Consumers cut restaurant spending, but CEOs say not all chains are affected
david ryder | Reuters
Some restaurants are reporting weaker sales or lower traffic in the second quarter, reporting that diners are cutting back on dining out to save money.
But CEOs are divided on how consumer behavior is changing and what impact that is having on their businesses.
McDonald’s Chris Kempczinski and Chipotle Mexican Grill’s Brian Niccol are among those who told investors that lower-income consumers spend less money at their establishments, while higher-income customers visit more frequently. Other CEOs, like Howard Schultz of Starbucks and David Deno of Bloomin’ Brands, said they haven’t seen their customers back down.
The mixed observations come as catering companies hike menu prices to pass on higher ingredient and labor costs. Prices for food eaten outside the home rose 7.7% in the 12 months to June, according to the Bureau of Labor Statistics. People are also paying significantly more for basic necessities like gas, toilet paper and groceries, fueling worries about the possibility of a recession.
Historically, more expensive fast-casual restaurant chains typically see sales deteriorate during downturns as people choose to stay home or cook their own lunches. Fast food tends to be the best performing restaurant sector as people opt for less expensive meals when looking to indulge.
More clues about how eating habits could change are in store next week, when salad chain Sweetgreen, owner of Applebee Dine Brands and Dutch Bros Coffee report earnings.
Here’s what catering companies have said so far.
Restaurant Brands International, which owns Burger King, Tim Hortons and Popeyes, said it had yet to see any significant changes in consumer behavior. But CEO Jose Cil said there had been an uptick in the number of customers redeeming paper coupons and loyalty program rewards.
“It suggests that people are looking for value for money,” Cil told CNBC.
Yum Brands this week reported lower U.S. same-store sales for its KFC and Pizza Hut chains in the second quarter, though the number rose at Taco Bell. CEO David Gibbs told investors that the global consumer appears to be more cautious and the low-income US consumer has cut spending even more.
But Gibbs also cautioned that it’s hard to generalize about the consumer’s condition. He noted the multiple factors affecting behavior including inflation, the lack of stimulus checks from last year, people working from home and people going out again after the pandemic.
“It really is one of the most complex environments we’ve ever seen in our industry,” he said.
Chuy’s Tex-Mex, which has locations in 17 states, said it was seeing a general slowdown in consumption that cannot be broken down by income levels. The casual dining chain also blamed record temperatures in Texas, which discouraged diners from sitting outside, where they tend to drink more alcohol.
Starbucks’ Schultz reported that the company hasn’t seen coffee drinkers cut spending. He attributed this to the chain’s pricing power and strong customer loyalty. Starbucks reported transaction growth of 1% in North America for its third fiscal quarter.
Some catering companies have focused on keeping prices relatively low to attract consumers and gain market share from competition. For example, Outback Steakhouse owner Bloomin’ Brands said it decided not to raise prices to fully offset inflation. Instead, its menu prices only rose 5.8% in the second quarter.
As a result, the company said it hasn’t seen customers cut spending.
“We don’t see consumers managing their checks at this point,” Bloomin’s Deno said Tuesday. “In fact, in some of our brands, we are seeing a continued increase in trade.”
To blunt inflation, Bloomin’ backed out of limited-time discounts and promotions and focused on cutting costs elsewhere. Outback traffic has dropped from 2019 levels.
Texas Roadhouse said its customers traded larger steaks in its second quarter. Chief Financial Officer Tony Robinson said alcohol sales were down slightly, but there was no noticeable change in food orders.