Rundown: Waffle House's egg surcharge, Chipotle downplays avocado concerns & Gap launches vintage drops series

0:03Hello, everyone. Welcome to the Modern Retail Rundown. This is senior reporter Gabby Barco and I am joined this week by executive editor Anna Hensel. Welcome back on a lot of the modern retail. today? I'm good. Yeah. So I will be stepping in here more regularly. It's fun starting my Friday mornings talking to you. Oh, thank you. That's very nice. Yeah, you will be joining me more often. Maybe you'll get sick of me after a few weeks, but we'll see. No, never, never. Yeah. The only thing is, you know, having these semi-horse voices on a Friday morning, but it's always fun to start the day like talking about retail yes well speaking of um i'm actually very excited about today's uh story slew because it has to do with ingredient prices uh this has become like the nation's pastime is just talking about egg prices it feels like so uh this week uh waffle house announced that it is going to implement a 50 cent surcharge on each egg ordered uh we will get into that later.

1:12Apparently they sell millions of eggs. I did not know that. After that, I think somewhat related theme wise, but Chipotle also announced its earnings this week. And one big topic of conversation was avocado prices. You know, just how the supply is going to be impacted with potential tariffs going into place. This is, of course, Mexico, which provides about 90 % of the US's avocados. So that'll be interesting. And then finally, we'll wrap up by talking about Gap's new marketing strategy, which is going to be just a big focus on vintage drops. This is something they've been trying to really leverage the past few years, which is that people really coveting, you know, they're sort of older merchandise, 80s, 90s.

2:03Yeah, 2000. So we'll see, you know, we'll get into that and we'll see what they have in store for it. But yeah, first up, let's talk about just this high cost of eggs that's now trickling down from, you know, this sort of grocery shelf conversations down to restaurants. Waffle House in particular, which is, you know, a breakfast focused chain, said it's going to impose this 50 cent charge on each egg that's going to be ordered. I guess people spotted these signs around just their locations that say that this is what they're going to be doing. Yeah, it's like a sticker on a menu. But yeah, it's pretty crazy.

2:43I have never seen a surcharge on eggs before. And I don't think I ever thought I would. So to dig into this more, the chain says that this is due to bird flu, which of course, is impacting egg availability and costs nationwide. So a spokesperson told CNN, the continuing egg shortage caused by bird flu has caused a dramatic increase in egg prices. Customers and restaurants are being forced to make difficult decisions. It also said it's continuously monitoring egg prices and will adjust or remove the surcharge as market conditions allow. As you said earlier, eggs are Waffle House's most ordered item.

3:28The restaurant, which has 2100 locations around the country, says it serves 272 million eggs annually. That's pretty crazy. Yeah, because if I'm doing the math, I mean, that's a pretty healthy margin that they're going to be building into that 50 cents. An egg is if they're adding a 50 cent charge. Yeah, absolutely. Yeah. I mean, it is interesting now with, you know, everybody that's trying to figure out how to modify their menu, which is essentially kind of the only thing you can do when this is, you know, an agricultural issue. But yeah, will the this avian flu get any better? Apparently not.

4:08It seems like we're going to be seeing increased egg prices pretty much the rest of the year. So I don't think this will be I mean, I don't think Waffle House is going to be walking this back anytime soon. Yeah. And I mean, avian flu is an issue, of course, that's been going on for a while and it's gone through fits and spurts. So this particular strain of avian flu, it first appeared in 2022 and had a resurgence in 2024. And of course, bird flu is an issue generally that's been around for a while. The avian flu doesn't seem to be subsiding anytime soon. And experts say we can expect prices to stay high throughout the rest of the year.

4:57And what's been really interesting, I've been reading a lot of coverage about this, and this is just impacting so many types of businesses. Ingredient shortages are really hard, but I do think it's fascinating from a business perspective just about how do businesses deal with this. And so to put it all into numbers, in December, the average price of eggs hit$4.15, according to the U.S. Bureau of Labor Statistics, which is a 14 % increase over November. And you have to think about eggs, which is food, of course. This is an issue that's impacting restaurants and other businesses that have really thin margins to begin with.

