This earnings szn, we’ve seen a familiar narrative pop up around CPG giants, namely that they’re continuing to do notably well despite continuous price hikes. And as QSRs reported their first-quarter results over the last few weeks, we’ve heard pretty much the same thing as sales and traffic rise despite the numbers on the menu ticking up. But there have been a few signs that they are starting to feel the crunch of higher prices.
Quick off the mark: Chipotle’s revenue grew 17.2% year over year to $2.4 billion on the back of ~10% higher menu prices compared to last year. Those price hikes, along with lower avocado prices, helped boost its restaurant-level margin 25.6%. Chipotle raised prices twice last year, though chair and CEO Brian Niccol said the company has not made any “definitive plans” on pricing actions for the remainder of the year.
“If we see inflation that warrants us needing to take additional pricing, we’ll take it,” he said. “I think we’ve now demonstrated we do have pricing power. We have a really strong brand and we don’t want to be in front of the inflationary environment, but we also don’t want to fall behind.”
Traffic grew 4% for the quarter, and Niccol said Chipotle continues to receive steady business from higher-income consumers, while its volume of lower-income consumers base is “still not all the way back” to its levels a year ago, but has improved over the past six months.
Burger King-owner Restaurant Brands beat expectations this quarter, with net sales up 9.6% and same-store sales growing 10.3% as the company makes a push to improve franchise profitability. Sweetgreen, too, is making strides toward profitability, reporting last week its revenue rose 22% with traffic up 2%. Its YoY profit margins increased 1% as the company raised menu prices 3% in the quarter.
Price isn’t right: But higher prices were not key to every QSR’s success. For McDonald’s, which executed layoffs in early April, menu price bumps and an increase in traffic also helped it deliver a 12.6% net sales increase and a rise in consumer traffic. However, the Big Mac maker has also started to see “more resistance” to its higher prices than when it first raised them, president and CEO Chris Kempczinski said, noting on the call that items per order are down in most markets.
- He was also cautious about the remainder of the year, warning as he did on its last call in January, that a potential recession in the US and Europe was on the horizon.
Retail news that keeps industry pros in the know
Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.
“McDonald’s, we perform well in good times and in bad. And so that’s what gives us the optimism as we go through the rest of this year,” Kempczinski said.
Yum! Brands saw earnings fall short of expectations, with net income dropping 25% year over year to $300 million in the quarter, though KFC, Pizza Hut, and Taco Bell posted strong same-store sales growth. The company turned to value items to appeal to consumers, with CEO David Gibbs noting that lowest-income consumers were its strongest customer segment in the first quarter. This was due to rollouts of new, lower-priced items like two-for-$5 wraps at KFC and $6.99 Pizza Hut Melts, along with Taco Bell’s $2 and under value menu.
“We know we have all the tools in our arsenal to win in these competitive environments,” Gibbs said.—EC