Are We in a Fast-Casual Restaurant Recession?

Caitlin McCabe (0:00)

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SPEAKER_2 (0:09)

TrueStage is the marketing name for TrueStage Financial Grouping at Subsidiaries and Affiliates.

Caitlin McCabe (0:13)

Corporate headquarters is located in Madison, Wisconsin. Hey, What's News listeners. It's Sunday, November 16th. I'm Caitlin McCabe for The Wall Street Journal, and this is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news by reaching out to our colleagues across the newsroom to help explain what's happening in our world. On the show this week, we're taking a look at the young American consumer and why they're starting to break up with fast casual restaurants. You could call it burrito belt tightening or a salad slump. But one thing is clear, chains like Chipotle, Sweetgreen, and Cava are falling out of favor with Gen Z and millennials.

SPEAKER_3 (0:57)

The younger cohort, that 25 to 35 attrition, they don't have the steam that they had last year in the way that they were visiting or their frequency of visiting.

SPEAKER_4 (1:06)

So the 25 to 35 consumer is the most under pressure and they make up about 30 percent of our consumer base and they're down about 15 percent.

SPEAKER_2 (1:16)

We believe that this trend is not unique to Chipotle. It is occurring across all restaurants as well as many discretionary categories.

Caitlin McCabe (1:25)

This shift is raising questions among analysts and investors about what's ahead for these companies. But more broadly, it's also sparked concern about the economic health of this age group and what it means for the US economy. To help unpack it all, I'm speaking with two Wall Street Journal reporters who are experts in this space. Let's dive in.

A little over a decade ago, one of my colleagues at The Wall Street Journal wrote a story highlighting an interesting phenomenon. She had found more than 40 restaurants that had been described in news reports as being the Chipotle of their cuisine. Think the Chipotle of pizza, the Chipotle of sushi, the Chipotle of Asian rice bowls. It spoke to the restaurant Zeitgeist of the moment. Customers, especially young ones, were craving build-your-own meals that featured fresher ingredients than what you could get at traditional fast-food chains, even if that meant spending a little more. But now, financial results show young customers aren't visiting these restaurants as much as they once did. So what's going on here? I'm joined by Heather Haddon, The Journal's restaurants reporter and Matt Grossman, an economics reporter, to help explain. Heather, let's start with you. You've been paying close attention to these earnings reports in recent weeks. What are you hearing from executives at these mid-tier fast-casual restaurant chains?

Heather Haddon (2:54)

They're all blaming 25 to 35 year olds for a slowdown in their sales. And they've really gotten granular about what's happening to these folks. Them having to pay student debt back, rising costs for everything from insurance to childcare, and just wage growth being stagnant. And they've said that these kind of pressures means that these folks, they're not abandoning the brands totally, but they're just not coming in as much as they were.

Caitlin McCabe (3:21)

Matt, you cover economics. Heather just mentioned a host of pressure points that these younger Americans are facing right now. Can you just give us a little bit more context about what's going on in the economy with this age group specifically?

Matt Grossman (3:35)

It's been a really difficult time in the labor market for people in this age group. A lot of companies have really been playing it as a kind of wait and see strategy where they aren't necessarily laying a lot of people off, but they're also not really in the mood to make big investments in the future of their workforce. And younger people really bear the brunt of that because when a company brings in somebody new, it's often a younger person where the company might need to invest in training and getting them off the ground. And so younger people are having a tougher time now finding those opportunities than certainly they were a few years ago.

Caitlin McCabe (4:11)

And so with that being the backdrop, how significant of a dent, Heather, is this having on company financials? Can you get a bit more specific about what companies are saying in terms of how this is affecting sales and profit?

Heather Haddon (4:27)

Chipotle said that these 25 to 35 year olds were something like 25% of their sales. That's a lot. So Chipotle reported same store sales decline. They also reduced their outlook for same store sales increases this year for the third consecutive quarter. And Sweetgreen, they are really challenged right now. Their same store sales are down 9%.