5:43So like, how do you deal with a 14 % monthly increase? That's pretty crazy. One way is to, of course, like Waffle House is doing, add a surcharge. But I think that Waffle House is a bigger chain that has a lot of loyalty. If they, and also, I think it's really interesting, because I also think this is impact the way they're doing this. This is really kind of educating consumers about how big of a deal this is. You know, of course, going to the grocery store, you can see how much eggs are increasing. But I think it's really interesting that Waffle House is calling attention to this with a surcharge.

6:24But of course, not every company can do that. So I've been reading stories in different business outlets over the past week about how something else that's happening is suppliers of like plant-based egg substitutes or vegan egg substitutes, they say they're seeing an increase in sales. I've also seen interviews with owners of like bakeries that are having to make really hard choices. You know, maybe now we prioritize or push more menu items that don't require eggs. So again, this is a really tough issue, but it's going to be interesting to see how this impacts a variety of businesses since eggs are such a staple.

7:10Yeah, I mean, you have basically like the brunch economy in free fall as we speak. It's not pretty. But yeah, it seems like I think the USDA is forecasting that we're going to see probably about like another 20 % increase in 2025 in egg prices. So just the personal anecdote, I follow all of these food and fitness subreddits and people are literally asking each other, what are you substituting your protein macros with right now? The eggs are so expensive and people are getting very creative. But yeah, it's gotten very desperate, obviously, for the restaurants to be making these changes. But yeah, I think pretty much this is the only thing really they could do.

7:55Like the National Restaurant Association said you could really only either increase prices or change menu items, kind of like what you were talking about with some of these other businesses. But it's going to be interesting to see. I guess I'm curious whether other places are going to follow suit or just maybe build it into the price of an omelet or whatnot on the menu. Right. Again, I do think that Waffle House has a certain loyalty that other chains don't. So I don't know. I would be curious if another chain can get away with this or tries to get away with it. We'll see. Yeah. Well, speaking of rising costs of ingredients, we can, I think, transition to our next story, which is about Chipotle's earnings.

8:45But I think more particularly, we're going to be talking about why avocados just became a big topic of conversation on their earnings call this past week. But yeah, first off, maybe we can talk about this, the Q4 numbers. It seems like Chipotle seems like one of those restaurant chains that just is very resilient and seems to like similar to Waffle House, I guess, have a pretty strong following where it doesn't seem to matter how much they raise their prices. People are still heading there. And a lot of that apparently has to do with, you know, value and generous portions, which actually does dovetail with avocado prices, believe it or not.

9:25Yeah, so we'll get into it. So to go through the numbers, Chipotle had another strong quarter as diners continued to frequent it. So in the fourth quarter, Chipotle reported that same store sales grew 5.4 % and traffic was up by 4%. Revenue came in at around$2.8 billion. And overall, Chipotle is doing better than the general restaurant industry. But what you touched on earlier, Gabby, is that avocados were a prominent topic during the earnings call. So obviously, there's been a back and forth with tariffs the whole week. It's been a very frustrating week if you were a retail reporter or I just would say a retail CEO in general.

10:12So ostensibly, in a month, there will be 25 % tariffs on Mexican imports. We'll see if that actually comes to fruition. But so obviously, a lot of avocados come from Mexico. Chipotle buys a lot of avocados to make its guacamole. So a lot of the earnings call kind of focused on, I think, Chipotle tempering investor concerns maybe about how this would impact Chipotle, which we can get into. Yeah, which basically they're like, we're not really worried. The CEO, Scott Boatwright said that in just the last few years, Tripoli has been diversifying its avocado sources, which is just something fun to think about, like basically to reduce the reliance on bringing avocados from Mexican.

11:04Like I said earlier, I think like 90 percent of the ones we eat in the U.S. are pretty much from Mexico. And obviously that might be impacted very soon. But he said that. Yeah. So they're basically now they're going to places like Colombia and Peru and the Dominican Republic. So only about half of their avocados actually come from Mexico. So it seems like they don't think it's going to impact their margins too much. Yeah. So specifically what they said during the call is if tariffs go into effect, Chipotle expects its costs of sales would rise about 0.6 percentage points. So, yeah, it seems like, you know, they have done a good job diversifying.

