Chipotle is prospering even as it raises prices on burritos that are already expensive – about twice as much as those sold by Taco Bell (YUM.N). Besides its naturally-raised meats and organic ingredients such as beans and avocados, the company occupies the center of fast-casual dining - the booming "sweet spot of the restaurant industry," according to Hottovy - in which customers order at a counter but eat quality products inside a hip space.
And Chipotle is still growing. The chain runs about 1,700 restaurants in the U.S., and analyst Stephen Anderson at Miller Tabak estimates that it could grow to 3,100, expanding in less populated areas beyond its urban strongholds.
Chipotle hadn't raised menu prices for three years, but the higher cost of ingredients compelled it to roll out up to a 6.5 percent average increase in the second quarter.
To be sure, the hike did not go unnoticed: some customers said goodbye to steak burritos because their price jumped on average 4 percentage points more than Chipotle's chicken-based dishes, the company said.
Other fast food chains haven't fared as well. Dunkin' Brands Group Inc cut its outlook for the year on Thursday, while quarterly profit fell more than expected at McDonald's Corp.
The world's largest hamburger seller and other fast food chains have become "hooked" on discounting, Anderson said. While they built their reputations by delivering quick bites, new menu additions have often slowed their service, frustrating customers.
"What [McDonald's needs] to do is further simplify the menu. It is too operationally complex, and I think that leaves a lot of potential for errors," Anderson said.
There are times where a dollar burger will do, but the reason I keep going back to Chipotle and other fast casual places like Noodles & Co and Five Guys is the quality and consistency of the food. Sure, you could get half a dozen Taco Bell tacos for the price of one Chipotle burrito, but they're nowhere near as good and who the hell knows what's in Taco Bell's "taco meat" anyway?
Quality does matter, and people will pay for it. This is apparently "news".