Chipotle Struggles as Customers Skip the Guac

Chipotle shares dipped more than 15% yesterday after the burrito restaurant wrapped up its latest quarter with flat same-store sales and falling traffic. The fast-casual chain also slashed its annual sales guidance for the third quarter in a row. 

TikTokers using “hacks” to get an extra scoop of beans aren’t to blame for Chipotle losing its line. Instead, CEO Scott Boatwright said the reason’s simple: People aren’t eating out as much, let alone splurging for extra guac. 

Slop Bowl Struggles

Boatwright, who’s been Chipotle’s CEO for about a year, said unemployment, student loans and slow wage growth are biting into customers’ burrito-bowl budgets, especially the core demo of 25- to 35-year-olds. Inflation-addled consumers are also under the impression that Chipotle costs more than it does, execs said during Wednesday’s earnings call, assuming its average entrée price is about $15 instead of $10. At the same time, Chipotle is grappling with rising beef costs that have generated pressure to hike prices. 

While Chipotle also called out improvements it could make in its digital ordering system and staff training, most of the chain’s problems aren’t Chipotle-specific and affect the wider fast-casual industry:

• Shares of rival restaurants Sweetgreen and Cava also fell yesterday as fears for fast-casual’s future grew. Both chains missed earnings expectations in the second quarter. Sweetgreen’s same-store sales fell 8%, and it cut its outlook for the second straight quarter. Cava, meanwhile, is seeing its rise as the bowl-lunch go-to taper from double-digit growth last year to nearly none in Q2. The chains are slated to share third-quarter results next week. 
• In more evidence that people aren’t going out for meals, nearly seven in 10 consumers told KPMG they’re eating at home more often, and 85% said the reason was to save money. About 40% of consumers also said their incomes had fallen, doubling from the previous year. Campbell’s said in June that people were cooking at home at the highest rate since the pandemic. 

Avocado Latte: While many of Chipotle’s problems are industry-wide, it also lost its star CEO, Brian Niccol, to Starbucks last year (fun fact: Niccol and Boatwright work out together). Starbucks, which reported earnings on Wednesday, saw same-store sales grow for the first time in almost two years under Niccol’s leadership. Still, analysts warned that recoveries aren’t a straight line. With the continued government shutdown weighing on the economy, it’s hard to say whether consumers can be won over if their budgets continue to tighten.