The nation’s largest fast-casual chains are hurting as Gen Z and Millennials eat out less.
Chipotle, Cava, and Sweetgreen reported earnings for the past two weeks, and all three companies reported the same issue. Diners between the ages of 25 and 35 are visiting stores less frequently as they pinch pennies.
The chain, which serves what is colloquially called “slop bowls,” has become popular in the United States among diners seeking something fresher, more customizable, and healthier than quick-service fast food.
Today, unemployment, reduced purchasing power and rising costs of living are driving young customers away. According to an October study by TD Cowen, the first thing they cut back on is eating out.
The customer squeeze adds to the list of existing problems facing these chains, such as pricing by fast food chains like McDonald’s.
Investors have taken notice, with Chipotle, Cava and Sweetgreen shares all falling in after-hours trading after the results were released. Over the past month, Chipotle is down 26%, Cava is down 27% and Sweetgreen is down 21%.
Andrew Barish, senior equity research analyst at Jefferies, told Business Insider that the solution goes beyond just lowering prices.
Financial hardship for young customers
Chipotle CEO Scott Boatright said on an Oct. 29 earnings call that 25- to 35-year-olds are facing economic challenges, including “unemployment, increased student loan debt, and slowing real wage growth.”
He said they patronize Chipotle less.
“We’re not losing them to competition. We’re losing them to groceries and food at home,” Boatwright said.
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“They are feeling the pinch and we are feeling the setback from them,” he added.
Cava CEO Brett Schulman echoed Chipotle’s concerns during Tuesday’s earnings call.
“We recognize that today’s environment creates real pressures for consumers, especially younger guests who are making more deliberate choices about where they spend their time.”
Sweetgreen Finance Director Jamie McConnell said on an earnings call Thursday that spending among the 25- to 35-year-olds, who make up about 30% of the chain’s consumer base, fell 15% in the latest quarter.
McConnell said the group was “under the most pressure.”
Fast food beats slop bowl
Barish, the Jefferies analyst, said the slop bowl chain was weighed down by heavy promotions at restaurants, including Chili’s $10.99 Three for Me and McDonald’s $8 Big Mac Extra Value in September.
When Business Insider tried Chipotle, Cava, and Sweetgreen meals in September, they cost $19.01, $28.97, and $29.01, respectively, including drinks and sides.
“If you’re spending an extra $4 or $5 to go to Chipotle or Cava instead of McDonald’s, that value still needs to be there. It just needs to be a different kind of value,” Jean-Pierre Lacroix, president of brand strategy firm SLD, told Business Insider in September.
“We need to find a balance and provide value while creating something unique that is memorable and shareable,” LaCroix said in September.
Cava CEO Schulman pushed back against criticism that the chain sells unaffordable meals during an earnings call this week.
“In fact, at Cava you can get a chicken fillet with all the toppings, including three spreads, vegetables and grains, for as low as $10.65 all the way up to $12.95, which is the highest price in New York City,” Schulman said. “So this is a sub-$13 bowl at the most expensive market, not a $20 lunch.”
But lowering prices is not enough
Solving the problems of Gen Z and Millennials requires more than just lowering prices.
Barish said chains need to excite consumers with menu innovation and good marketing.
“I don’t think Chipotle or Sweetgreen really have it, but Cava is on trend,” he said, citing Cava’s new chicken shawarma option.
He added, “Value is more than just price; it includes quality, variety, customization, service, and atmosphere, which fast casuals can deliver when done right.”
A Chipotle spokesperson told Business Insider that the Chipotle chain is looking for “new and creative ways to emphasize its value proposition.”
The company is looking to improve in-store execution, revamp its menu and double down on its rewards program, a spokesperson said.
During an August earnings call, Sweetgreen CEO Jonathan Neiman announced a turnaround plan to bring back customers, including 25% more chicken and tofu, recipe upgrades and $13 salads for members.
Representatives for Cava and Sweetgreen did not respond to requests for comment from Business Insider.
