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Consumers willing to spend at US restaurant chains despite menu price increases

In the latest earnings results for fast-food and fast casual restaurants, consumers willing to spend despite higher menu prices, and lower employee turnover helped propel the top players to double-digit same-store growth.

"I think it's a pretty resilient consumer, where you're seeing the price increases being absorbed, and very, very little pushback on that," BTIG managing director Peter Saleh said.

This quarter, U.S. same-store sales got a boost across the board: McDonald's was up 12.6 % year-over-year, Chipotle, rose 10.9%, Wingstop was up 20.1%, YUM! Brands' Taco Bell was up 9%, Starbucks rose 12%, Shake Shack was up 10.3%, and even Subway saw a spike in sales growth as it gears up for a sale, rising 11.7% in North America.

This is welcome news for investors, after all brands across the board increased their menu prices. Chipotle was one the brands to raise them the most, Saleh said in his coverage, yet its same-store sales also saw a boost. CFO Jack Hartung said menu price increases compared to a year ago are in "about a 10% range."

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All this seemingly contradicts previous fears that higher prices would deter consumers, Saleh said. "We're just not seeing that right now."

At mega fast food chains, consumers are looking for value, Morningstar Analyst Sean Dunlop said. "We saw some evidence of consumers managing checks, particularly on the lower-income end of the spectrum."

YUM! Brands CEO David Gibbs told Yahoo Finance that the company tends to "flourish" in tough financial times, especially its Taco Bell brand. "People care a little bit more about value than they have over the last few years maybe when they were a little more flush with money in their pocket," Gibbs said.

In a call with investors, Papa John's CEO Rob Lynch said value was driving its customers as well.

"We're definitely entering into a period, if we're not already all the way there...value is going to become more important than it has been over the last 3 years and so it's critical for us to have a compelling and successful value strategy."

Saleh said he wouldn't call it a "a value war environment," however. "We still have all these restaurants [that] are still dealing with commodity inflation to a certain degree."

Menu price increases to moderate this year

Taco Bell drive-thru open for business with lush green plants and clear sky in a residential neighborhood, Walnut Creek, California, March 27, 2023. (Photo by Smith Collection/Gado/Getty Images)
Taco Bell drive-thru open for business with lush green plants and clear sky in a residential neighborhood, Walnut Creek, California, March 27, 2023. (Photo by Smith Collection/Gado/Getty Images) (Smith Collection/Gado via Getty Images)

Because of pressures like food input costs, labor costs, and other inflationary pressures, price increases will still happen, but maybe not with as vast of a jump as we saw last year.

"I think it's unlikely we see operators take too many incremental price increases in 2023, particularly as food input costs have moderated," Morningstar's Dunlop said.

Starbucks CFO Rachel Ruggeri told Yahoo Finance said the company would expect changes in price to start to moderate in the back half of the year, "as we get to more historical levels of pricing, which we've shared is typically around 1% to 2%."

The message was similar from YUM! Brands' Gibbs. "I do not anticipate taking as much price in 2023 as we did in 2022," he told Yahoo Finance. That's due to lower key input costs for food and "even the labor market has gotten a lot better."

Chipotle, the chain that took one of the largest price increases, is waiting to see how the year rolls out.

Despite an unpredictable inflation landscape, Chipotle's Hartung said the company doesn't have plans to make any price increases.

Company leaders said the easing of a tight labor market has also helped boost their bottom lines. In a call with investors, Shake Shack CEO Randy Garutti said lower turnover and a lot more people applying for jobs at Shake Shack is driving sales.

"That's just a huge win in every way," he said. "Turnover is expensive. It is hard to train people and mostly because you're just not up to the reps. You're just not up to speed and throughput. That's where the most gains are going to come from."

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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