As if Chipotle needs any more bad news right now, industry analysts are now warning that there may be more tough times to come for the beleaguered company: Namely, soaring avocado prices could hit the chain right where it hurts — its bottomline.
Analysts at Credit Suisse say that the recent uptick in avocado prices could have “material ramifications” for Chipotle’s third quarter earnings, reports The Street.
While Chipotle’s avocado buyers know how to weather these kinds of seasonal fluctuations, they’re not used to expecting changes on these levels, the analysts note: Prices have jumped about 75% just since mid-July, partly because of shortages in Mexico and California.
Compared to this same time last year, avocados cost about 50% more. That’s not great for Chipotle, as avocados are an estimated 10% of the company’s total costs.
The company may not have been ready for this price jump, either: Executives had predicted a 20% seasonal drop in prices going into the second half of 2017, but instead they will likely go up by 10%, reports Markets Insider.
This avocado inflation — along with recent headlines involving a norovirus outbreak — has Credit Suisse analysts saying they wouldn’t buy Chipotle shares right now.
Will these high avocado prices hit Chipotle’s customers? While the company could charge more for guacamole in an attempt to make up for paying more for avocados, it hasn’t done so during past shortages.
“We don’t provide financial updates between quarters, and will update all of our financials, including food cost trends, when we release third quarter results in October,” Chipotle spokesman Chris Arnold told Consumerist when we asked whether there are any plans to raise prices amid the current avocadopocalypse.
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