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If tariffs happen, Chipotle says it is ready


If tariffs happen, Chipotle says it is ready

Chipotle is expecting a 60-basis point hit to food costs if Trump 2.0 tariffs go into full effect.

But the fast-casual Mexican chain expects to be able to offset some of that cost in part through investments in back-of-house equipment that will create efficiencies and boost throughput, the company said after reporting fourth-quarter results on Tuesday.

Chipotle ended the year with same-store sales up 5.4% for the Dec. 31-ended quarter, driven by a 4% increase in transactions.

For the year, same-store sales climbed 7.4%, driven by transaction growth of 5.3%.

And CEO Scott Boatwright said Chipotle is starting to see costs ease from the effort last year to boost portion sizes.

Last year, Chipotle became the target of social media critics who alleged the brand was skimping on protein portions. So the chain last year made an effort to ensure "consistent and generous portions" to counter that perception.

That raised food costs. In the fourth quarter, food costs were 30.4%, an increase of about 70 basis points, but that also included the higher cost of brisket, which was a huge hit as a limited-time offer last year.

The chain was also expecting to see higher avocado and chicken costs last year. But those prices didn't end up climbing as much until the first quarter, said CFO Adam Rymer, and that was before the President threatened tariffs on goods from Canada and Mexico -- which have been put on pause for now.

But if the Trump Administration follows through on the tariff threat, Chipotle is ready, having shifted sourcing on some products to other countries, like Colombia, Peru and the Dominican Republic, Rymer said.

About half of the avocados used at Chipotle come from Mexico, but the overall spend on ingredients from Mexico accounts for about 2% of sales, including tomatoes, limes and peppers. Only 0.5% of the chain's food spend comes from Canada and China.

So far in January, same-store sales have been down 2%, which Boatwright blamed on bad weather, the winter holidays falling mid-week, and a small impact from the fires in Los Angeles.

But Boatwright expects the investments in equipment to pay off as new produce slicers, dual-sided planchas, dual-vat fryers and three-pan rice cookers roll out in various phases this year.

Boatwright, who was COO at Chipotle before taking the CEO seat last year, said it has taken some time to feel comfortable even considering moves in the kitchen that would modify the "knives and cutting board process" that Chipotle is known for -- in other words, real cooking. Chipotle's kitchens haven't changed much in 30 years.

But the modernized kitchens will still include knives and cutting boards. These changes, however, will allow for more consistent cuts and save time, to allow for team members to be deployed in other ways.

"So if we can generate that experience and be more efficient and have better culinary, I am all in," he said.

For 2025, Chipotle is projecting same-store sales will be up in the low- to mid-single-digit range. The chain also expects to add between 315 to 345 new restaurants, with more than 80% being drive-thru Chipotlanes.

In the fourth quarter, the chain added 119 company-owned units, of which 95 were Chipotlane drive-thru locations. Chipotle recently passed the milestone of opening 1,000 drive-thru units, and the format makes up more than 25% of the chain's restaurants.

On average, Chipotlane locations take less than 30 seconds to complete the order pickup process, Boatwright said. They also generate more revenue, have better margins and returns than non-Chipotlane locations.

As Chipotle pushes to reach 7,000 units across North America with an average unit volume of more than $4 million (the current AUV is $3.2 million), Boatwright said he is prioritizing an "obsession with guests."

"We have to do a better job of creating a better experience consistently for all guests that come into our restaurants, whether that's clean dining rooms, smiles down the line, or better guest recovery, we have opportunities," he said. "We're really, really strong with culinary today. We're really strong with speed down the line. We have best in class team members.

"In every single restaurant," he added, "we can do a better job of creating a really unique experience as it relates to guest obsession."

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