Please ensure Javascript is enabled for purposes of website accessibility

Here's Why People Aren't Eating at Fast-Casual Restaurants

By Daniel B. Kline – Sep 23, 2016 at 10:54AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The segment had a bad quarter, dragged down by Chipotle, politics, and pricing.

Chipotle was a drag on the entire fast casual segment. Image source: Chipotle.

Blame Chipotle (CMG 0.13%), but also blame high prices and wariness over the economy for why consumers have been more cautious about eating out.

Overall, restaurant traffic was flat in the first quarter of 2016 and it stayed the same in the second, according to NPD Group. The news was especially bad in the fast-casual segment, which had been growing explosively at this time last year.

Fast-casual traffic was flat in Q1 compared to same quarter a year ago, down 3% in Q2. You can blame a lot of that on Chipotle's food-safety woes, but even taking the Mexican chain out of the equation only puts Q2 growth at 2%, down from 11% growth in 2015.

"Contributing to the stalled visit growth are consumers' uncertainties about current and future economic conditions," says Bonnie Riggs, NPD Group's restaurant industry analyst in a press release.  

These uncertainties have put a damper on overall consumer spending. Compounding the situation for the restaurant industry is the decline in food at home inflation while at the same time restaurant operators have been increasing menu prices.

Consumer concerns over pricing hit fast-casual chains like Chipotle and Panera Bread (PNRA) especially hard because they have built their business on offering higher-quality food that's more expensive than their fast-food rivals. Fast-casual chains, because they use better ingredients, also have higher costs that impacts their ability to offer deals during slower periods.

People are eating lunch out less

In general, the biggest problem for restaurants is that people are less willing to eat lunch out. The midday meal represents about 3% of all daypart visits, according to NPD.

In Q2, lunch traffic fell by 4% compared to the same quarter last year while dinner, which accounts for about 30% of daypart visits, only dropped by 1%, an improvement over the 3% decline in the first quarter of this year. Breakfast traffic grew by 1% in Q2.

The slowing lunch business can be directly linked to pricing and economic concerns. "It's political, concern about the economy. It's uncertainty, food safety, social unrest," Riggs told Nation's Restaurant News (NRN). "But probably the biggest thing is sticker shock."

NRN noted that of the total negative traffic volume at lunch, 12% came from fast casual, double its overall market share, while the average check jumped by 5%, to $8.36, the highest of any other segment.

Restaurants are not dying

For fast casual, specifically chains like Chipotle and Panera -- which market around having better quality and more natural foods (which cost more) -- economic uncertainty will always be a problem. If people are worried about their jobs or the economy, they may not be willing to pay more for pork from a pig raised down the street or "clean" bacon.

Worries about money will push people away from pricier choices, seemingly especially at lunch, but Riggs was clear that NPD's research had some positives as well.

"The good news in all of this is that consumers made 61.3 billion restaurant visits this past year," she said. "They are not giving up dining out at restaurants and other foodservice outlets. It's true that in this flat market it's a battle for visit share but there are restaurants that are winning. The winning operators focus on their customers' needs and deliver on them."

Daniel Kline has no position in any stocks mentioned. He ate out more often last quarter and often at Chipotle. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,504.70 (0.13%) $1.94
Panera Bread Company Stock Quote
Panera Bread Company
PNRA

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.