McDonald’s and Chipotle Mexican Grill say customers squeezed by inflation are choosing cheaper menu items and visiting their restaurants less often, signaling trends that could be hitting the broader restaurant industry.
The two companies were among the first restaurant chains to report their second-quarter results. Wingstop, Starbucks and Taco Bell owner Yum Brands are all scheduled to release their earnings reports within the next week.
Starting around mid-May, Chipotle said on Tuesday that low-income customers were visiting its restaurants less frequently, leading to slowing traffic. Earlier in the day, McDonald’s executives also said some low-income customers have been switching to its value menu or opting out of combo meals to save money. But McDonald’s executives added that the chain is also benefitting from customers trading down from more expensive full-service or fast-casual restaurants.
The restaurant companies’ commentary comes on the heels of Walmart slashing its profit outlook, citing surging prices for food and gas that are squeezing consumers’ wallets. Higher prices for necessities have curtailed shoppers’ willingness to buy items like apparel and electronics — or dine out at restaurants and order food delivery.
On average, restaurant menu prices rose 7% in the three months ended May compared with the year-ago period, according to the NPD Group. During the same period, consumers from households with income under $75,000 cut their fast-food visits by 6%, the market research firm said.
Restaurant chief executives, including McDonald’s Chris Kempczinski, have pointed to the gap in rising prices for groceries and restaurant meals as an advantage for eateries. Prices for food at home have climbed 12.2% over the last 12 months, while prices for food away from home are up just 7.7%, according to the Bureau of Labor Statistics’ consumer price index.
“I don’t know what the impact of that is, but certainly we expect that there’s some benefit that we’re seeing as part of that,” Kempczinski told analysts Tuesday during the company’s conference call.
Historically, fast-food chains have fared well during economic slowdowns as diners shift to cheaper options without skipping out on eating out altogether.
McDonald’s is among the best-positioned restaurants to benefit from consumers trading down, according to BMO Capital Markets analyst Andrew Strelzik. Executives touted the chain’s value offerings compared with rivals, even as the company and its franchisees raise prices.
As a fast-casual chain, Chipotle says most of its customers aren’t as sensitive to pricing.
“The low-income consumer definitely has pulled back their purchase frequency,” CEO Brian Niccol said on the company’s conference call. “Fortunately for Chipotle, you know, the majority of our customers are a higher household income consumer.”
The burrito chain said it is confident it can hike menu prices without scaring off its core customers. It plans to raise prices about 4% in August to…
Read More: McDonald’s and Chipotle say customers are trading down, visiting less