Tuesday, July 7, 2015

Who-d a-thunk it? SF minimum wage increased 14% and local Chipotles just raised prices by 10-14%?

From Mark Perry.
"From an equity research report issued to investors by global investment banking and wealth management firm William Blair on Chipotle Mexican Grill, Inc. (NYSE: CMG) – “Price Increases Have Begun Early in Third Quarter” (received privately):
• In our weekly survey of ten of Chipotle’s markets, we found the company implemented price increases in half of the surveyed markets this week—San Francisco, Denver, Minneapolis, Chicago, and Orlando. In most markets, the price increases have been limited to beef and average about 4% on barbacoa and steak, toward the lower end of management’s expectation for a 4% to 6% price increase on beef.
San Francisco, however, saw across-the-board price increases averaging over 10%, including 10% increases on chicken, carnitas (pork), sofritas (tofu), and vegetarian entrees along with a 14% increase on steak and barbacoa.We believe the outsized San Francisco price hike was likely because of increased minimum wages (which rose by 14% from $10.74 per hour to $12.25 on May 1) as well as scheduled minimum wage increases in future years (to $13 next year, $14 in 2017, and $15 in 2018).
Economic Lesson: TANSTAAFMWH, — “there ain’t no such thing as a free minimum wage hike.” Or to paraphrase David French, vice-president of the National Retail Federation, “There simply isn’t any magic pot of money that lets employers pay higher wages just because the government says so, without making adjustments elsewhere like cutting workers’ hours, reducing their non-cash fringe benefits, and/or passing the higher wages along to consumers in the form of higher prices.” After all, the minimum wage is not really a political problem, it’s a math problem. And the 10-14% price increases at Chipotles in San Francisco are just the new math problem now facing the restaurant chain’s customers, who’ll now be paying about $1 extra for each burrito bowl…."

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