Chipotle Mexican Grill said it expects its 2019 costs could rise by about $15 million if President Donald Trump’s proposed tariffs on Mexican imports are enacted, and possibly lead the fast-food chain to raise prices.
“If the tariffs become permanent, we would look to offset these costs through other margin improvement efforts already underway,” Chief Financial Officer Jack Hartung said in a statement Monday. “We could also consider passing on these costs through a modest price increase, such as about a nickel on a burrito, which would cover the increased cost without impacting our strong value proposition.”
Chipotle was already expecting food costs in the second quarter to be 1 percent higher than the first quarter due to rising avocado prices, but tariffs would mean prices could be even higher.
On Thursday, Trump said he would put tariffs in place on Mexican goods beginning June 10 if the country doesn’t help prevent the flow of illegal immigrants, mostly from Central America, over the U.S. southern border. Under Trump’s plan, the tariffs would gradually increase and could rise as high as 25 percent by October.
Chipotle said Friday its supply chain team has been working to diversify its produce supply consistent with “our food with integrity principles,” and said it is not willing compromise those principles.
“We know that we could easily solve the volatility in our supply chain by purchasing premashed or processed avocados, which would be cheaper, readily available and provide stability, but we are committed to our brand purpose and upholding our food with integrity principles,” Hartung said. “We believe that using whole, fresh ingredients and making guacamole by hand in our restaurants each day leads to better tasting guacamole that our customers deserve and expect from Chipotle.”
Analysts say Chipotle isn’t the only brand that may suffer from the price increase that would come from the tariffs. However, the company is one of the first to specify the cost pressure it could see.
“Anyone with avocados would be hurt most by Mexico import tariffs,” says R.J. Hottovy, senior restaurant analyst at Morningstar. “Chipotle would be the most likely candidate.”
Chipotle stock has been the best performer in the restaurant space so far this year, up more than 52 percent in 2019.