A food delivery boy carries a takeout bag outside a Sweetgreen in Manhattan, New York, on September 14, 2023.
Jeenah Moon | The Washington Post | Getty Images
High-income consumers helped Chipotle Mexican Grill, Wingstop and Sweet green are reporting strong sales this quarter, offsetting the broader consumer slowdown affecting other restaurants.
Overall, the restaurant industry has seen sales decline and traffic decline as customers pull back on spending. McDonalds, Starbucks and KFC owner Yum Brands was among the restaurant companies reporting a weak start to 2024.
McDonald’s CEO Chris Kempczinski said customers are looking for deals and good value. The chain is working to introduce a $5 meal, CNBC reported Friday. And John Peyton, CEO of Applebee’s owner Dine Brandssaid the steepest drop in sales came from customers making less than $50,000.
Fast-casual chains seem to be the exception to the trend. The sector saw higher traffic growth than any other catering sector from November to February, according to GuestXM data.
In general, customers of fast-casual chains tend to have higher incomes than those in the fast food sector, somewhat insulating the segment from the spending pull of lower-income consumers. High-income consumers have not felt the same sting as those on lower incomes.
Wingstop saw its same-store sales rise 21% in the quarter. CEO Michael Skipworth told CNBC that Wingstop’s customer base was largely low-income customers, but is now about three-quarters higher-income. He also credited the company’s success to growing brand awareness and the chicken sandwich, which often serves as an entry point for new customers.
Likewise, most of Sweetgreen’s 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 percent and raised its full-year outlook for same-store sales growth. Traffic was smooth, but executives said bad weather and the inclusion of New Year’s and Easter had hit its business.
Value counts
Chipotle and other chains have also gotten a boost from consumers’ perception of value as the cost of Big Macs and Whoppers rises.
Last year, fast-food chains raised prices more dramatically than fast-casual chains, according to TD Cowen analyst Andrew Charles. While a bowl or salad from a fast-casual restaurant will still be more expensive than a burger or chicken, the price gap between the two segments has narrowed.
“You can see that fast casual is just a superior value for that consumer given the quality of what they’re getting,” Charles said.
Many fast-casual chains, including Chipotle and Sweetgreen, are also trying to improve “throughput,” an industry term that refers to how many bowls or salads their employees can make. That focus on efficiency means serving their restaurants faster – leading to more business, Charles said.
Investors had already bet that fast-casual chains would be outliers in consumer spending on food. Shares of Chipotle, Shake Shack and Wingstop are up at least 35% in 2024. And Sweetgreen’s stock has doubled in value at the same time, excluding a 34% increase on Friday alone. By comparison, the S&P 500 is up about 9% so far this year.
However, there are still exceptions to the segment’s trend. For example, of Portillo, known for its Italian beef sandwiches and Chicago-style hot dogs, said its same-store sales shrank 1.2 percent in the first quarter. The chain blamed the weak results on “lousy weather across the Midwest,” particularly at the start of the quarter.
Also, Shake Shack said quarterly traffic, which was negative, would have been flat but for bad weather in January and February. The burger chain reported same-store sales growth of 1.6%, but noted that the metric improved sequentially each month. In April, same-store sales rose 4.9% year over year.
Mediterranean fast-casual chain Cava is not expected to announce its first-quarter results until May 28. However, TD Cowen’s Charles said he expects a stronger quarter for Cava given the performance of its competitors.