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I don't understand how high avocado prices could cause Chipotle to loose money. Guacamole is an optional add on why wouldn't they just raise the price of the g

I don't understand how high avocado prices could cause Chipotle to loose money. Guacamole is an optional add on why wouldn't they just raise the price of the guacamole to reflect the market price of avocado or use avocado futures to hedge their price risk.

tgb 9y ago
That's not what the article claims: > Chipotle, a Mexican-themed restaurant chain, said that “historically high avocado costs” were a big reason why it posted disappointing financial results last year.
- hobs 9y ago
  What do you think disappointing financial results because of Avacados is claiming then?
  - mastazi 9y ago
    parent comment said "that's not what the article claims", which (if you want to be nitpicky) is correct because the article reports a claim made by the company, without explicitly supporting it.
  - tgb 9y ago
    The post I replied to is claiming that they lose money on each sale of guacamole. (This is clear from bringing up the possibility of raising prices of the optional add on guacamole.) However, this is clearly much stronger claim than merely that Chipotle is doing worse financially than if their avocados cost less.
    - traek 9y ago
      > The post I replied to is claiming that they lose money on each sale of guacamole. (This is clear from bringing up the possibility of raising prices of the optional add on guacamole.) That's not what they're claiming, they're saying that if ingredient prices rise (e.g. for avocados) Chipotle can raise menu costs to protect margins. Nowhere is it implied that guacamole was being sold below-cost.
      - tgb 9y ago
        Well, the comment did say "losing money", but either way, that's not what was claimed in the article and that distinction is exactly what I was pointing out. High margins does not mean that they do well financially, obviously! Unless you think that the original remark was "I don't understand how raising prices could lose business" then this isn't what the article was saying. I don't understand what the confusion is: the article says they do less well financially than they would have if their ingredients were cheaper. The original comment here says "but they can always raise their prices" but that cannot guarantee that they do well financially. If the article had claimed that their margins were too low or that the extreme that they were losing money from each sale, then the first comment would have made sense. But it doesn't.
  - ceeker 9y ago
    This is the bit that you are missing: >>Some restaurants were forced to add a surcharge on guacamole, or temporarily to scrap it from their menus altogether. Others swallowed the bill. They could raise prices but they have chosen not to so far. They may have to in the future. That explains why their financials were not great.
nanis 9y ago
Demand curves are downward sloping. Guacamole and main items on Chipotle's menu are complements.
philipodonnell 9y ago
Raising prices for a chain like Chiptole is non-trivial. Think about all those menu boards listing the price of adding guacamole, every one of those has to be reprinted, distributed and posted. IT systems updated, etc. Not saying they don't do stuff like that all the time, there's just more of a lag between a commodity price rising and a chains ability to raise the price of the end product. These kinds of decisions are made over fairly long time frames. Someone will be studying the likely effect of each possible price, others are forecasting how long avocado prices might stay high. Lots of disagreements, oh Jim thinks it will stay this high for a year, Mary says another month. Those things have to get worked out before even the decision will be made. It just takes time and it would have to hurt first (sounds like that day is here), but they will eventually raise the price.
- noway421 9y ago
  Also, the customers might not be happy. Especially if it was selling at no extra charge.
- sciencesage 9y ago
  A lot of chains use TV sets to list item pricing now, so that would make it easier. But I agree that it's usually not in the chain's best interest to raise prices often
  - 0xJRS 9y ago
    While I think they should, Chipotle does not use screens for their overhead menus
drawkbox 9y ago
Probably a reason they are adding other high margin products like queso to offset shrinking margins on avocado. Guacamole is always expensive but worth it. Though simplicity and just doing the same thing well is really what Chipotle is or was, much like In-N-Out doesn't need gimmicks, just the same good food consistently with well paid employees so it is quality. Hopefully Chipotle doesn't add too many things.
- cvsh 9y ago
  Based on casual observation of what other customers are ordering from my frequent visits to Chipotle, it seems like queso has been a complete failure. I don't understand why they thought cheese would be something people would pay extra for. A) Cheese is not usually expensive, like avocado, and so not usually considered worth paying extra for 2) Cheese is known not to be healthy, and part of the appeal of Chipotle is the illusion that you're eating healthy food 3) A different kind of cheese is already available for free, so that substitute good is bound to drive down demand for queso I did notice that they recently cut corn tortillas and one (or two?) of the meat options, so they at least seem to be cognizant of the benefits of reducing decision fatigue by concentrating on their best-selling options
  - gkgicccj 9y ago
    Which cheese are you referring to and why do you think it's not healthy? Genuine q
    - Fnoord 9y ago
      Cheese, generally, contains a lot of fat and salt (as in natrium, I think in the USA it is called sodium). We're consuming too much natrium as it is. There are other, cheaper methods of obtaining protein. Some of which are locally available. In Africa, for example, insects are used as local source of protein. They have a low Co2 footprint for a variety of reasons: * Because a lack of transportation (locally available). Especially when compared to trademark protected cheeses such as Gorgonzola. * Barely any land is used and it can be stacked, allowing more space for other land usage (generally that could be forests, or at least not adding to deforestation). * No methane enters the air which directly affects Co2 emissions (which cows, generally the main animal used for cheese, do produce a lot). Compare insects and cheese to avocados: for Europeans avocados are not locally grown, and the deforestation is a "far from my bed" show.
yinghang 9y ago
Qdoba, Chipotle's competitor, actually offers guac for free - which is super interesting to me!
- ams6110 9y ago
  Is there such a thing as imitation guac?
  - csa 9y ago
    I imagine so, but I have not seen it. That said, I see guac thinned all the time with salsa (esp. tomatillo-based salsas).
    - schrodinger 9y ago
      Sometimes sour cream, too.
      - magic_beans 9y ago
        That is criminal.
  - newman8r 9y ago
    There was a scandal a while back where Kraft was calling a dip 'guacamole' despite having barely any avocado in it: http://articles.latimes.com/2006/nov/30/business/fi-fakeguac30 http://articles.latimes.com/2006/nov/30/business/fi-fakeguac... "We think customers understand that it isn't made from avocado," said Claire Regan, Kraft Foods' vice president of corporate affairs. "All of the ingredients are listed on the label for consumers to reference."
- 0xJRS 9y ago
  There is also Moe's which offers guac for free, but the difference is that they give you 2 tbsp instead of the giant serving Chipotle does, which people might prefer to have and dont mind paying for.
draw_down 9y ago
At your job, has anyone ever asked you to “just” do something?
thisisit 9y ago
I did a casual search and there is no avocado futures. Yet. :) Chipotle has been recovering from a food safety scandal [1]. So they have to tread very carefully. While raising prices might be trivial they can generate a lot of negative publicity. [1]: https://qz.com/968286/chipotle-mexican-grill-cmg-burrito-chain-is-recovering-from-a-food-safety-scandal/ https://qz.com/968286/chipotle-mexican-grill-cmg-burrito-cha...
dragonwriter 9y ago
> I don't understand how high avocado prices could cause Chipotle to loose money. Guacamole is an optional add on why wouldn't they just raise the price of the guacamole to reflect the market price of avocado Potentially because then price sensitive people to whom avocado is important to enjoyment of the Chipotle menu items compared to other meal alternatives will instead not eat at Chipotle, so Chiptle will lose more money.

