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Fast-Casual Dining Slows Amid Consumer Pressure

Consumer caution at restaurants is reportedly dampening business at fast-casual eateries.

As Bloomberg News reported Saturday (May 11), restaurants such as Red Lobster — which is mulling bankruptcy — and TGI Fridays are under greater pressure due to rising labor costs and an increase in consumers choosing to eat at home.

The report cites recent findings from Moody’s Ratings arguing that this sector’s dependence on lower-income households means their customer base has been disproportionately affected by rising prices.

These chains “are feeling it the most,” Dennis Cantalupo, chief executive officer of credit-rating and consulting firm Pulse Ratings, told Bloomberg.

He added that these companies also need to worry about the possibility of a longer downturn, as the most price-conscious diners aren’t in a hurry to return once they shift to eating at home.

The report comes on the heels of the University of Michigan’s latest Index of Consumer Sentiment, which declined about 13% in May, measured month over month. The university noted that the 67.4 reading is the lowest level observed in six months.

“While consumers had been reserving judgment for the past few months, they now perceive negative developments on a number of dimensions,” Surveys of Consumers Director Joanne Hsu said in a statement. “They expressed worries that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead.”

PYMNTS Intelligence data reflects these trends, with the numbers repeatedly showing consumers’ wage increases lagging inflation

“Only about 38% of workers anticipate wage increases this year, down from 43% who expected wage increases in 2023,” PYMNTS wrote last week. “Those living paycheck to paycheck and having issues keeping pace with their bills are even more pessimistic. Just 29% said they expect a salary increase in the year ahead.”

The recent earnings season shows declines in revenue for eateries across the board. For example, in PYMNTS’ coverage of Starbucks’ earnings, “disappointing” second-quarter 2024 results came amid “fewer visits from our more occasional customers,” CEO Laxman Narasimhan told analysts during an earnings call. Revenues fell 1% year over year, while same store sales slipped 4%

But not every fast-casual eatery is struggling. Chipotle recently reported earnings showing an increase in sales driven by a “broad based” collection of diners.

“From the low-income consumer to the middle-income to the high-income consumer, we’re just seeing gains with all income cohorts,” CEO Brian Niccol said last month. 

“And when we ask the question, ‘Why is that?,’ what we hear back from every group is, ‘It’s a great value proposition.’”