For younger demographics, even dining at fast-casual establishments might prove to be too costly.
TL;DR
- * Chipotle CEO Scott Boatwright says Gen Z and millennials dine out less due to joblessness and student debt.
- * Younger demographics are reducing visits to Chipotle and other fast-casual restaurants.
- * Consumers earning under $100,000 are also cutting back, opting for groceries and home dining.
- * A two-tier economy shows wealthier individuals spending more, while lower incomes cut back.
Chipotle According to CEO Scott Boatwright, individuals aged 25 to 35 are reducing their visits to the Mexican-themed fast-casual restaurant. However, these younger customers, millennials and Gen Z, aren't rejecting Chipotle in favor of other fast-food establishments; rather, they've reduced their overall frequency of eating out.
“This group is facing several headwinds, including unemployment, increased student loan repayment, and slower real wage growth,” Boatwright told investors at the company’s earnings presentation on Wednesday. They aren't going to rivals. We're seeing a decline in patronage as consumers opt for groceries and home dining.
Boatwright observed that Chipotle patrons earning under $100,000 annually, representing roughly 40% of its customer demographic, are also reducing their spending.
“They feel the pinch; we feel the pullback from them as well,” he concluded.
Chipotle cut its same-store sales forecast for its third consecutive quarter as quarterly revenue missed expectations and traffic declined by 0.8%, also its third straight dip.
Two-tier economy
Other quick-service restaurants have observed the rise of a two-tier economy—wealthier individuals spending more on food, while those with less income cut back. McDonald's is also included, as its business has been significantly supported by patrons who are more inclined to spend extra at the establishment.
”There’s a lot of commentary around, ‘What’s the state of the economy, how’s it doing right now?’” McDonald’s CEO Chris Kempczinski told CNBC last month. What we're observing is essentially a dual-level economy. For those with incomes exceeding $100,000, the situation is favorable. However, the experience for consumers in the middle and lower income brackets is markedly different.
Fast food establishments have also actively sought to draw in Gen Z customers, featuring options such as McDonald's adult Happy Meals, Taco Bell’s customizable drinks, and Saucy's, a spinoff from KFC, which boasts a variety of chicken tender dipping sauces. Chipotle has also tried introducing new, temporary condiments, and these efforts have seen some positive results.
“Through our research, we found that over 90% of Gen Z consumers say they would visit a restaurant just for a new sauce,” Boatwright said on Wednesday.
Chipotle offered no immediate response to Fortune’s inquiry for a statement.
Gen Z cutting back on dining out
With the cost of living soaring, young customers might need more than Chipotle's Adobo Ranch or Red Chimichurri to be enticed to visit their restaurants more frequently. Gen Z, especially, has altered their dining habits to cut costs, opting for more affordable menu choices by splitting appetizers and ordering kids’ meals.
Many Gen Z and millennial individuals focused on managing their finances are choosing to skip dining out as it's a discretionary expense. A Redfin survey of 4,000 U.S. A survey of homeowners and renters, conducted in August, revealed that 40% of Gen Z and millennial renters are dining out less frequently to manage their monthly expenses. Over one-fifth indicated they went without meals altogether to manage their finances.
Emerging information might validate Boatwright's concerns regarding the financial challenges faced by Gen Z. Gen Z's credit scores saw the steepest annual drop of any generation since 2020, partly due to the reinstatement of student loan payments, a recent FICO report reports. In addition to facing a stubbornly expensive housing market, younger people are finding it difficult to secure or maintain employment that allows for career progression.
A report from the JPMorgan Chase Institute, published on Wednesday, indicated that individuals aged 25 to 29 experienced the slowest income increases during the last ten years. In August, the jobless rate for individuals aged 16 to 24 hovered around 10.5%, a figure roughly triple that of millennials and Gen Xers, as reported by Federal Reserve Bank of St. Louis data.
In a period marked by “job hugging”, a subdued labor market with few openings and hiring, and apprehension regarding AI displacing entry-level workers, Gen Z is forfeiting a crucial phase of professional growth. This growth typically stems from changing employment to secure higher compensation, according to JPMorgan. The report included Chase's observations. This reduces their purchasing power, indicating their concerns extend beyond choosing between carnitas or chicken for their burrito bowls.
“We’re already seeing that young people are having a hard time getting a foothold on the homeownership ladder,” George Eckerd, wealth and markets research director for JPMorgan Chase Institute, told Fortune. “They’re delaying home purchases because they need to climb further up their career ladder to be able to afford it all, and that career ladder is getting flatter.”