Why is Chipotle Suddenly Charging For Side Tortillas?

I could take the cyclic bacterial outbreaks, but you’ve gone too far this time, Chipotle.

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case the majority of your day isn’t spent thinking about your next Chipotle order, it might be news to you that Chipotle is now charging consumers .25 cents for ordering a once free tortilla on the side of a burrito bowl. Obviously, 2020 is taking no prisoners.

Some Background

On average, Chipotle serves a shocking 750,000 customers a day, with some room for variance, across 2,677 locations. The franchise pulled in $4.864 billion in 2018 alone.

And one of the most popular orders of an already popular franchise is the burrito bowl. Now, a potential plus of the burrito bowl is that it’s less calorie intensive so a new brand of consumers looking for “healthy” fast food. And shaving off the tortilla saves the consumer 300 calories, right off the bat. If you’re on a diet but picking up at a fast food chain, this might be the way to go.

Of course, true Chipotlers (Chipotlees?) know other reasons to buy the bowl. Because up until 10/21/2020, the ever popular burrito bowl also came with a free tortilla on the side. And it’s common knowledge between Chipotle experts that the width and volume offered by burrito bowls allowed consumers to get slightly more bang for their buck than the tightly packed, ready made burrito. Therefore, by ordering the bowl and taking Chipotle up on their free tortilla on the side, consumers “gamed” the system and could fancy themselves up a slightly more robust burrito.

But, again, not anymore. Please take this decision back, Chipotle.

Just for some background clarification, let’s compare the burrito bowl to that of an actual burrito. There are some key differences, like calorie variance.

For instance, a burrito bowl sans the free tortilla clocks in at about 510 to 1250 calories, depending on the toppings. Add in the tortilla and that calories count gets an automatic 300 increase. In contrast, actual burritos hover between 1,000–1,500 calories, with variance, again, due to topping selections. Between both dishes, the ingredient most calorie heavy is the flour tortilla.

Since Chipotle themselves claims that the burrito bowl and the burrito cost the same (assuming the consumer is choosing the same meat and toppings between courses), it makes sense to opt for the option that offers more food, because we all like that.

So, why, Chipotle? Why make this update that nobody but, probably, Corporate Chipotle asked for?

I have to say that the news did come as surprising. While many companies have been hit to the point of bankruptcy due to the the Covid-19 pandemic, Chipotle’s stock has been mostly flying high:

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Still, the stock has some downsides. It’s very possible that Chipotle’s stock price is overinflated, as multiple Wall street Analysts have pointed out. Currently, with a slew of locations that each bring in, about, $250,000 in profit per year, Chipotle is considered an incredibly profitable brand, especially in contrast to other fast food franchises, like MacDonald’s, who’ve struggled to find a place with millennials and generation Z. Still, it may be at the tipping point: opening more locations, especially in the face of a pandemic and a crippled economy, is not a profitable move; Chipotle risks overselling itself.

So, is it possible that Chipotle is trying to increase profit at the expense of our free tortillas?

Totally.

I decided to do a (flawed) analysis of how much profit charging for tortillas could bring in.

So, let’s go back to the number of customers served across the number of Chipotle locations. An admittedly ethnographic study found that each Chipotle location serves, about, 610 customers per day. Of course, if you want, you can always take the number of franchise locations and divide it into the number of customers served at a single one to come up with your own calculation.

Analysis Roadblock Alert:

While I scoured multiple online databases and websites, like Quora, Statista, and Chipotle’s own annual/quarterly filings, I couldn’t find a clear breakdown of the most popular Chipotle orders by consumer.

So to continue this admittedly imperfect analysis, I’ll make have to a couple of assumptions with the clarification that all of these 3 scenarios have customers paying for the tortillas:

Let’s Dive In!

Case 1: Chipotle’s Dream Scenario

In this case, my underlying assumption is the following:

Everyone who enters a Chipotle each day orders a Burrito bowl with a side tortilla

This is the most fantastical scenario but, I’m guessing, if Chipotle Corporate decided to charge for the side tortillas, this outcome would be their corporate dream.

In this very optimistic case, we have about 610 customers each buying their bowls (prices vary based on ingredients) and then agreeing to pay for the side tortilla. For a single Chipotle location, this would add $152.5 dollars in daily profit. Now, let’s say these burrito bowl enthusiasts keep their habits up for every day of an entire year. 365 times $152.5 becomes a profit margin of $55,662.5 per store.

