High-earning consumers propelled Chipotle Mexican Grill, Wingstop, and Sweetgreen to report robust sales this quarter, defying the broader consumer slowdown impacting other dining establishments.
Across the board, the restaurant industry witnessed a decline in sales and foot traffic as patrons tightened their purse strings. McDonald’s, Starbucks, and Yum Brands, which owns KFC, were among the restaurant conglomerates facing a sluggish start to 2024.
McDonald’s CEO Chris Kempczinski noted that diners are seeking bargains and value; the chain is striving to introduce a $5 value meal, as reported by CNBC. Meanwhile, John Peyton, CEO of Dine Brands, the parent company of Applebee’s, highlighted that the most significant sales decline originated from customers earning less than $50,000 annually.
Fast-casual chains emerge as anomalies amid this trend. According to GuestXM data, the sector experienced greater growth in foot traffic compared to other dining segments from November to February.
In general, patrons of fast-casual chains typically boast higher incomes than those frequenting fast-food establishments, providing a degree of insulation from the spending pullback observed among low-income consumers. High-income individuals have not experienced the same financial constraints as those in lower-income brackets.
Wingstop witnessed a staggering 21% surge in same-store sales for the quarter. CEO Michael Skipworth informed CNBC that Wingstop's customer base, once predominantly low-income, now comprises approximately three-quarters of higher-income clientele. He also attributed the company’s success to increased brand recognition and the popularity of its chicken sandwich, often serving as an introduction for new patrons.
Similarly, CEO Jonathan Neman revealed last year that the majority of Sweetgreen’s outlets are situated in affluent neighborhoods. Despite flat foot traffic, the salad chain reported a 5% growth in same-store sales for the first quarter and revised its full-year projections upwards. Executives cited adverse weather conditions and the inclusion of holidays like New Year’s Day and Easter as factors impacting their business.
Value counts
Chipotle and other chains have received a boost from consumers’ recognition of their value as the prices of Big Macs and Whoppers escalate.
According to TD Cowen analyst Andrew Charles, fast-food chains hiked prices more aggressively than fast-casual chains last year. While a bowl or salad from a fast-casual establishment may still command a higher price than a burger or chicken tenders, the pricing disparity between the two categories has diminished.
“Fast casual presents a superior value proposition for consumers, considering the quality they receive,” noted Charles.
For instance, Chipotle saw a 7% increase in quarterly same-store sales, driven by a 5.4% uptick in foot traffic. CEO Brian Niccol highlighted the burrito chain's strong perceived value among diners during the company’s April 24 conference call. Chipotle’s management has also stressed previously that the majority of its clientele originates from higher-income brackets.
Several fast-casual chains, including Chipotle and Sweetgreen, have prioritized enhancing their “throughput,” a term within the industry denoting the rate at which their employees can assemble bowls or salads. This emphasis on efficiency results in quicker service at their outlets, leading to a higher volume of transactions, according to Charles.
Investors had already been anticipating that fast-casual chains would defy the trend in consumers’ restaurant spending. Shares of Chipotle, Shake Shack, and Wingstop have all surged by at least 35% in 2024. Meanwhile, Sweetgreen’s stock has doubled in value during the same period, excluding its remarkable 34% surge on Friday alone. In contrast, the S&P 500 has only climbed approximately 9% so far this year.
However, there are still deviations from the overall trend within the segment. For instance, Portillo’s, renowned for its Italian beef sandwiches and Chicago-style hot dogs, reported a 1.2% contraction in same-store sales for the first quarter. The chain attributed the lackluster results to “unfavorable weather conditions across the Midwest,” particularly at the beginning of the quarter.
Similarly, Shake Shack noted that its quarterly foot traffic, which experienced a decline, would have remained unchanged if not for adverse weather in January and February. Despite reporting a 1.6% growth in same-store sales, the burger chain highlighted that this metric showed sequential improvement every month. In April, its same-store sales surged by 4.9% year over year.
Mediterranean fast-casual chain Cava is slated to release its first-quarter results on May 28. However, TD Cowen’s Charles anticipates a stronger performance for Cava, drawing insights from its competitors’ achievements.
