Consumers are cutting back on restaurant spending, but CEOs say not all chains are affected

Howard Schultz

David Ryder | Reuters

Some restaurants are reporting weaker sales or declining traffic in the second quarter, signaling that diners are cutting back on dining out to save money.

But CEOs are divided on how consumer behavior is changing and whether it’s affecting their companies.

McDonald̵[ads1]7;s Chris Kempczinski and Chipotle Mexican Grill’s Brian Niccol are among those who told investors that low-income consumers spend less at their locations, while higher-income customers visit more often. Other top executives, such as Starbucks’ Howard Schultz and Bloomin’ Brands’ David Deno, said they haven’t seen their customers pull back.

The mixed observations come as restaurant companies raise menu prices to pass on higher costs for ingredients and labor. 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, raising concerns about the possibility of a recession.

Historically, more expensive, fast-casual restaurant chains typically see sales decline during downturns as people choose to stay home or pack their own food. Fast food tends to be the best restaurant sector as people shop down to cheaper meals when they want to treat themselves.

More clues about how eating habits may change are in store 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 not seen significant changes in consumer behavior yet. 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 for money,” Cil told CNBC.

Yum Brands this week reported lower US same-store sales for its KFC and Pizza Hut chains in the second quarter, although the number rose at Taco Bell. CEO David Gibbs told investors that the global consumer appears to be more cautious and that the US low-income consumer has pulled back spending even more.

But Gibbs also cautioned that it is difficult to generalize about the state of the consumer. He noted the many factors influencing 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 is seeing a broad consumption decline that cannot be broken down by income levels. The casual dining chain also blamed record high temperatures in Texas, which discouraged diners from sitting outside, where they tend to drink more alcohol.

Still using

Starbucks’ Schultz reported that the company has not seen coffee drinkers cut back on spending. He chalked it up to the chain’s pricing power and strong customer loyalty. Starbucks reported 1% transaction growth in North America for the third quarter.

Some restaurant companies have focused on keeping prices relatively low in order to attract consumers and gain market share compared to competitors. For example, Outback Steakhouse owner Bloomin’ Brands said it decided not to raise prices to fully offset inflation. Instead, menu prices rose just 5.8% in the second quarter.

As a result, the company said it hasn’t seen diners pull back on spending.

“We are not seeing consumers managing their checks at this time,” Bloomin’s Deno said Tuesday. “In fact, in some of our brands, we’re still seeing trade up.”

To curb inflation, Bloomin’ has pulled back from discounts and limited-time promotions and focused on cutting costs elsewhere. Outback traffic fell compared to 2019 levels.

Texas Roadhouse said its customers traded up to larger steaks during the second quarter. CFO Tony Robinson said alcohol sales have eased slightly, but there have been no noticeable changes in food orders.

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