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Chipotle May Hike Burrito Price On Mexico Tariff

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Chipotle Mexican Grill Inc. (CMG) warned that its costs will rise by $15 million this year and its burritos could get a little more expensive if U.S. President Donald Trump's proposed tariffs on Mexican imports are implemented.

Last week, Trump had announced that a 5 percent tariff would be imposed on all Mexican imports from June 10. The tariffs will be gradually increased, rising to 25 percent by October 1, if Mexico does not take steps to curb illegal immigration across the border to the U.S., he added.

Mexico is the largest source of U.S. agricultural imports, including avocados. If the proposed tariffs are implemented, it could disrupt the supply chains for several U.S. companies.

Chipotle Chief Financial Officer Jack Hartung said in a statement that if the tariffs become permanent, the Mexican fast food chain could moderately increase the price, about a nickel on a burrito.

The company intends to offset these costs through other margin improvement efforts already underway.

Chipotle estimates its 2019 margins could be reduced by 20 to 30 basis points if the tariffs are raised to 25 percent. The tariffs could also raise the price of avocados - the primary ingredient in guacamole, which is used in burritos.

The company was already expecting food costs in the second quarter to be 1 percent higher than the first quarter due to rising avocado prices. The proposed tariffs could lead to even higher prices.

However, Chipotle noted that it could easily solve the volatility in its supply chain by purchasing premashed or processed avocados, which would be cheaper.

"We believe that using whole, fresh ingredients and making guacamole by hand in our restaurants each day leads to better tasting guacamole that our customers deserve and expect from Chipotle," Hartung said.

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