Chipotle 2006 Annual Report Download - page 31

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Food, Beverage and Packaging Costs
For the years ended
December 31,
%
increase
2006 over
2005
%
increase
2005 over
20042006 2005 2004
(dollars in millions)
Food, beverage and packaging ...................... $258.0 $202.3 $154.1 27.5% 31.2%
As a percentage of revenue ........................ 31.4% 32.2% 32.7%
Food, beverage and packaging costs decreased as a percentage of revenue in 2006 and 2005 due primarily to
menu price increases and favorable commodity costs, partially offset by increased food costs associated with our
Food With Integrity initiative. In 2005, the favorable commodity costs were partially offset by increased fuel
costs. We do not expect the favorable commodity costs that we have seen over the past couple years to continue
into 2007. We have already seen cost pressures as a result of the winter freeze in California and the southwestern
U.S., which impacted citrus and avocado crops. Additionally, due to increased demand for ethanol the cost of
corn has increased substantially, which we expect will lead to inflationary pressures on corn-sourced ingredients
including chicken and beef.
Labor Costs
For the years ended
December 31,
%
increase
2006 over
2005
%
increase
2005 over
20042006 2005 2004
(dollars in millions)
Labor costs ..................................... $231.1 $178.7 $139.5 29.3% 28.1%
As a percentage of revenue ........................ 28.1% 28.5% 29.6%
In 2006, labor costs as a percentage of revenue decreased primarily due to higher average restaurant sales,
partially offset by additional staffing costs as we transition to our new restaurant structure. We launched the new
restaurant management structure in the second quarter of 2006 focusing on developing a defined path for crew to
become restaurant managers. We expect that this will enable more promotions from within our existing crew,
which we believe will lower turnover, result in better managers and decrease training costs.
In 2005, labor costs as a percentage of revenue decreased largely due to improved employee efficiency.
Employee efficiency resulted in increased number of transactions which did not require a corresponding increase
in staff, and a gradual improvement over time in staffing our restaurants with the most appropriate number of
crew members for each restaurant.
Occupancy Costs
For the years ended
December 31,
%
increase
2006 over
2005
%
increase
2005 over
20042006 2005 2004
(dollars in millions)
Occupancy costs ................................... $58.8 $47.6 $36.2 23.4% 31.6%
As a percentage of revenue ........................... 7.1% 7.6% 7.7%
In 2006 and 2005, occupancy costs decreased as a percentage of revenue due to higher average restaurant
sales on a partially fixed-cost base. The improvement in 2005 was partially offset by inflationary pressure on
rents and the opening of restaurants in more expensive locations such as New York City.
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