Fast-casual chains such as Sweetgreen and Chipotle are defying the consumer slowdown.

• Wall Street's estimates for quarterly same-store sales growth were surpassed by Chipotle Mexican Grill, Wingstop, and Sweetgreen.
• Unlike the broader industry, fast-casual restaurant chains have not experienced a consumer slowdown.
• Customers with higher incomes perceive the company as offering better value, resulting in their increased patronage.

Despite the broader consumer slowdown, high-income consumers reported strong sales this quarter, helping eateries buck the trend.

In 2024, KFC owner reported a weak start to the year, as the restaurant industry experienced a decline in sales and traffic due to customers cutting back on spending.

McDonald's CEO Chris Kempczinski stated that customers are searching for deals and good value, and the chain is planning to launch a $5 value meal, according to CNBC's report on Friday. Meanwhile, John Peyton, CEO of Applebee's owner, revealed that the largest sales decline has been observed among customers earning less than $50,000.

Despite the general decline, fast-casual chains experienced growth in traffic from November to February, according to GuestXM data.

Fast-casual chains tend to attract higher-income customers, which helps to shield the segment from the spending pullback experienced by low-income consumers. In contrast, high-income consumers have not been as affected by economic downturns as those in lower-income brackets.

In the quarter, Wingstop experienced a 21% increase in same-store sales. According to CEO Michael Skipworth, Wingstop's customer base has shifted from low-income to higher-income diners, with the company's brand awareness and chicken sandwich being key factors in its success.

Last year, CEO Jonathan Neman stated that most of Sweetgreen's locations are situated in affluent neighborhoods. On Thursday, the salad chain announced a 5% increase in first-quarter same-store sales and revised its full-year outlook for the same. Despite flat traffic, executives attributed the decline in business to unfavorable weather and the inclusion of New Year's Day and Easter.

Value counts

Consumers' perception of value has given a boost to chains like Chipotle, as the cost of Big Macs and Whoppers increases.

Fast-casual chains have narrowed the pricing gap with fast-food chains, according to TD Cowen analyst Andrew Charles. While a burger or chicken tenders from a fast-food chain is still more affordable than a bowl or salad from a fast-casual restaurant, the price increase for fast-food chains was more dramatic last year.

Charles stated that fast casual offers superior value to consumers due to the high quality of the food they receive.

The burrito chain has experienced a 7% increase in quarterly same-store sales, driven by a 5.4% rise in foot traffic. Chipotle's CEO, Brian Niccol, stated this during the company's April 24 conference call. Additionally, Chipotle executives have highlighted that most of its customers come from higher-income brackets.

Efforts to enhance "throughput" by fast-casual chains such as Chipotle and Sweetgreen have resulted in quicker service, which has increased the number of transactions, according to Charles.

Fast-casual chains were expected to be an exception in consumers' dining spending, and shares of Chipotle, Shake Shack, and Wingstop have all increased by at least 35% in 2024. Sweetgreen's stock has doubled in value in the same time period, excluding its 34% increase on Friday alone. In comparison, the S&P 500 has risen approximately 9% so far this year.

Despite the trend of segmentation, there are still exceptions. For example, the chain known for its Italian beef sandwiches and Chicago-style hot dogs reported a 1.2% decline in same-store sales in the first quarter. The chain attributed the weak results to "miserable weather across the Midwest," particularly at the start of the quarter.

The burger chain reported a 1.6% increase in same-store sales growth, with the metric improving sequentially every month. In April, its same-store sales rose 4.9% year over year.

Cava, a Mediterranean fast-casual chain, is not anticipated to release its first-quarter results until May 28. However, TD Cowen's Charles predicts a stronger quarter for Cava based on the performances of its competitors.