A food delivery courier carries a bag of takeout outside a Sweetgreen in Manhattan, New York, on September 14, 2023.
Jeenah Luna | The Washington Post | fake images
High-income consumers helped Chipotle Mexican Grill, wings stop and sweet green report strong sales this quarter, offsetting the overall slowdown in consumption that has been hurting other restaurants.
Overall, the restaurant industry has seen a drop in sales and decreased traffic as customers reduce their spending. McDonald's, starbucks and owner of KFC Yum brands were among restaurant companies that reported a weak start to 2024.
McDonald's CEO Chris Kempczinski said diners are looking for deals and good prices; The chain is working to introduce a $5 meal, CNBC reported Friday. And John Peyton, CEO of Applebee's owner. dine brandsHe said the steepest drop in sales was among customers earning less than $50,000.
Fast casual chains seem to be the exception to the trend. The sector saw greater traffic growth than any other dining sector from November to February, according to data from GuestXM.
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 decline in spending by low-income consumers. High-income consumers have not felt the same impact as those with low incomes.
Wingstop saw its same-store sales increase 21% in the quarter. CEO Michael Skipworth told CNBC that Wingstop's customer base used to be largely low-income customers, but is now about three-quarters higher-income diners. He also attributed the company's success to growing brand awareness and its chicken sandwich, which often serves as an entry point for new customers.
Similarly, 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% and raised its full-year outlook for same-store sales growth. Traffic remained steady, but executives said bad weather and the inclusion of New Year's Day and Easter hurt their business.
Value counts
Chipotle and other chains have also gotten a boost from consumer perceptions of their 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 plate or salad from a fast-casual restaurant will still be more expensive than a burger or chicken tenders, the price difference between the two segments has narrowed.
“You can see that fast casual is just a premium value for that consumer, given the quality of what they're getting,” Charles said.
For example, Chipotle's quarterly same-store sales grew 7%, driven by a 5.4% increase in foot traffic. The burrito chain has a strong perception of value among diners, CEO Brian Niccol told analysts on the company's April 24 conference call. Chipotle executives have also previously emphasized that most of their customers come from higher income groups.
Many fast-casual chains, including Chipotle and Sweetgreen, have also been trying to improve their “throughput,” an industry term that refers to how many bowls or salads their employees can prepare. That focus on efficiency means its restaurants' service is getting faster, resulting in more transactions, Charles said.
Investors had already been betting that fast-casual chains would be an outlier in consumer spending at restaurants. Shares of Chipotle, Shake Shack and Wingstop are up at least 35% in 2024. And Sweetgreen stock has doubled in value at the same time, excluding its 34% rise on Friday alone. By comparison, the S&P 500 is up about 9% so far this year.
But there are still exceptions to the segment's trend. For example, Portillo's, known for its Italian beef sandwiches and Chicago-style hot dogs, said its same-store sales fell 1.2% in the first quarter. The network attributed the weak results to “miserable weather across the Midwest,” particularly at the beginning of the quarter.
In addition, beaten hut It said its quarterly traffic, which was negative, would have been stable if not 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, its same-store sales increased 4.9% year over year.
Mediterranean fast-casual food chain digging It is not expected to report its first-quarter results until May 28. But TD Cowen's Charles said he expects a stronger quarter for Cava, given the performance of his competitors.