So, let’s assume these Chipotlers (Chipotlees?) are consistent in consumer spending habits across geography. If we remember that Chipotle has 2,677 locations, multiple that figure by the profit margin per store ($55,662.5) and, suddenly, charging for that little tortilla brings in a profit of $149 million USD for Chipotle. When we consider that Chiptole’s 2019 net income was $350 million USD, this company would have to be insane NOT to charge for those once free tortillas (pour one out for your homies, guys).

Case 2: A Middle Ground

But the above was very optimistic. I decided to do an, again, flawed analysis, based on what I could perceive as actual consumer spending habits at Chipotle.

In this case, my underlying assumption is the following:

My brief time and observations while in a NYC Chipotle can be expanded to the eating habits of all Chipotle consumers at any Chipotle store

This is far from a perfect case study, but it does give some light into the buying patterns of an actual Chipotle consumer behavior, on a microscale.

My original figure (Case 1) was based Chipotle’s best possible outcome for this strategic decision.

But it was likely overly optimistic as the burrito bowl is normally bought by a calorie counting consumer, who might not want that the tortilla. In that case, the number of Chipotlers (?) buying the bowl with the added tortilla would plummet. Since I could find zero data regarding a breakdown of purchased Chipotle by consumers,(expect that the chicken bowl is Chipotle’s most popular item?) I decided to go with some very conservative estimates.

As mentioned, in my ethnographic study, done over the course of half an hour spent with a friend at UWS Chipotle, 6 people, the both of us included, got burrito bowls. As an NYC Chipotle is normally open from 10:45 AM -10:00 PM, with some geography-based variance, based on that number, we can assume that each hour 12 people buy burrito bowls. Now, assuming that 1/3 of Americans are dieting, only 8 people would choose the delicious but calorie packed side tortillas. Over the course of 11 hour workday, that means that 88 people would pay for the .25 cent tortilla. This would become a net profit of $22 dollars a day. If you multiple that by 365, we now have a tortilla driven profit of $8,030 a year per store. But multiple that by the number of locations and the profit skyrockets to a solid $22 million USD.

Case 3: Worse Case Scenario (For Chipotle)

But again, the above cases are all based upon very random assumptions.

And to be fair, as I started out with Chipotle’s dream “forcing the customer to pay for the side tortilla = mad profit” tortilla scenario, I’ll end with their nightmare outcome, which one might argue they deserve for making us pay for the tortillas.

In this case, my underlying assumption is the following:

Over a day, nearly all customers are as disgruntled as I am about paying for tortillas save one holdout; a single Chipotle customer buys the $.25 tortilla add on in a 24/hr period while the rest of us boycott in the streets.

Now, over the course of a year, a single location, would bring in a mere $91.25 per store. But when you multiple that number by the number of Chipotle locations, it becomes a decent $244,276.

My Conclusion?

Look, while that figure is a mere fraction of our best-case scenario (Case 1), any charging scenario results in a fair chunk of pocket change for such a small add-on addition. Factor in that, literally, implementing this change would have minimal upkeep/integration costs and require nearly zero-time, training, or effort on part of Chipotle and not charging for the side tortilla seems like a crazy idea…for corporate Chipotle.

This tortilla price raise is an easy way to generate revenue when the brand knows that consumers will not flee to other options but suck it up.

As mentioned, Chipotle has a pretty strong hold on their market so it’s not likely that a raise of .25 cents will destroy brand loyalty or defer hungry consumers. Still, with how consistently profitable Chipotle has been, combined with their former process of the free tortillas, I’m not a fan of this decision. As the past years how shown, consumers incredibly want specialized experiences that do not seem as money grabs; this is the opposite of that desire.

I’d argue that if Chipotle really wanted to increase the price, they could have done so quietly by adding on the extra .25 cents. They might have even upped the price of different product, like the Burrito Bowl itself, to get the profit increase.

Likely, Chipotle stock will be fine and us Burrito Bowl enthusiasts will pay the quarter difference to continue having our “healthy” fast food. But, honestly, Chipotle, come on! And you had to do this in 2020? At least, Chipotle, you’re keeping on brand with the year.

Finance, healthcare, and technology nerd, aspiring writer, and pop culture junkie. All views my own. Work in progress.

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