11:49diversifying. I mean, the one question I have is avocados are just one piece of the puzzle. You know, a lot of produce and meat does still come from other countries. So I wonder, that's avocados. I still have questions about how other parts of Chipotle's menu might be impacted. But overall, things seem to be going well at Chipotle. It's also worth noting that Chipotle has consistently raised its menu prices in the past couple of years. But kind of, I think this provides an interesting case study. Like the way they've kind of tried to couch this is that they're also saying with price increases come more generous portions.

12:34So an interesting phenomenon. I think this happened like this past summer, but there have been influencers over the years, which I have mixed feelings about this, who would basically film Chipotle workers making their burritos and like people on social media would compare what kind of portion sizes they were getting. So that led Chipotle overall to focus more on making sure it was providing consistent, generous portions. In turn, one thing that impacted Chipotle's earnings this quarter is that they said that food, beverage and packing costs increased. But Chipotle basically said it was worth it.

13:18They said it resulted in more frequent visits. And Boatwright said during the call that Chipotle was able to build momentum throughout 2024 by focusing on high quality ingredients and a good amount of food for the money. Yeah, I think that's an interesting way to frame it, especially because their menu item prices have been creeping up very gradually. I think the last major increase came in just in December, where they increased prices by 2%. But yeah, they have this method of framing it as a value play. So yes, you're paying a little bit more every year, but you're getting consistent portions.

14:02And they actually I do remember us talking about this on the show, but they really wanted to, I guess, you know, do right by the customer when they saw those videos. And this was part of that strategy. So some other chains may have probably just ignored that. And yeah, so I guess to me, I just as I was prepping for these two stories, I thought, it's interesting that Chipotle and Waffle House have almost opposite approaches to, you know, trying to soften the blow of raising increased costs of raw material. So, yeah, it's interesting. Yeah, I would say like Waffle House is calling attention to the fact that, hey, we have to implement the surcharge on eggs.

14:49You know, Chipotle over the past few months has raised menu prices, but it's saying we're compensating that with more generous portion. So we'll see what happens in 2025. I mean, it'll just be an interesting year generally, because I think there is data about how people are eating out less. And so restaurant chains have to do more to like prove their value to customers. Okay, well, we can move on to our last segment about Gap, which this week announced it's Gap Vintage Series. This is basically going to just be a semi regular drop of vintage clothes that they're going to be hosting just throughout 2025 to really help boost sales.

15:34The first drop happened on February 4. But yeah, Ana, why don't you tell us a little bit about the strategy? Because to me, it feels like gap and maybe I'm misremembering, I feel like they kind of try to revitalize this aspect of their business every couple of years, but they have been, you know, sort of in flux lately. So maybe this is another installment of that. Yeah, so this is a lot of this is a marketing play. I don't know how big it will be for big of a sales driver. It will be for Gap this year, but we'll see. So basically, Gap has announced that they're doing something called Gap vintage drops throughout the year.

16:14The first drop featured items from the 80s, 90s and 2000s, which like paid to be a little bit to say that that's considered vintage now. Vintage items ranged from a vintage 2004 corduroy skirt to an 80s style deep V-neck cable knit sweater. The items dropped on February 4th and I checked yesterday by February 6th, they were all sold out online. And, you know, it's always take that with a grain of salt. Like we don't know how much stock they had. Sometimes when something sells out quickly, it's because they didn't have that much stock to begin with. But the items were curated by Sean Wetherspoon, who is Gap's global vintage curator, who first started partnering with the brand in 2023.

17:05So yeah, clearly Gap sees value in these vintage drops, and they're going to be doing more of them. They're also going to do select drops in stores. This first drop was available at the brand's Flatiron store in New York, and it sounds like Gap will do more of these throughout the year and maybe do select drops in certain stores around the country and around the globe. Yeah. And as we were saying earlier, it seems like Gap is trying to really leverage or take advantage, I guess, of a lot of the buzz around these very highly coveted items. People, you know, go out to thrift stores or go on some of the resale sites to try to find them.

17:47So it makes sense that they would, I guess, try to draw buzz with them. But maybe we could talk about some of the items that sold. I remember writing about this, but like in 2021, that famous, you know, Gap hoodie went viral when TikTok influencers were talking about it. And, you know, they were going for up to like$300 on resale sites. So obviously, Gap is crazy. Yeah, I know. I feel like that was like the sweatshirt people wore to middle school. So that's really funny to see in my lifetime. But but yeah, I mean, obviously, Gap is very aware of this. So they know they need to figure out how to Yeah, I guess take advantage of it.

