Who says teens are fickle? Sure their fashion tastes might seemingly change from month to month, but when it comes to where they like to eat, their preference seems to be as immutable as ever. For the seventh year in a row, teens prefer Starbucks (SBUX 2.03%) to any other restaurant, though they are increasingly cozying up to Chick-fil-A. Is there an upset in the making?
First we feast
In the latest Piper Jaffray (PIPR 2.89%) survey on teen spending, Starbucks reprised its role once again as the No. 1 destination for teens with the runner-up spot held by Chick-fil-A.
Twice a year, once in the spring, once in the fall, the analysts survey thousands of teens about where they spend money on food, which commands a 20% share of their budget, equal to what they spend on clothes, but twice as much as what they spend on the next biggest categories of personal care and shoes.
For years McDonald's (MCD 1.24%) had been the second-favorite go-to restaurant for teens, but in the fall of 2016 the chicken joint stole the position and looks as though it will not be relinquishing it anytime soon. But with McDonald's having a solid hold on third place, Olive Garden and Chipotle Mexican Grill (CMG -0.96%) are left to battle for fourth, while Buffalo Wild Wings (BWLD) brings up the rear with an increasingly stable grip on the slot.
Piper Jaffray Fall 2017
Taking Stock With Teens Survey
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The minds and wallets of future generations
Some 12% of the 4,600 teens Piper Jaffray surveyed, who have an average age of 15.9 years, said Starbucks remained their top restaurant pick while 68% chose it as their favorite coffee spot (take that Dunkin Donuts), but the coffeehouse is seeing its popularity suffer an approximately 100 basis point loss over each of the past few surveys sequentially.
That would seem to reflect the slowdown Starbucks is experiencing in sales growth overall. In its fourth quarter earnings report last month, it reported a 3% increase in comparable store sales in the U.S. compared to a 4% increase a year ago.
The chain has been dealing with declining traffic at malls and shopping centers and it also changed its loyalty program, which it admitted has depressed the number of transactions customers have made over the last five quarters, though it did increase the amount of each ticket that it classified as "equal and offsetting impacts."
That hasn't stopped Starbucks from opening new restaurants, as there were 952 net new openings in the Americas over the past year, though it's the overseas markets where the chain sees its greatest growth opportunities. It opened over 1,000 stores in the China and Asia-Pacific markets, and the region is expected to drive roughly half of Starbucks' global store growth in fiscal 2018, with 1,100 net new stores. Nearly 600 of them will open in China alone.
A microcosm of the restaurant industry
The Piper Jaffray survey seemed to reflect the changes underway in the broader restaurant industry as a whole, as fast food and limited service restaurants gained at the expense of full service chains, though McDonald's appears to have difficulty in holding back non-burger outfits.
One takeaway that McDonald's can bite into is that although it is the third favorite restaurant among teens, they spend more at its stores than they do at either Chick-fil-A or Starbucks. The survey found the average check at McDonald's was $6.04 compared to $6.00 at the chicken sandwich shop and $5.38 at the coffeehouse.
The restaurant industry is in a stage of flux with the industry reporting yet another month of declining traffic. The industry watchers at TDn2K said comp traffic was down 2.5% in November, making it almost three consecutive years since the industry has seen monthly restaurant traffic rise. The brunt is being largely born by the casual dining segment.
Fortunately for Olive Garden and Buffalo Wild Wings, there seems to be a change in preference among teens for Mexican food. Not just Chipotle, which continues to deal with food quality issues, but Taco Bell too, which has largely dropped out of contention.
That's a surprise because Taco Bell has been the top-performing brand for Yum! Brands (YUM 1.72%) and has become a bellwether for the restaurant operator's gains. That may hold some future concern for investors if it's losing teen customers now.
Perhaps that's a word of caution for Starbucks, which lately is looking to expand its more adult-oriented concepts, such as the high end Roastery with its $12 cups of coffee, its upscale Reserve bars, and the new well-heeled Princi cafes. While the coffee shop may be laying the groundwork for developing experiences where teens will be able to continue to interact with the brand as they age, it also risks pricing a loyal following out of the market.