The latest earnings results for fast-food and fast casual restaurants indicate that consumers are willing to spend despite higher menu prices. This trend has helped propel the top players to double-digit same-store growth. Brands such as McDonald's, Chipotle, Wingstop, Taco Bell, Starbucks, Shake Shack, and even Subway have seen a spike in sales growth in North America. This is welcome news for investors as all brands have increased their menu prices.
Despite fears that higher prices would deter consumers, this has not been the case. According to BTIG managing director Peter Saleh, consumers are absorbing the price increases with very little pushback. At mega fast-food chains, consumers are looking for value, particularly on the lower-income end of the spectrum.
YUM! Brands CEO David Gibbs stated that the company tends to "flourish" in tough financial times, especially its Taco Bell brand. Papa John's CEO Rob Lynch also said that value was driving its customers.
However, Saleh noted that this is not a "value war environment" as all restaurants are still dealing with commodity inflation to a certain degree. Despite this, menu price increases are expected to moderate this year due to pressures like food input costs, labor costs, and other inflationary pressures.
Morningstar's Sean Dunlop said that he did not anticipate operators taking too many incremental price increases in 2023, particularly as food input costs have moderated. Starbucks CFO Rachel Ruggeri also stated that the company would expect changes in price to start to moderate in the back half of the year.
Chipotle, which took one of the largest price increases, is waiting to see how the year rolls out. Despite an unpredictable inflation landscape, Chipotle's CFO Jack Hartung said the company does not have plans to make any price increases. Additionally, the easing of a tight labor market has helped boost bottom lines for several restaurants, including Shake Shack, which has seen lower turnover and a lot more people applying for jobs.
In conclusion, while menu prices have increased, consumers have continued to spend, and value has become more critical. The industry is still dealing with commodity inflation, but menu price increases are expected to moderate this year. The easing of a tight labor market has also helped boost bottom lines for several restaurants, indicating a positive outlook for the industry.
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