A food delivery courier carries a takeout bag outside Sweetgreen in Manhattan, Novel York, September 14, 2023.
Jeenah Moon | Washington Post | Getty Images
High-income consumers helped Chipotle Mexican Grill, Wing stop AND Sweet green are reporting sturdy sales this quarter, bucking a broader consumer slowdown that’s hurting other eateries.
Overall, the restaurant industry has seen dwindling sales and traffic as customers withdraw spending. McDonald’s, Starbucks and owner of KFC Brands Yum were among the restaurant companies that recorded a needy start to 2024.
McDonald’s CEO Chris Kempczinski said guests are hunting for deals and good value; the chain is working on introducing a $5 meal, CNBC reported on Friday. And John Peyton, CEO of the owner of Applebee’s Dine Brandsfound that the biggest drop in sales occurred among customers earning less than $50,000.
Swift-casual chains seem to be an exception to this trend. According to them, in the period from November to February, this sector saw a greater escalate in traffic than in any other catering sector GuestXM data.
Generally speaking, fast-casual customers tend to have higher incomes than speedy food customers, which to some extent insulates this segment from the spending constraints of low-income consumers. High-income consumers haven’t felt the same pinch as lower-income consumers.
Wingstop saw same-store sales jump 21% this quarter. CEO Michael Skipworth told CNBC that Wingstop’s customer base used to consist primarily of low-income customers, but now makes up about three-quarters of higher-income customers. He also attributed the company’s success to growing brand awareness and the chicken sandwich, which often serves as an entry point for fresh customers.
Similarly, most Sweetgreen locations are in high-income neighborhoods, CEO Jonathan Neman said last year. On Thursday, the salad chain reported first-quarter same-store sales growth of 5% and raised its full-year same-store sales growth outlook. Traffic was unaffected but directors said bad weather and the inclusion of Novel Year and Easter had damaged its business.
Value counts
Chipotle and other chains also gained popularity thanks to consumer perceptions of their value as the prices of Substantial Macs and Whoppers increased.
Swift food chains raised prices more dramatically than speedy casual chains last year, according to TD Cowen analyst Andrew Charles. Although a bowl or salad from a fast-casual restaurant will still be more steep than a burger or chicken tenders, the price difference between the two segments has decreased.
“You can see that speedy casual is simply more value for this consumer given the quality of what they get,” Charles said.
For example, Chipotle’s quarterly same-store sales increased 7%, led by a 5.4% escalate in foot traffic. The burrito chain has a sturdy sense of value among customers, CEO Brian Niccol told analysts on an April 24 conference call. Chipotle executives have also previously emphasized that the majority of Chipotle’s customers come from higher-income groups.
Many speedy casual chains, including Chipotle and Sweetgreen, are also trying to improve their “throughput,” which is an industry term that refers to the number of bowls or salads their employees can prepare. The focus on efficiency means restaurant service is getting faster, which leads to more business, Charles said.
Investors were already betting that fast-casual chains would be an outlier in consumer spending on restaurants. Shares of Chipotle, Shake Shack and Wingstop are up at least 35% in 2024. At the same time, Sweetgreen’s stock value has doubled, not counting the 34% gain on Friday alone. By comparison, the S&P 500 is up about 9% this year.
But there are still exceptions to the segment trend. For example, Portillaknown for its Italian beef sandwiches and Chicago-style scorching dogs, said same-store sales fell 1.2% in the first quarter. The chain blamed the needy results on “bad weather in the Midwest,” particularly at the beginning of the quarter.
Similarly, Shake the Cottage said the quarterly movement, which was negative, would have remained stable had it not been for the bad weather in January and February. The burger chain saw same-store sales escalate 1.6%, but saw that metric improve sequentially each month. In April, same-store sales increased 4.9% year-over-year.
Mediterranean fast-casual chain wine it is not expected to report first-quarter results until May 28. However, TD Cowen’s Charles said he expected a stronger quarter for Cava given the performance of its competitors.
