Fast-casual restaurants face a slowdown
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Fast-casual restaurants are suddenly immersed in a sales slowdown as consumers — especially cash-strapped Gen Zers — grow wary of the economy and become more price sensitive.
Why it matters: The fast-food industry had already taken a turn for the worse as low-income consumers shy away — but fast-casual restaurants typically have more insulation from a downturn because they target higher-income customers.
- "Greater pressure on lower income consumers" is hurting the entire restaurant industry, according to Bank of America analyst Sara Senatore.
The fast-casual fallout is widespread:
- Sweetgreen's same-store sales plunged 7.2% in its most recent quarter.
- Chipotle reported a 4% decline.
- Cava — which is still growing rapidly via new locations — reported a huge slowdown in same-store sales growth to 2.1% in its most recent quarter from 10.8% the previous quarter. Its stock tumbled 16% Wednesday morning.
- Wingstop posted a 1.9% decline in U.S. same-store sales.
What they're saying: "It's a cause for concern because traffic declines have been the main contributor to these results, raising questions on the consumer environment," Alex Fascino, equity analyst at CFRA Research, tells Axios.
State of play: A big reason for the "softening state of fast casual in recent months" is that Gen Z consumers are facing rising unemployment and a reduction in discretionary income, according to TD Cowen analyst Andrew Charles.
- Charles pointed to the recent resumption of federal student loan payments as a driving force in reduced restaurant spending among Gen Z.
- Of all the major fast-casual and fast-food chains, Cava and Sweetgreen rely the most on 18-to-24-year-old consumers, deriving 19% and 18% of their business, respectively, from that demographic, according to TD Cowen.
- Wingstop relies the fourth most on that group of consumers, getting 16% of its sales from them.
- "Pressure on consumer spending for many of our consumers has persisted longer than we expected," Sweetgreen CEO Jonathan Neman told investors on an earnings call last week. "I think it's pretty obvious that the consumer is not in a great place overall."
- "We're operating in a fluid macroeconomic environment, and it's one that sort of creates a fog for consumers where things are changing constantly," Cava CFO Tricia Tolivar said Tuesday on an earnings call. "During those times, they tend to step off the gas."
The intrigue: Ordinarily, a slowdown in fast casual would lead to an uptick in fast food as consumers trade down — but "our most recent franchisee checks suggest this does not appear to be the case," Charles said.
- Same-store sales in the most recent quarter declined 3.6% at Wendy's, 5% at KFC and 0.9% at Popeyes.
- McDonald's posted 2.5% growth, but needed a huge marketing campaign, $5 value meal and new products like chicken strips to get there.
- "Visits across the industry by low-income consumers once again declined by double digits versus the prior year period," CEO Christopher Kempczinski said last week on an earnings call.
Reality check: The accumulation of price increases over the last few years may finally be exerting pressure on restaurant sales.
- Campbell's CEO Mick Beekhuizen said in June that '"consumers are cooking at home at the highest levels since early 2020."
What to watch for: Neman said Sweetgreen is increasing chicken and tofu portioning by 25% "to enhance our value proposition" and won't increase prices for the rest of 2025.
