Howard Schultz
David Ryder | Reuters
Some restaurants are reporting weaker sales or decreased traffic in the second quarter, indicating that diners are cutting back on eating out to save money.
But CEOs are divided about how consumer behavior is changing and whether it’s affecting their companies.
Chris Kempczinski of McDonald’s and Brian Niccol of Chipotle Mexican Grill are among those who told investors that lower-income consumers spend less money at their locations, while higher-income customers visit them more often. Other CEOs, including Starbucks’ Howard Schultz and Bloomin’ Brands’ David Deno, said they haven’t seen their customers pull away.
The conflicting observations occur when restaurant companies raise menu prices to pass on higher ingredient and labor costs. Prices for food eaten away from home rose 7.7% in the 12 months ending in June, according to the Bureau of Labor Statistics. People are also paying much more for necessities like gas, toilet paper and groceries, fueling concerns about the possibility of a recession.
Historically, more expensive fast-casual restaurant chains tend to see sales deteriorate during downturns as people choose to stay at home or prepare their own lunches. Fast food tends to be the best-performing restaurant sector as people cut back on cheaper meals when looking to treat themselves.
There are more clues about how eating habits could change next week, when salad chain Sweetgreen, Applebee’s owner Dine Brands and Dutch Bros Coffee report earnings.
Here’s what restaurant companies have said so far.
Looking for deals
Restaurant Brands International, which owns Burger King, Tim Hortons and Popeyes, said it has yet to see significant changes in consumer behavior. But CEO Jose Cil said there has been a modest increase in diners redeeming paper coupons and loyalty program rewards.
“It suggests that people are looking for good value,” Cil told CNBC.
Yum Brands this week reported lower US same-store sales for its KFC and Pizza Hut chains in its second quarter, although the number rose at Taco Bell. Chief Executive Officer David Gibbs told investors that the global consumer appears to be more cautious and that the low-income American consumer has further reduced spending.
But Gibbs also cautioned that it’s hard to generalize about the state of the consumer. He pointed to the multiple factors affecting behavior, including inflation, the absence of last year’s stimulus checks, people working from home and people going out again after the pandemic.
“This is truly 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’s seeing a widespread consumer slowdown that can’t 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.
Still spending
Starbucks’ Schultz reported that the company has not seen coffee drinkers reduce their spending. He attributed this to the chain’s pricing power and strong customer loyalty. Starbucks reported 1% transaction growth in North America during its fiscal third quarter.
Some restaurant companies have focused on keeping prices relatively low to attract consumers and gain market share over the competition. For example, Outback Steakhouse owner Bloomin’ Brands said it decided not to raise its prices to fully compensate for inflation. In contrast, its menu prices rose just 5.8% in the second quarter.
As a result, the company said it hasn’t seen diners cut back on spending.
“At this point we don’t see consumers handling their checks,” Bloomin’s Deno said Tuesday. “In fact, in some of our brands, we’re seeing continued trading.”
To mitigate inflation, Bloomin’ has been pulling back from discounts and limited-time promotions and focusing on cutting costs elsewhere. Outback traffic fell compared to 2019 levels.
Texas Roadhouse said its customers traded in larger steaks in the second quarter. CFO Tony Robinson said alcohol sales had weakened slightly, but there had been no noticeable change in food orders.