NEW YORK (TheStreet) -- Chipotle (CMG) is considering raising menu prices next year as it faces higher costs for food products. For the third quarter ended Sept. 30, the Mexican food eatery recorded a 60-basis-point decrease in its restaurant-level operating margins to 26.8%, a result of increased produce and marketing expenses.
During a conference call on Thursday evening, Chief Financial Officer Jack Hartung said higher prices for salsa ingredients, dairy and meats is hindering profitability. Chipotle has also committed to removing all produce containing genetically-modified organisms (GMO) from the menu by 2014.
"While the timing is difficult to predict as we still have work to do to remove GMOs from our ingredients, a price increase around midyear is a reasonable assumption," said Hartung.
Chairman and Co-CEO Steve Ells said a price increase could be in the mid-single digit range and is dependent on general ingredient inflation and the cost of removing all GMOs.
"Our food cost which is now in a 33.5-34% range now drops down much closer to that 32-32.5% range," added Hartung based on a projected 4% price increase. "It would give us the opportunity to have returns that are at or above what our record levels have been."
In the third quarter, food costs were 33.6% of revenue, compared to 33.1% in the previous quarter and 32.6% in the same period a year ago.
Ells noted the fast-casual restaurant will continue to keep prices low while maintaining a strong economic model. "We have been able to do that by virtue of the fact that our food tastes better and we have high average unit volumes enough to cover this more expensive food cost," he added.