Sweetgreen, Chipotle and Wingstop see no slowdown in consumption

High-income consumers helped Chipotle Mexican Grill, Wing stop And Soft green are reporting strong sales this quarter, bucking the broader slowdown in consumption that has hurt other restaurants.

Overall, the restaurant industry has seen sales drop and traffic decline as customers cut back on spending. McDonalds, Starbucks and owner of KFC Yum Brands are among the restaurant businesses that reported a weak start to 2024.

McDonald’s CEO Chris Kempczinski said diners are looking for deals and value; the chain is working to introduce a $5 meal value, CNBC reported Friday. And John Peyton, CEO of Applebee’s owner Restaurant brandssaid the biggest 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 restaurant sector between November and February, according to GuestXM data.

In general, customers of fast food chains tend to have higher incomes than those in the fast food industry, which somewhat protects the segment from declining spending by lower-income consumers. Higher-income consumers have not felt the same pinch as those in lower income brackets.

Wingstop saw its same-store sales climb 21% during 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 customers. He also attributes the company’s success to the brand’s growing awareness and its 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 5% growth in same-store sales in the first quarter and raised its outlook for same-store sales growth for the full year. Traffic was steady, but executives said bad weather and the inclusion of New Year’s and Easter had hurt its business.

Chipotle and other chains have also benefited from consumers’ perceptions of their value as the cost of Big Macs and Whoppers rises.

Last year, fast food chains raised their prices more dramatically than fast food chains, according to Andrew Charles, an analyst at TD Cowen. Although a bowl or salad from a fast casual restaurant will still cost more than a hamburger or chicken tenders, the price gap between the two segments has narrowed.

“You can see that fast casual is just a higher value for that consumer, given the quality of what they’re getting,” Charles said.

For example, Chipotle’s quarterly same-store sales increased 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 during 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-food chains, including Chipotle and Sweetgreen, have also tried to improve their “throughput,” an industry term that refers to the number of bowls or salads their employees can prepare. This focus on efficiency means their restaurants’ service becomes faster, leading to more transactions, Charles said.

Investors had already bet that fast-food chains would be an outlier in consumer spending on restaurants. Stocks of Chipotle, Shake Shack and Wingstop are all up at least 35% in 2024. And Sweetgreen’s stock value has doubled in the same time, excluding its 34% rise on Friday alone. For comparison, the S&P 500 is up about 9% year to date.

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 fell 1.2% in the first quarter. The chain blamed the weak results on “gloomy weather in the Midwest,” particularly early in the quarter.

Likewise, Shake Shack said its quarterly traffic, which was negative, would have been stable without the bad weather in January and February. The burger chain reported same-store sales growth of 1.6%, but noted that the metric was improving sequentially each month. In April, its same-store sales increased 4.9% year-on-year.

Mediterranean fast casual restaurant chain How are you is not expected to release its first quarter results until May 28. But TD Cowen’s Charles said he expects a stronger quarter for Cava, given the performance of its competitors.