Chipotle is one of the most popular Mexican fast-casual dining chains. They have grown to be pretty big in the past few years and are really popular in our area. But Chipotle also has the most highly disputed pricing decision through all of the other dining chains in our area. Paying for guacamole. If you’ve ever gone to Chipotle and ordered guacamole, you’d know that it costs extra. $1.95 to be exact. So why does Chipotle charge extra for guacamole? To understand this, we first have to understand what Chipotle's pricing strategy is.
First off, Chipotle makes sure they price their items slightly below direct competition, such as Qdoba and Baja Fresh. Chipotle makes sure to charge reasonable prices for their basic products (burritos, burrito bowls, tacos, etc.). Now that you’ve paid for the core product, Chipotle offers free upgrades. These are the sides you can add to your meal, such as extra rice, unlimited toppings, tortilla on the side, and small things like this. If you’ve ever used a water cup for a drink other than water, Chipotle knows. Using opaque paper cups instead of clear plastic cups, like most of their competitors use, is just another move by Chipotle to emphasize free upgrades. By offering these upgrades Chipotle lets customers enjoy a perfectly customized meal and makes them feel that they’re getting extra bang for their buck.
Now we get to the premium upgrades, which cost a little extra. These include chips and salsa, extra meat, and most importantly, guacamole. By offering the first round of free upgrades, Chipotle can charge for premium upgrades that cost the company more money to produce. Avocados are especially expensive, which is why guacamole is on the premium upgrade list. By doing this, Chipotle is able to keep the keep prices lower for customers who don’t want the stuff on the premium upgrade list.
This pricing scheme has allowed Chipotle to establish a spot for their restaurant in between a fast food chain and a more expensive sit-down Mexican food restaurant. Wall Street calls this the “golden sweet spot of restaurant pricing.” And this has worked really well for Chipotle. The fast-casual chain has grown to more than 2,000 locations worldwide and their revenue topped more than $4.5 billion in 2015. With a new CEO and continued growth, Chipotles pricing strategies will continue to dominate their competitors and help Chipotle become an even bigger chain than it is now.
Subscribe to:
Post Comments (Atom)
Namibia's Economy
Namibia is a country that not many people think about. It is a small nation, right above South Africa, that bases most of its economy on to...
This is a great post Tyler and I think it does a great job highlighting Chipotle's pricing strategy that allows them to continue to pull customers in. This was something that interested me as I had always been interested in understanding the extra price for guacamole. I think another thing that Chipotle does is put limited time items as premium upgrades and price them higher simply because of the fact that they are "limited".
ReplyDeleteIt is interesting to analyze Chipotle's pricing strategies and how that affects business. As someone who goes to Chiptole frequently often I feel connected to this blog and will definitely be thinking about these ideas when I am ordering my burrito. It does make sense that they would charge more for avocados because they are expensive, about $1.25 each in California! The one issue I have is that about half the time I go to Chipotle they are out of guac. This has ruined my burrito and creates almost a diminished marginal utility feel because if I go multiple times and they don't have guac it makes me enjoy it less and less as I get more frustrated. Chipotle fix your guac situation and I will continue paying.
ReplyDelete