Chipotle is feeling confident that customers are willing to pay more for its burritos, bowls and tacos.
The Mexican food chain said Thursday it would raise prices for the first time in three years as its popularity continues to soar. Menu boards with the new prices should start rolling out in coming weeks and be in place at all restaurants by this summer.
Executives have said they were considering a hike of 3 percent to 5 percent. That translates to an extra 24 cents to 50 cents for an $8 burrito bowl.
CEO Steve Ells said in a conference call with analysts that price is not the main reason customers visit its restaurants anyway. "Most of the value comes from the experience," he said.
The decision comes as higher costs for beef, avocados and cheese have pressured profit margins for the chain, with net income for the first quarter coming in below Wall Street expectations. Still, Chipotle said sales at established locations rose 13.4 percent during the period, and it raised its outlook for the year. It now expects sales to grow in the high single digits, before factoring in the price hikes.
The Denver-based chain's popularity has surged in recent years because people like that they watch as they tell workers what toppings to put on their orders. The chain also has invested in marketing to build up its reputation as higher-quality alternative to places like Burger King and Wendy's.
Those traditional fast-food chains have struggled to grow as customers increasingly opt for foods considered fresh or higher in quality. For instance, McDonald's has said it needs to underscore the value it offers.
For the three months ended March 31, Chipotle Mexican Grill Inc. said net income rose 8 percent to $83.1 million, or $2.64 per share. That's up from $76.6 million, or $2.45 per share, a year ago. Analysts expected $2.86 per share, according to FactSet.