The two companies were among the first restaurant chains to report second-quarter results. Wingstop, Starbucks and Taco Bell owner Yum Brands are scheduled to report earnings within the next week. Since mid-May, Chipotle said Tuesday that low-income customers have been visiting its restaurants less often, slowing traffic. Earlier in the day, McDonald’s executives also said some low-income customers have changed the value menu or are cutting out combo meals to save money. But McDonald’s executives added that the chain also benefits from customers trading up from more expensive full-service or fast-casual restaurants. The restaurant companies’ commentary comes after Walmart cut its earnings outlook, citing rising food and gas prices that are weighing on consumers’ wallets. Higher prices for essentials have limited shoppers’ willingness to buy items like clothing and electronics — or to dine out and order food delivery. On average, restaurant menu prices rose 7% in the quarter ended in May compared with the year-ago period, according to the NPD Group. During the same period, consumers from households with incomes below $75,000 cut their fast food visits by 6 percent, the market research firm said. Restaurant executives, including McDonald’s Chris Kempczinski, have pointed to the gap in rising prices for groceries and restaurant meals as a plus for restaurants. Food prices at home rose 12.2% over the past 12 months, while prices for food away from home rose just 7.7%, according to the Bureau of Labor Statistics’ consumer price index. “I don’t know what the impact of that is, but we certainly expect that there is some benefit that we see as part of that,” Kempczinski told analysts on Tuesday during the company’s conference call. Historically, fast food chains have done well during economic downturns as customers turn to cheaper options without skipping eating out altogether. McDonald’s is one of the best-positioned restaurants to benefit from falling consumer trading, according to BMO Capital Markets analyst Andrew Strelzik. Executives tout the chain’s value offerings compared to competitors, even as the company and its franchisees raise prices. As a fast-casual chain, Chipotle says most of its customers aren’t as sensitive to pricing. “The low-income consumer has definitely pulled back on their shopping frequency,” CEO Brian Niccol said on the company’s conference call. “Fortunately for Chipotle, you know, the majority of our customers are higher-income consumers.” The burrito chain said it is confident it can raise menu prices without scaring away its core customers. It plans to raise prices about 4 percent in August to cover rising costs for tortillas, avocados and packaging. Chipotle’s stock jumped 11% in morning trading Wednesday after news of another round of price hikes and falling profits. McDonald’s shares fell less than 1 percent after Deutsche Bank downgraded the stock, citing its valuation relative to its fast food peers. By the end of the year, BTIG analyst Peter Saleh predicts that Chipotle’s menu prices will be about 20% higher than they were two years ago. The chain’s competitors have raised prices by similar levels or even higher, according to research conducted by the company. “The results of our pricing research show that Chipotle still has pricing power it can rely on to support margins in this inflationary environment,” Saleh wrote. For the second quarter, Chipotle reported same-store sales growth of 10.1%, missing Wall Street expectations of 10.9%. The increase was largely the result of earlier price increases, which offset a decline in customer traffic. Some analysts questioned how much more Chipotle could raise prices. Cowen analyst Andrew Charles wrote in a note that planned increases this summer could further erode traffic, especially given the uncertain economic environment noted by company executives. — Ian Krietzberg contributed reporting for this story.