tgb 9y ago

That's not what the article claims: > Chipotle, a Mexican-themed restaurant chain, said that “historically high avocado costs” were a big reason why it posted disappointing financial results last year.

hobs 9y ago
What do you think disappointing financial results because of Avacados is claiming then?
- mastazi 9y ago
  parent comment said "that's not what the article claims", which (if you want to be nitpicky) is correct because the article reports a claim made by the company, without explicitly supporting it.
- tgb 9y ago
  The post I replied to is claiming that they lose money on each sale of guacamole. (This is clear from bringing up the possibility of raising prices of the optional add on guacamole.) However, this is clearly much stronger claim than merely that Chipotle is doing worse financially than if their avocados cost less.
  - traek 9y ago
    > The post I replied to is claiming that they lose money on each sale of guacamole. (This is clear from bringing up the possibility of raising prices of the optional add on guacamole.) That's not what they're claiming, they're saying that if ingredient prices rise (e.g. for avocados) Chipotle can raise menu costs to protect margins. Nowhere is it implied that guacamole was being sold below-cost.
    - tgb 9y ago
      Well, the comment did say "losing money", but either way, that's not what was claimed in the article and that distinction is exactly what I was pointing out. High margins does not mean that they do well financially, obviously! Unless you think that the original remark was "I don't understand how raising prices could lose business" then this isn't what the article was saying. I don't understand what the confusion is: the article says they do less well financially than they would have if their ingredients were cheaper. The original comment here says "but they can always raise their prices" but that cannot guarantee that they do well financially. If the article had claimed that their margins were too low or that the extreme that they were losing money from each sale, then the first comment would have made sense. But it doesn't.
- ceeker 9y ago
  This is the bit that you are missing: >>Some restaurants were forced to add a surcharge on guacamole, or temporarily to scrap it from their menus altogether. Others swallowed the bill. They could raise prices but they have chosen not to so far. They may have to in the future. That explains why their financials were not great.

nanis 9y ago

Demand curves are downward sloping. Guacamole and main items on Chipotle's menu are complements.

