So, how much are you willing to pay for a burrito?
On a chilly Tuesday 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.” He walked out.
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.”
This comes at a time when the hypercompetitive fast-food market is booming.
Chains like McDonald’s, Chipotle and Wingstop were big winners of the pandemic as consumers, stuck at home working and tired of cooking multiple meals for their families, 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 quietly bump up prices.
But making customers pay more for a burger or a burrito is a tricky art. For many restaurants, it involves complex algorithms and test markets. They need to walk a fine line between raising prices enough to cover expenses while not scaring away customers. Moreover, there is not a one-size-fits-all approach. Chains that are operated by franchisees typically allow individual owners to decide pricing. And national chains, like Chipotle and Shake Shack, charge different prices in various parts of the country.
When Carrols Restaurant Group, which operates more than 1,000 Burger Kings, raised prices in the second half of last year, the number of customers actually improved from the third to the fourth quarter. “Over time, we generally have not seen a whole lot of pushback from consumers” on the higher prices, Carrols’ CEO, Daniel T. Accordino, told analysts at a conference in early January.
Menu prices are likely to continue to climb this year. Many restaurants say they are still paying higher wages to attract employees and expect food prices to rise.
“We expect unprecedented increases in our food basket costs versus 2021,” Ritch Allison, CEO of Domino’s Pizza, told Wall Street analysts at a conference this month. While Domino’s has not raised prices, it is altering its promotions — offering the $7.99 pizza deal only to customers ordering online and shrinking the number of chicken wings in certain promotions to eight from 10 — in an effort to maintain profit margins.
Despite the higher food and labor costs, some restaurants are seeing sales and profits rebound past pre-pandemic levels.