Sweetgreen, Chipotle and Wingstop are not seeing a slowdown in consumer consumption

McDonald’s CEO Chris Kempczinski said diners are looking for deals and good value. The chain is working on offering a $5 meal, CNBC reported on Friday. John Peyton, CEO of Applebee’s owner Dine Brands, said the biggest drop in sales came from customers making less than $50,000.

Fast casual chains seem to be the exception to this trend. This sector saw higher traffic growth than any other dining sector from November to February XM Guest Data.

In general, customers of fast casual chains tend to have higher incomes than customers of the fast food sector, which somewhat insulates the sector from declining spending by lower-income consumers. High-income consumers did not feel the same pain as low-income consumers.

Wingstop saw same-store sales rise 21% during the quarter. CEO Michael Skipworth told CNBC that Wingstop’s customer base was largely low-income customers but now represents nearly three-quarters of high-income customers. He also attributed the company’s success to increased brand awareness and the 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 Neiman said last year. The salad chain on Thursday reported first-quarter same-store sales growth of 5% and raised its full-year forecast for same-store sales growth. Traffic was steady, but executives said bad weather and the inclusion of New Year’s Day and Easter hurt their business.

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

Last year, fast food chains raised prices more than fast food chains, according to TD Coin analyst Andrew Charles. While a bowl or salad from a fast food restaurant will still be more expensive than a burger or chicken, the pricing gap between the two segments has narrowed.

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

For example, Chipotle’s quarterly same-store sales rose 7%, helped by a 5.4% increase in traffic. The burrito chain has a strong perception of value among diners, CEO Brian Niccol told analysts on an April 24 company conference call. Chipotle executives have also previously confirmed that most of its customers come from higher income brackets.

Several fast-food chains, including Chipotle and Sweetgreen, are also trying to improve “throughput,” an industry term for the number of dishes or salads their employees can make. Charles said the focus on efficiency means their restaurant service is faster, leading to more transactions.

Investors were already betting that fast-casual chains would be more aggressive with consumers’ restaurant spending. Shares of Chipotle, Shake Shack and Wingstop are up at least 35% in 2024. Sweetgreen’s stock has more than doubled in value in the same time, except for a 34% increase on Friday alone. By comparison, the S&P 500 is up about 9% so far this year.

But there are still exceptions to the sector 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 poor results on “miserable weather throughout the Midwest” especially at the beginning of the quarter.

Likewise, Shake Shack said quarterly traffic, which was negative, would have been flat had it not been for bad weather in January and February. The burger chain reported same-store sales growth of 1.6%, but noted that the metric is sequentially improving each month. In April, same-store sales rose 4.9% year over year.

Mediterranean fast food chain Cava is not expected to report 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.