Chipotle’s CFO on burrito season, the right amount of guac—and why a price hike is coming to California

The fast-casual restaurant reported earnings this week for the fourth quarter and fiscal year ending Dec. 31. Total revenue in the fourth quarter was $2.5 billion, an increase of 15.4% compared to the fourth quarter of 2022. Comparable restaurant sales increased 8.4% from the same time a year ago, driven by a 7.4% increase in foot traffic and an increase in average check of 1%. This all contributed to a boost in total revenue. The company had fourth-quarter net income of $282.1 million, up from $223.7 million the same time last year. 

What’s causing the boost in foot traffic? “We had to basically get back to our standards of running great restaurants,” Jack Hartung, CFO and administrative officer at Chipotle told me. 

During the pandemic, much of the business was digital, and it was difficult to get the right number of crew members to come in, he said. For the past 18 months, the team has been working on returning to best practices. “That means having a team that’s fully staffed, making sure you’ve got the right number of people deployed on the front line, making sure you don’t run out of things like chips, and you’ve got enough guacamole for the day.” The teams have been highly effective in making sure that there’s enough chips and enough food prepped in the morning, he said. 

Hartung also attributes traffic to what he said is the restaurant’s value proposition of quality food made from fresh ingredients. “It’s hard to find an entree for lunch or for dinner of the quality you get at a Chipotle for under 10 bucks,” he said. 

Hartung did note that Chipotle “costs a little bit more than traditional fast food.” (Well, maybe not since a McDonald’s Big Mac meals are priced at nearly $18 at some locations.)

Chipotle attracts customers across income levels, he said. “We have increased customer visits at the lowest income level that we track, under $40,000 [a year.]” Hartung said. The other yearly income ranges tracked are from $40,000 to $100,000, from $100,000 to $150,000 and over $150,000. “Every single income level came to us more often,” he said. 

In October Chipotle raised prices by 3% after pausing hikes for over a year. I asked Hartung if he foresees any price hikes this year as it’s uncertain when the Federal Reserve will lower interest rates. “We don’t have any current plans to raise prices right now,” he told me. But there’s one exception. 

“We do, in California, have a very significant increase in our wages coming up, and it’s going to be in the ballpark of a 20% increase due to the FAST Act,” he said. “That is likely to lead to some pricing action, but only in California.” The FAST Act, California’s new minimum wage law, which goes into effect in April, pays fast food workers $20 an hour.

Positioned for growth

During the fourth quarter, Chipotle opened 121 new restaurants with 110 locations including a Chipotlane—a digital order drive thru pick-up lane. What’s Hartung’s advice about growth during uncertain times? “Make sure you’re constantly working on strengthening and protecting your unit economic model,” he said. At Chipotle, that means building a business around transaction growth because that strengthens the company’s margins and returns, he said. And at Chipotle, technology plays a role as well, Hartung said.

“Technology investments need to be made over a long period of time, but the right investments will lead to better productivity and results in the restaurant,” he said. For example, Chipotle is investing in Hyphen, an automated assistant or a “collaborative robot” currently being fine-tuned to work alongside human employees to help prepare burrito bowls and salads.

The company announced last month that it’s staffing up for “burrito season,” adding as many as 19,000 employees, which would be about five or six additional people per restaurant. Isn’t burrito season every season at Chipotle? Well, technically, yes. However, “we call it burrito season affectionately, as it’s when the weather starts to get nice, especially in more of the northern climates around mid-March, and that’s when our sales really start to pick up,” Hartung said. 

Have a good weekend.

Sheryl Estrada
sheryl.estrada@fortune.com

Leaderboard

Some notable moves this week:

Tony Bowen, CFO at H&R Block (NYSE: HRB) has decided to retire. Bowen will remain at the company through September for a transition period. Under his leadership, the company has returned more than $3.8 billion to shareholders through share repurchases and dividends, according to H&R Block. Bowen has served as CFO since May 2016. He began his career with H&R Block in 2004 as a senior treasury analyst and held various executive roles, including VP of finance, general manager of DIY tax software, and associate VP of corporate development. The company will begin an external search for Bowen’s replacement.

Yanela Frias was promoted to EVP and CFO at Prudential Financial, Inc. (NYSE: PRU), effective March 15. Frias will succeed Ken Tanji, who will remain with the company through Sept. 30 for a transition period. Tanji joined Prudential in 1988 and has served as CFO since 2018. Prior to being appointed president of Group Insurance in 2021, Frias served as president of Prudential Retirement. 

Gary Millerchip was named EVP CFO at Costco Wholesale Corporation (Nasdaq: COST), effective March 15. Millerchip will succeed Richard Galanti, who has been CFO at the company for nearly 40 years. Galanti will remain with Costco through January 2025, serving in an advisory role. Millerchip joins the company from The Kroger Co., where he served as SVP and CFO since April 2019. 

Steven Hodgeman was named CFO at Stash, a fintech that offers an investing and banking app. Hodgeman joins Stash from Getir, the global delivery service that recently acquired FreshDirect and at which he served as CFO of international. Hodgeman also has been the global deputy CFO of Gorillas, a European and U.S. Getir competitor that the company acquired. 

Michelle Carvin was named CFO at CarbonBuilt, a developer of concrete manufacturing technology to drive greenhouse gas reductions. Carvin joins the company with more than a decade of experience in corporate financial planning, deal structuring, and risk management. She previously served as CFO at Neely Clay Energy, a solar energy developer. Carvin also spent nearly a decade at Goldman Sachs as a VP in the Global Industrials Investment Banking Group. 

David Longo was promoted to CFO at Chegg, Inc. (NYSE:CHGG), a student-first connected learning platform, effective Feb. 21. Andy Brown, current CFO of Chegg, Inc., is retiring. Longo has been chief accounting officer and corporate controller since coming to Chegg in 2021.

Big deal

2024 Global Human Capital Trends, a new report by Deloitte, based on a survey of over 14,000 respondents in 95 countries, identifies internal constraints as the top barrier to making meaningful progress against top human capital trends. A key finding of the research is that most leaders understand that focusing on human performance is key to building thriving companies. However, they need to close the gap between knowing that issues should be addressed and taking action to make progress. Another key finding is the benefits of using technology to find new ways to measure and enhance human performance, and build human capabilities with technologies like generative AI.

Going deeper

Here are a few Fortune weekend reads:

"Bob Iger is righting the ship at Disney, earnings reveal. Here’s how he’s doing it" by Marco Quiroz-Gutierrez 

Overheard

“Chancellor McCormick found that the process for setting Elon Musk’s pay was essentially controlled by Elon Musk. The board didn’t engage in any kind of pushback or real bargaining.”

—Tulane University law professor Ann M. Lipton said in an interview with Fortune regarding Delaware chancellor Kathaleen McCormick's ruling in favor of a shareholder who argued that Tesla was paying its CEO, Elon Musk, an unfairly high amount—a $55 billion compensation package.