philipodonnell 9y ago

Raising prices for a chain like Chiptole is non-trivial. Think about all those menu boards listing the price of adding guacamole, every one of those has to be reprinted, distributed and posted. IT systems updated, etc. Not saying they don't do stuff like that all the time, there's just more of a lag between a commodity price rising and a chains ability to raise the price of the end product. These kinds of decisions are made over fairly long time frames. Someone will be studying the likely effect of each possible price, others are forecasting how long avocado prices might stay high. Lots of disagreements, oh Jim thinks it will stay this high for a year, Mary says another month. Those things have to get worked out before even the decision will be made. It just takes time and it would have to hurt first (sounds like that day is here), but they will eventually raise the price.

noway421 9y ago
Also, the customers might not be happy. Especially if it was selling at no extra charge.
sciencesage 9y ago
A lot of chains use TV sets to list item pricing now, so that would make it easier. But I agree that it's usually not in the chain's best interest to raise prices often
- 0xJRS 9y ago
  While I think they should, Chipotle does not use screens for their overhead menus

drawkbox 9y ago

Probably a reason they are adding other high margin products like queso to offset shrinking margins on avocado. Guacamole is always expensive but worth it. Though simplicity and just doing the same thing well is really what Chipotle is or was, much like In-N-Out doesn't need gimmicks, just the same good food consistently with well paid employees so it is quality. Hopefully Chipotle doesn't add too many things.

cvsh 9y ago
Based on casual observation of what other customers are ordering from my frequent visits to Chipotle, it seems like queso has been a complete failure. I don't understand why they thought cheese would be something people would pay extra for. A) Cheese is not usually expensive, like avocado, and so not usually considered worth paying extra for 2) Cheese is known not to be healthy, and part of the appeal of Chipotle is the illusion that you're eating healthy food 3) A different kind of cheese is already available for free, so that substitute good is bound to drive down demand for queso I did notice that they recently cut corn tortillas and one (or two?) of the meat options, so they at least seem to be cognizant of the benefits of reducing decision fatigue by concentrating on their best-selling options
- gkgicccj 9y ago
  Which cheese are you referring to and why do you think it's not healthy? Genuine q
  - Fnoord 9y ago
    Cheese, generally, contains a lot of fat and salt (as in natrium, I think in the USA it is called sodium). We're consuming too much natrium as it is. There are other, cheaper methods of obtaining protein. Some of which are locally available. In Africa, for example, insects are used as local source of protein. They have a low Co2 footprint for a variety of reasons: * Because a lack of transportation (locally available). Especially when compared to trademark protected cheeses such as Gorgonzola. * Barely any land is used and it can be stacked, allowing more space for other land usage (generally that could be forests, or at least not adding to deforestation). * No methane enters the air which directly affects Co2 emissions (which cows, generally the main animal used for cheese, do produce a lot). Compare insects and cheese to avocados: for Europeans avocados are not locally grown, and the deforestation is a "far from my bed" show.

yinghang 9y ago

Qdoba, Chipotle's competitor, actually offers guac for free - which is super interesting to me!

ams6110 9y ago
Is there such a thing as imitation guac?
- csa 9y ago
  I imagine so, but I have not seen it. That said, I see guac thinned all the time with salsa (esp. tomatillo-based salsas).
  - schrodinger 9y ago
    Sometimes sour cream, too.
    - magic_beans 9y ago
      That is criminal.
- newman8r 9y ago
  There was a scandal a while back where Kraft was calling a dip 'guacamole' despite having barely any avocado in it: http://articles.latimes.com/2006/nov/30/business/fi-fakeguac30 http://articles.latimes.com/2006/nov/30/business/fi-fakeguac... "We think customers understand that it isn't made from avocado," said Claire Regan, Kraft Foods' vice president of corporate affairs. "All of the ingredients are listed on the label for consumers to reference."
0xJRS 9y ago
There is also Moe's which offers guac for free, but the difference is that they give you 2 tbsp instead of the giant serving Chipotle does, which people might prefer to have and dont mind paying for.

draw_down 9y ago

At your job, has anyone ever asked you to “just” do something?

thisisit 9y ago

I did a casual search and there is no avocado futures. Yet. :) Chipotle has been recovering from a food safety scandal [1]. So they have to tread very carefully. While raising prices might be trivial they can generate a lot of negative publicity. [1]: https://qz.com/968286/chipotle-mexican-grill-cmg-burrito-chain-is-recovering-from-a-food-safety-scandal/ https://qz.com/968286/chipotle-mexican-grill-cmg-burrito-cha...

dragonwriter 9y ago

> I don't understand how high avocado prices could cause Chipotle to loose money. Guacamole is an optional add on why wouldn't they just raise the price of the guacamole to reflect the market price of avocado Potentially because then price sensitive people to whom avocado is important to enjoyment of the Chipotle menu items compared to other meal alternatives will instead not eat at Chipotle, so Chiptle will lose more money.