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- Chipotle customers in California should brace themselves for higher menu prices this year.
- Chipotle's CFO said it needed "significant" price increases to offset a new wage law.
- The law will put fast-food workers' wages up to $20 an hour from April.
Chipotle's Californian customers should expect a "significant" price increase to make up for the state's new wage law for fast-food workers, executives at the burrito chain warned on Tuesday.
"We know we have to take something as a significant increase when you talk about a 20%-ish increase in wages," Jack Hartung, Chipotle's chief financial and administrative officer, told investors during its fourth-quarter earnings call.
Minimum wages for California fast-food workers will increase to $20 an hour in April under a law signed by Gov. Gavin Newsom in September.
California raised its state minimum wage from $15.50 to $16 on January 1, though some cities and counties use a higher rate. The federal minimum wage is $7.25.
Hartung previously said that the chain's average wage in California was about $17 an hour.
"We haven't made a final decision, in terms of pricing," Hartung said. "We'll wait and see just what the landscape looks like, what the consumer sentiment is, what other companies are going to do."
Laurie Schalow, Chipotle's chief corporate affairs officer, later told Business Insider that the chain anticipates a price increase to be in the mid-single digits.
Chipotle is based in California and has 475 restaurants in the state —around 14% of the company's total stated restaurant count on its website.
Hartung said that Chipotle could put prices up to a level where the chain breaks even, or it could "take a higher price increase and you protect margins as well."
The new legislation, known as AB 1228, won't just bring a wage increase in April. Under the law, a fast-food council will be able to increase the minimum wage of workers in California by up to 3.5% a year, depending on inflation.
McDonald's CEO Chris Kempczinski said in October that the burger giant's menu prices would increase in California because of the law.
Chipotle spends nearly as much on labor as it does on food, drinks, and packaging
Fast-food chains are experimenting with technology and automation to become more efficient and to reduce how much they have to spend on wages.
Chipotle, for example, is working on a robot to cut, core, and peel the avocados it uses for its guacamole which it plans to roll out at some restaurants. CEO Brian Niccol said on Tuesday that the chain was looking into other robots to help out in its kitchens, like ones to chop jalapeños and onions.
Chipotle is also developing a robot to make burrito bowls for digital orders, which it says can prepare about six times as many an hour as a human can.
Chipotle, which has roughly 115,000 workers, spent $2.44 billion on labor in 2023, up about 11% from the previous year. In comparison, it spent $2.91 billion on food, beverage, and packaging costs in 2023 — just a fifth more than it spent on labor.