Sweetgreen, Chipotle and other fast-casual chains are bucking the consumer slowdown

High-income
consumers
helped


Chipotle
Mexican
Grill,


Wingstop
and


Sweetgreen
report
strong
sales
this
quarter,
bucking
the
broader

consumer
slowdown
that’s
been
hurting
other
eateries.

As
a
whole,
the
restaurant
industry
has
seen
sales
slump
and
traffic
decline
as
customers
pull
back
their
spending.


McDonald’s,


Starbucks
and
KFC
owner


Yum
Brands
were
among
the
restaurant
companies
that
reported
a
weak
start
to
2024.

McDonald’s
CEO
Chris
Kempczinski
said
diners
are
hunting
for
deals
and
good
value;
the
chain
is
working
to

introduce
a
$5
value
meal,
CNBC
reported
Friday.
And
John
Peyton,
chief
executive
of
Applebee’s
owner


Dine
Brands,
said
the
steepest
sales
drop-off
has
come
from
customers
making
less
than
$50,000.

Fast-casual
chains
appear
to
be
the
exception
to
the
trend.
The
sector
saw
higher
traffic
growth
than
any
other
dining
sector
from
November
to
February,
according
to

GuestXM
data.

In
general,
customers
of
fast-casual
chains
tend
to
have
higher
incomes
than
those
of
the
fast-food
sector,
insulating
the
segment
somewhat
from
low-income
consumers’
spending
pullback.
High-income
consumers
haven’t
felt
the
same
pinch
as
those
in
lower-income
brackets.

Wingstop
saw
its
same-store
sales
soar
21%
in
the
quarter.
CEO
Michael
Skipworth
told
CNBC
that
Wingstop’s
customer
base
used
to
be
largely
low-income
customers
but
is
now
roughly
three-quarters
higher-income
diners.
He
also
credited
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
was
flat,
but
executives
said
bad
weather
and
the
inclusion
of
New
Year’s
Day
and
Easter
hurt
its
business.

Chipotle
and
other
chains
have
also
gotten
a
boost
from
consumers’
perception
of
their
value
as
the
cost
of
Big
Macs
and
Whoppers
rise.

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
tenders,
the
pricing
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.

For
example,
Chipotle’s
quarterly

same-store
sales
grew
7%,
fueled
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
its
customers
come
from
higher-income
brackets.

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
make.
That
focus
on
efficiency
means
their
restaurants’
service
is
getting
faster
—
leading
to
more
transactions,
Charles
said.

Investors
had
already
been
betting
that
fast-casual
chains
would
be
an
outlier
in
consumers’
eatery
spending.
Shares
of
Chipotle,
Shake
Shack
and
Wingstop
have
all
risen
at
least
35%
in
2024.
And
Sweetgreen’s
stock
has
doubled
in
value
in
the
same
time,
excluding
its

34%
increase
on
Friday
alone.
For
comparison,
the
S&P
500
has
risen
roughly
9%
so
far
this
year.

But
there
are
still
exceptions
to
the
segment
trend.
For
example,


Portillo’s,
known
for
its
Italian
beef
sandwiches
and
Chicago-style
hot
dogs,
said
its
same-store
sales
shrank
1.2%
in
the
first
quarter.
The
chain
blamed
the
weak
results
on “miserable
weather
across
the
Midwest,”
particularly
at
the
start
of
the
quarter.

Likewise,


Shake
Shack
said
its
quarterly
traffic,
which
was
negative,
would’ve
been
flat
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
every
month.
In
April,
its
same-store
sales
rose
4.9%
year
over
year.

Mediterranean
fast-casual
chain


Cava
isn’t
expected
to
report
its
first-quarter
results
until
May
28.
But
TD
Cowen’s
Charles
said
he’s
expecting
a
stronger
quarter
for
Cava,
given
its
competitors’
performances.