18:29Yeah. And I think in when I was doing research for this, I was like, looking at language from different press releases. And I think this ties into Gap's overall strategy of like, trying to remind people, you know, its role in shaping fashion trends over the years and also that Gap is a place known for like timeless basics. So last year Gap named Zach Posen as its creative director and at the time he said in a statement that Gap Inc. and its brands have shaped American fashion and pop culture for decades and that he was excited to join the company at a time of brand reinvigoration which we can get into more but But yeah, I think, again, these vintage drops are just about reminding people about what role Gap has played in fashion over the years and like how much of a role it hopes to continue to play.

19:27And like, again, shaping these kind of timeless basics. Yeah, maybe this is a good time to talk about, you know, bringing in the designer Zach Posen to lead this effort. You know, he was hired by Gap's new CEO, Richard Dixon, who had joined from Mattel in 2023. So this has been like a year plus of all of these shakeups. So, yeah, Pozen does oversee Gap creatively as well as Old Navy and Athleta. And, you know, just looking at their earnings the last couple of years, they do seem to sort of oscillate, you know, between OK and disappointing. But I think, yeah, this reinvigoration, I guess, maybe we could talk about the results so far.

20:15You know, I mean, of course, this isn't going to be an overnight success, but. Yeah, it takes a while to right the ship. But so I was looking at Gap's last earnings call before this, just looking over the transcript. So Dixon has said with the Gap brand in particular, Gap Inc, of course, owns other brands like Old Navy and Athleta. But he said with the Gap brand in particular, he's really focused on reigniting Gap's leadership in trend-right products and creative expression, very corporate there, and attracting a new generation to Gap through collaborations and campaigns. So that's, yeah, that's also like what I think these vintage drops are about.

20:58It's reminding maybe like Gen Z or Gen Alpha the role Gap has played in fashion throughout the years. So the company said it was pleased with positive responses to collaborations with Mad Happy and Cult Gaia, although it didn't share any sales specifics. It just pointed to, you know, these were collaborations we did this past quarter that we feel like is moving the brand in this right direction. It's also doing many of the other standard things that a brand in the middle of a reinvention frequently does. they said they're testing new ways to improve the store experience, which I feel like I've heard a million times in earnings calls.

21:37And at the Gap brand, net sales were up 1 % during its most recent earnings. It's better than declining sales, which is what it was in for a long period of time. But yeah, much more needs to be done, I think, to prove that the Gap brand has been reinvigorated. Yeah, I think, you know, the collabs and the limited edition drops are great. But that's that that is what they are. They are limited edition. Although, I guess if you want to talk about the resale market, like I know that called Gaia collection sold out very quickly, and people are still trying to figure out how to get them. So yeah, they're great.

22:16But like you said, at the top, I think a lot of it is about marketing and drawing buzz and maybe bringing people to your site or to the stores. And then, you know, if it's sold out, I guess I'll buy a different sweatshirt. Yeah, I don't know if I will. I'll keep an eye on this. I don't know if I will be buying any Gap Vintage drops. But yeah, I'm very curious to see how these continue to do and if any items bubble up on the resale market. Yeah. Well, I think we can wrap up on that note. That's our show. Please rate and review us wherever you're listening to us and follow us on social media, modern retail.

22:54You could also listen to the interview show on Thursdays. Ana, maybe you can just like a time to tell people about, you know, the transition we'll be having on that. Yeah, so I will be hosting my first episode of the modern retail podcast next week. It was a really interesting conversation. So I'm going to be speaking with Brooks running CEO Dan Sheridan, who took me through the company's latest earnings. And we talked about why running is having a moment. So if you are a runner, this will be your episode. Cool. I mean, I feel like running's been having a moment for a few years, but that's, yeah.

23:34Yeah. No. And that was, that was the interesting part of the conversation. He kind of walked me through the different trends we've seen throughout running because I personally have always been skeptical when someone says running is having a moment. I've thought, well, this is an activity we have done since the dawn of time. But he walked me through the different trends we've seen in running and it'll be a really interesting conversation. Cool. All right. Well, excited about that. And yeah, come back on Saturday for more rundowns. And thank you for listening.

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