McDonald’s may be known for its golden arches and KaVo for its four-letter name boldly emblazoned on every takeout bag, but both restaurant chains currently have a different letter that sums up the business: a big K.
Two fast-food CEOs are the latest to sound the alarm in the restaurant industry. K-shaped economyHigh-income earners are spending as if nothing is wrong, while lower-income Americans are tightening their belts and cutting back on spending.
“We continue to see divergence among consumers, with (fast-food restaurant) traffic from lower-income consumers down nearly double digits in the third quarter, a trend that has continued for nearly two years,” McDonald’s Chief Executive Officer Chris Kempczinski said on the company’s earnings call Wednesday. A warning about the two-tier economy He grew up in September. “In contrast, fast-food traffic growth among higher-income consumers remains strong, up nearly double digits in the quarter.”
McDonald’s income Despite reporting U.S. comparable sales growth of 2.5% in the quarter, it missed expectations continued popularity The $2.99 Chicken Snack Wraps are designed to appeal to budget-conscious customers.
Cava is a long-established fast-casual chain attracts white-collar workers and suburbanitesfaces similar problems attracting low-income diners. Mediterranean style restaurant Lowers full-year sales growth guidancereported flat traffic and comparable sales growth of 1.9%, below expectations of 2.7%. CEO and co-founder Brett Schulman said attracting younger customers is a particular challenge because of the financial challenges they face.
“We don’t want to overstate the challenges facing consumers, but you can look at the data,” Schulman told investors on Tuesday. “Whether it’s student loan repayments, consumer sentiment, inflationary pressures around it, health care costs, housing costs, Gen Z’s unemployment rate is twice the national average, they’re clearly there.
“When we look at the data, it’s more of the younger age group, 25 to 35-year-olds…their access patterns or frequency of visits are not as strong as they were last year,” he added.
Shulman Tell Bloomberg The increase in comparable sales came as some consumers added sides or ordered more premium proteins like steak, suggesting affluent consumers are propping up Cava while others are retreating.
Industry trends
McDonald’s and KaVo’s observations about consumers’ plight didn’t occur in isolation. last week, Chipotle CEO Scott Boatwright and Shake Shake CEO Rob Lynch noted Especially young customers Spending cuts due to financial pressures.
“This group faces several headwinds, including job losses, rising student loan repayments and slower real wage growth,” Boatright told investors during the company’s earnings report last month. “We’re not losing them to competition. We’re losing them to groceries and food at home.”
The withdrawal behavior of young people, including many saddled with student loans, is evident as they experience Maximum annual decline According to a recent report, credit for any generation since 2020 FICO Report. Faced with the threat of artificial intelligence and a stagnant job market, the unemployment rate among 16- to 24-year-olds is nearly three times that of Millennials and Generation X. data From the Federal Reserve Bank of St. Louis.
As a result, young people are sacrificing opportunities to eat out. About 40% of Gen Z and Millennial renters said they ate out less to pay their bills, according to an August report red fin survey 4,000 U.S. homeowners and renters. One in five young people report skipping meals altogether to save money.
While these restaurant chains make similar observations about their two-tier consumer bases, their strategies differ significantly in how they deal with consumer headwinds. McDonald’s is a fast food chain with its snack wraps and Return great value meals In September, it was the first such promotion since the pandemic began.
However, Cava reiterated that it is not a fast food restaurant. Schulman said the company will continue to rely on its “better-for-you” fresh ingredients and higher-quality protein brands that some diners may have to pay a few dollars extra for.
“We’re not going to respond to any cyclical headwinds with deep discounts. That’s why we talked about doubling down on our commitment to operational excellence and superior customer experience,” Schulman told investors. “We want to make sure that we do everything we can to serve our guests in that spirit, in this moment when they are feeling the stress around them.”