pandemic as consumers increasingly turned to them for convenient solutions. But in the past year, as the cost of ingredients rose and the average hourly wage increased 16% to $16.10 in November from a year earlier, according to government data, restaurants began to bump up prices.
But making customers pay more is tricky. For many restaurants, it involves walking a fine line between raising prices enough to cover expenses while not scaring away customers.
While Chipotle executives blamed higher labor costs for a 4% price increase in menu items this past summer, the company has been looking for ways to boost its profitability.
One way was to charge higher prices for delivery. Delivery orders through vendors like DoorDash and Uber Eats exploded for Chipotle and other fastfood chains during the pandemic. But so did the commission fees that Chipotle paid the vendors. So in fall 2020, it tested what would happen if it raised prices of food to be delivered, executives told Wall Street analysts in an earnings call. It essentially meant the customer covered Chipotle’s side of the delivery costs.
That does not mean customers are thrilled about the extra costs. This month, Jacob Herlin, a data scientist in Lakewood, Colorado, ordered a burrito for $11.95, a Coca-Cola for $3, and chips and guacamole, which were free with a coupon. The total was $14.95, before tax.
But when he clicked to have the food delivered, the price for the burrito jumped to $14.45, and the soda climbed to $3.65, bringing the total to $18.10 before tax. Herlin was also charged a delivery fee of $1 and a “service fee” of $2.32, bringing the total to $23.20. He tipped the driver an additional $3.
Herlin said he did not mind paying for delivery and wanted drivers to be paid a decent wage. But he felt that Chipotle was not being upfront with customers.
“They’re basically hiding the fees two different ways, through that base price increase and through the hidden ‘service fee,’ ” Herlin said in an email. “I would very much prefer if they had the same pricing and were just honest about a $5 delivery fee.”