A food delivery messenger carries a take-out bag outside a Sweetgreen in Manhattan, New York City, on Sept. 14, 2023. Jeenah Moon | The Washington Post | Getty Images
McDonald’s CEO Chris Kempczinski recently stated that diners are on the lookout for great deals and good value, prompting the chain to work on introducing a $5 value meal. This move comes as no surprise, considering the steepest drop in sales has been observed among customers earning less than $50,000, according to John Peyton, chief executive of Applebee’s owner Dine Brands.
However, there is an exception to this trend. Fast-casual chains have witnessed higher traffic growth than any other dining sector from November to February, as per GuestXM data. This can be attributed to the fact that customers of fast-casual chains generally have higher incomes compared to those in the fast-food sector. As a result, these chains have somewhat been insulated from the spending pullback of low-income consumers. The impact has been felt more acutely by individuals in lower-income brackets.
Wingstop, for instance, has experienced a remarkable 21% increase in same-store sales in the quarter. CEO Michael Skipworth attributes this success to the changing dynamics of the brand’s customer base. While it used to primarily serve low-income customers, approximately three-quarters of Wingstop’s customers now come from higher-income brackets. Additionally, the company’s focus on growing brand awareness and its popular chicken sandwich has attracted new customers.
Similar to Wingstop, Sweetgreen has a significant presence in high-income neighborhoods. CEO Jonathan Neman confirmed this last year. In their recent quarterly report, Sweetgreen announced a 5% growth in same-store sales and raised their full-year outlook for same-store sales growth. However, flat traffic was reported, with executives citing bad weather and the inclusion of New Year’s Day and Easter as reasons for the slump.
The perception of value has played a crucial role in the success of chains like Chipotle. As the prices of Big Macs and Whoppers rise, consumers are increasingly turning to fast-casual chains, recognizing the superior value they offer. Chipotle’s quarterly same-store sales have grown by 7%, primarily due to a 5.4% increase in foot traffic. The company’s CEO, Brian Niccol, highlighted that Chipotle enjoys a strong perception of value among diners. It is worth noting that Chipotle primarily caters to higher-income clientele.
Many fast-casual chains, including Chipotle and Sweetgreen, have made efforts to improve their “throughput,” which refers to how quickly they can serve their customers. By focusing on efficiency and faster service, these chains have witnessed increased transactions and customer satisfaction.
Investors have also recognized the potential of fast-casual chains, evident in the significant rise in stock prices for companies like Chipotle, Shake Shack, and Wingstop. In fact, Sweetgreen’s stock alone has doubled in value, excluding the recent 34% surge. This positive trend in stock performance is in contrast to the modest 9% increase observed in the S&P 500 so far this year.
However, there are exceptions to this segment trend. For example, Portillo’s experienced a 1.2% decline in same-store sales in the first quarter, which the chain attributed to unfavorable weather conditions across the Midwest. Similarly, Shake Shack reported negative quarterly traffic, although it improved sequentially each month. Nevertheless, the burger chain achieved a 1.6% growth in same-store sales and a 4.9% year-over-year increase in April.
As for the future of the industry, it is crucial to analyze the implications of the ideas presented and make connections to current events and emerging trends. The fast-casual sector’s ability to provide value to consumers, along with their focus on customer satisfaction, positions them favorably for future success. With the pricing gap narrowing between fast-casual and fast-food chains, the former is likely to attract more customers with its superior quality and perceived value.
Additionally, the strong performance of fast-casual chains during unfavorable weather conditions speaks to their resilience and ability to adapt. As weather patterns become more unpredictable and extreme, fast-casual chains that can maintain customer satisfaction during challenging times are likely to thrive.
Looking ahead, there is a need for fast-casual chains to continue their focus on throughput and efficiency. By improving service speed and transaction processes, these chains can attract more customers and enhance their overall dining experience.
In conclusion, the rise of fast-casual chains and their ability to provide better value and higher-quality offerings to customers has positioned them as a key player in the evolving dining landscape. Despite certain exceptions, the future trends suggest that fast-casual chains will continue to outperform in terms of sales and customer satisfaction. As the industry moves forward, it will be essential for these chains to adapt and innovate to meet the changing demands of consumers.
