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.
Value counts
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.