Why Chipotle, Sweetgreen, and Others Are Defying the 'Value Meal' Trend
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Key TakeawaysSeveral fast-food chains including McDonald's and Burger King recently announced lower-priced "value meals" to boost demand amid a pullback in consumer spending.However, higher-priced chains like Chipotle and Sweetgreen in the "fast-casual" category reported rising sales on strong demand.Chipotle and Sweetgreen said higher-income consumers are driving their sales, suggesting they may be less sensitive to price pressures.Analysts suggested fast-casual chains like Chipotle, Sweetgreen, and others have also benefitted in part from improving perceptions of value as the price gap between their offerings and those of fast-food chains narrowed.
As a price war brews in the fast-food industry with a number of chains rolling out "value meal" deals to win consumers amid a pullback in consumer spending, some higher-priced chains in the "fast-casual" category such as Chipotle Mexican Grill (CMG) and Sweetgreen (SG) don't seem to be feeling the same pressure to lower prices.Chipotle and Sweetgreen reported rising revenue on strong demand, as higher-income consumers drove sales. Analysts also suggested they may have benefitted in part from improving perceptions of value as the price gap between their offerings and those of fast-food chains like McDonald's narrowed.Promotions and Price Cuts Across Fast Food, Other IndustriesIn recent weeks, several fast-food chains including McDonald's (MCD), Restaurant Brands International's (QSR) Burger King, and Wendy's (WEN) have announced temporary "value meal" promotions to stimulate sales.The companies are working to win back consumers after acknowledging in recent months that inflation and high prices have affected sales as many customers pulled back on discretionary spending like eating at restaurants and fast food. McDonald's noted that sales growth slowed substantially compared with last year in its latest earnings report, with inflation forcing consumers to be “more discriminating with every dollar that they spend.”The pressure of inflation is being felt by companies in other sectors as well, with executives from retailers like Walmart (WMT), Target (TGT), Home Depot (HD), and Lowe's (LOW) all remarking in recent earnings reports that inflation has influenced sales, with a focus on essentials and less on discretionary items. That trend helped boost Walmart's earnings, with customers seeking the lowest-cost option for many products.However, fast-casual chains like Chipotle and Sweetgreen have posted strong quarterly profit and sales numbers in recent months despite higher prices than many fast-food restaurants. A reliance on higher-income customers and a perception of higher-value product are some of the factors that helped the chains keep their sales high.Growing Footprint, Market Share for Chipotle and SweetgreenChipotle and Sweetgreen said they benefited from continuing to open new locations and growing market share across different income brackets, as customers opt for a slightly more expensive option that they see as more value for their money than fast food, or a less-expensive alternative to sit-down restaurants.As many fast-food chains raised prices more rapidly than fast-casual chains last year, narrowing the price gap between the two segments, analysts indicated perceptions of the value of fast-casual chains' offerings have improved. They also suggested that Chipotle could maintain its current menu prices and keep recent market share gains."We now think it is possible that [Chipotle] remains very conservative with price throughout '25, leaning into its strong value proposition vs. peers," Truist Securities analysts wrote in a note Wednesday, raising their price target to $3,520, up from $3,440.Oppenheimer analysts also raised their price target for Chipotle, to $3,485 from $3,300, in a note last week, saying its menu pricing relative to competitors' has improved since the firm's last pricing study in October, calling the chain's prices for the value a customer gets "robust" and an "ongoing traffic driver."Another fast-casual option, Cava Group (CAVA), which went public last year, reported first-quarter earnings after the bell Tuesday that surpassed analyst expectations. However, year-over-year same-store sales growth slowed to 2.3% from recent quarters of double-digit gains, suggesting inflation could be starting to affect the fast-casual industry as well.Chipotle shares have gained nearly 37% so far this year, closing at $3,129.52 Friday, while Sweetgreen shares have close to tripled at $30.75. Cava stock, which debuted last June, has more than doubled at $92.55. By contrast, McDonald's and Restaurant Brands International have lost over 12% in the same period at $258.89 and $68.58, respectively, while Wendy's fell about 10% to $17.45.
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