Last year, we did see the lower income consumer was pulling back a little bit, but they've come back, and they're spending at just about the same rate as our higher income consumers.

And in our case, I think what Chipotle offers to customers both at the low income, the medium, and the high income is that we're the kind of food that they want to eat.

It's wholesome ingredients, sustainably raised ingredients.

It's real cooking.

It's food that they crave.

And it's a lot of food for a very, very good value.

So an environment like this, Chipotle is a great place for consumers of all spending abilities to join.

And if you're going to pull back in your budget, Chipotle, it's very affordable.

So it's not something you have to pull back on.

- Talk to us about the trends you're seeing then in terms of frequency of visits, in terms of size of ticket, for example, sort of related to what you were just talking about.

JACK HARTUNG: Yeah.

We're not seeing any change in size whatsoever.

So the attachment of wok, and queso, and chips, and salsa, and things like that are very, very consistent.

The only thing we're seeing that is affecting our check is the group size is getting smaller, but that's really a continued return from this post-pandemic period.

We're seeing that our urban restaurants are outcomping our suburban restaurants.

That means obviously more folks are working from the office from home.

And so instead of getting a meal with your family at home while you're working, you're at the office, and you're getting it by yourself.

So we're seeing a normalization of group size.

Our group size today is still higher than it was in 2019.

So we're I would say getting back to normal.

But no indication that people are trying to spend less when they visit Chipotle.

- And so all that considered, there have been some significant digital investments that the company has made, that you continue to make, and menu innovation kind of in tandem with that.

Where is the biggest pickup that you're seeing right now in menu innovation, and what's on the docket next?

JACK HARTUNG: Yeah.

So Chicken al Pastor has been fantastic.

One in five customers is getting Chicken al Pastor.

The beauty about Chicken al Pastor is from an execution standpoint in a restaurant, it's very seamless.

It's the same chicken that we serve normally, but it's got a different marinade, a very delicious, slightly spicy marinade with a little pineapple, a little pepper.

So it's really, really delicious.

So it's easy for our teams to execute.

Our customers love it.

It's been really our most successful LTO.

We do have another coming in the fall.

Now we haven't announced it yet, so I'm going to have to tease a little bit.

I can tell you it's not chicken, and it's not brisket.

But we're really excited about what's to come.

And menu innovation is important because customers know that they can get real culinary, real cooking at Chipotle.

And for us to have some exciting news just a couple times a year we think is important to keep our customers excited about visiting and getting some variety.

- And let the guessing begin.

Not chicken.

Not beef.

There are some other proteins.

All right, Jack.

We'll have to keep in touch with you on that one.

Let's talk pricing for a moment.

Where do you guys stand in the pricing cycle?

I think the last time we spoke to you, you were definitely slowing down price increases.

And on a related note, if I can also get you to comment on portion size, if you guys have decreased portion size as well.

JACK HARTUNG: Yeah.

On pricing, we're coming on a year since we've had our last national price action.

That was in early October of last year.

So we've held the line on pricing this year, and we've still been able to generate these very, very strong margins.

We have seen a little bit of inflation in some of our ingredients.

You haven't seen it in our margins yet because we've had favorable avocado prices that have offset it.

And also the idea of Chicken al Pastor, we actually are shifting some meat eaters, which is more expensive from a food cost and a margin standpoint, into chicken, which is more favorable from a margin standpoint.

And as those things normalize some of this inflation will come through.

So we have talked about-- we'll consider whether we need to take a modest pricing action later in the year.

Portion sizes are not getting smaller.

When customers come to Chipotle, they expect their burrito-- They want not only the ingredients they want, but they want the portions that they want.

One of the great things about customers that come to our restaurant, they interact with our customers.

They get exactly what they want as they move down the line.

And from a digital standpoint, it's the same thing.

You can order light rice if you want, or you can get extra rice if you want.

And you can do that throughout each of our ingredients along the way.

So we're not going to try to manage our margins based on portion size.

- Jack, I want to go to kind of a holistic Earth type of perspective here as we've already heard so much about scientists saying that this is going to be one of the hottest years on record.

And when you think about that, as it relates to Chipotle, I think about sourcing.

I mean, you're one of those companies that has been more vocal about the sustainability of your practices, and getting ingredients, and working with farmers to get more kind of farm to table, or farm to burrito, or farm to bowl, whatever that may look like.

So do you look at some of the climate risks and factor that into how Chipotle is sourcing ingredients and continuously able to get them into the most kind of fresh environments to then be able to serve them up to customers?

How do you kind of look at that as a broader put or something that you have to navigate?

JACK HARTUNG: Yeah.

Yeah.

Listen, we do.

And I wouldn't say it's necessarily just based on climate or based on the heat wave that we're seeing right now.

It's really based on diversifying where we get our ingredients from.

For example, we buy a lot of local produce, anywhere between 35 and 40 pounds per year.

That's important for us to diversify where we're buying from.

It's also important for our customers to know that the produce in your bowl today was raised within a short distance of where the restaurant is.

That's very, very important.

It also supports local farmers when we do things like that.

But then even beyond that, like avocados for example, we've been diversifying where we buy our avocados from.

So we buy from California and Mexico, and we've done that for a couple of decades now.

But we're diversifying by looking in areas like South America, for example.

And so we're working with suppliers that haven't been big sources of avocados in the past, but we'll partner with them because they know that we have the demand.

And if we have the demand and we have an agreement with them, they can invest in and building that capacity over time.

So one of the areas where we're thinking about not just this year or next year, over the next 10 years, where are ingredients going to come from?

And let's diversify from a supplier standpoint and from a geography standpoint.

And then we'll be able to keep up with the significant growth ahead of us.

- Jack, sort of on a related note.

It's interesting, as Brad was asking that question, I got a news headline alert on my phone talking about July being Earth's hottest month on record.

So obviously, this is a very pertinent conversation right now.

I'm curious how not just with produce but all across the board, it affects your cost structure and how you think about that going forward.

Because obviously, energy costs are a factor here as well when you have not just heat but other kinds of weather events, not just for avocados but really products across the board, right?

I would imagine you would continue to see a longer term secular upward pressure on some of this produce.

How do you think about all of that?

JACK HARTUNG: Well, there's one direct effect frankly.

We're seeing our utility costs up.

We signaled that in the third quarter, that our utility costs will be up.

And also, when you have this kind of heat and you're putting this much pressure on your HVAC, you have breakdowns as well.

So our M&R is a little higher as well.

From a produce standpoint, from an ingredient standpoint, again, we don't know where the climate challenges are going to be.

And sometimes, it's storms in a certain area of the country, or it could be heat in a certain area of the country.

And so the best thing we can do is we partner, and we have long term partnerships with our folks.

Our partners know they can invest in their business, whether it's to expand capacity, whether it's to bring new technology so they can deal with some of these weather challenges.

We also have the cultivate index fund, which is a fund where we are working with really early start-up companies to figure out how can you diversify where and how your crops are grown.

So that, again, you can diversify and not be tied to just one geography.

If one geography gets hit by a weather event, whether it's a short term or a longer term, it's very difficult to source the fresh ingredients that we need to prepare our meals at Chipotle.

So this idea of partnering over a long period of time, so we can diversify and figure out what technology we can use to think about not just today but years in the future is very important to us.

- Jack, thanks so much.

I mean, I'm just blown away by our conversations quarter after quarter.

And we appreciate you taking the time.

As always, Chipotle CFO Jack Hartung.

Really appreciate the time.

JACK HARTUNG: Thank you, guys.

- Definitely.