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 Brian Niccol is among those who told investors that low-income consumers spend less money in their stores, while high-income customers visit more frequently. Other business leaders, like Starbucks Howard Schultz and Blooming brands David Deno, 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 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.
Here’s what catering companies have said so far.
International restaurant brands, 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 a slight increase 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 same-store sales in the United States for its KFC and Pizza Hut chains in the second quarter, although the figure rose at Taco Bell. CEO David Gibbs told investors that the the global consumer seems more cautious and that the low-income US consumer has cut spending even further.
But Gibbs also warned that he is difficult to generalize about the state of the consumer. 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 offices in 17 states, said it’s seeing a broad-based slowdown in consumption 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.
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 Truck Stop said his customers switched to larger steaks during his second trimester. Chief Financial Officer Tony Robinson said alcohol sales were down slightly, but there was no noticeable change in food orders.