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--:-- Caitlin McCabe: At Constellation, we bring the energy, powering America's growing economy every minute, every day. As the nation's largest producer of clean and reliable America-made energy, Constellation is wherever you are. From families, to corner stores, to manufacturers, to the biggest data centers, we meet the nation's energy needs by generating emissions-free electricity today and for our future.
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--:-- Caitlin McCabe: Hey, What's News listeners. It's Sunday, November 16th. I'm Caitlin McCabe for The Wall Street Journal, and this is What's News Sunday, the show where we tackle the big questions about the biggest stories in the news by reaching out to our colleagues across the newsroom to help explain what's happening in our world.
--:-- Caitlin McCabe: On the show this week, we're taking a look at the young American consumer and why they're starting to break up with fast casual restaurants. You could call it burrito belt tightening or a salad slump. But one thing is clear. Chains like Chipotle, Sweetgreen and Cava are falling out of favor with Gen Z and millennials.
--:-- Caitlin McCabe: The younger cohort that 25 to 35, they don't have the steam that they had last year in the way that they were visiting or their frequency of visiting. So the 25 to 35 consumer is the most under pressure and they make up about 30% of our consumer base and they're down about 15%.
--:-- Caitlin McCabe: We believe that this trend is not unique to Chipotle and is occurring across all restaurants as well as many discretionary categories. This shift is raising questions among analysts and investors about what's ahead for these companies. But more broadly, it's also sparked concern about the economic health of this age group and what it means for the U.S. economy.
--:-- Caitlin McCabe: To help unpack it all, I'm speaking with two Wall Street Journal reporters who are experts in this space. Let's dive in.
--:-- Caitlin McCabe: A little over a decade ago, one of my colleagues at The Wall Street Journal wrote a story highlighting an interesting phenomenon. She had found more than 40 restaurants that have been described in news reports as being the Chipotle of their cuisine. Think the Chipotle of pizza, the Chipotle of sushi, the Chipotle of Asian rice bowls.
--:-- Caitlin McCabe: It spoke to the restaurant zeitgeist of the moment. Customers, especially young ones, were craving build-your-own-meals that featured fresher ingredients than what you could get at traditional fast food chains, even if that meant spending a little more.
--:-- Caitlin McCabe: But now, financial results show young customers aren't visiting these restaurants as much as they once did. So what's going on here?
--:-- Caitlin McCabe: I'm joined by Heather Haddon, the Journal's restaurants reporter, and Matt Grossman, an economics reporter, to help explain.
--:-- Heather Haddon: Thanks for having me, Caitlin.
--:-- Caitlin McCabe: Heather, let's start with you. You've been paying close attention to these earnings reports in recent weeks. What are you hearing from executives at these mid-fast casual restaurant chains?
--:-- Heather Haddon: They all blaming 25 to 35 for a slowdown in their sales. And they've really gotten granular about what's happening to these folks. Them having to pay student debt back, rising costs for everything from insurance to child care, and just wage growth being stagnant.
--:-- Heather Haddon: And they've said that these kind of pressures means that these folks, they're not abandoning the brands totally, but they're just not coming in as much as they were.
--:-- Matt Grossman: That's right, Heather. And I think it's worth noting that this is not just a problem for these mid-fast casual chains. It's a broader trend that's affecting the economy as a whole.
--:-- Caitlin McCabe: Matt, can you just give us a little bit more context about what's going on in the economy with this age group specifically?
--:-- Matt Grossman: It's been a really difficult time in the labor market for people in this age group. A lot of companies have really been playing it as a kind of wait and see strategy where they aren't necessarily laying a lot of people off, but they're also not really in the mood to make big investments in the future of their workforce.
--:-- Matt Grossman: And younger people really bear the brunt of that because when a company brings in somebody new, it's often a younger person where the company might need to invest in training and getting them off the ground. And so younger people are having a tougher time now finding those opportunities than certainly they were a few years ago.
--:-- Caitlin McCabe: Heather, how significant of a dent is this having on company financials? Can you get a bit more specific about what companies are saying in terms of how this is affecting sales and profit?
--:-- Heather Haddon: Chipotle said that these 25 to 35 year olds were something like 25 percent of their sales. That's a lot. So Chipotle reported a same-store sales decline. They also reduced their outlook for same-store sales increases this year for the third consecutive quarter.
--:-- Heather Haddon: And Sweetgreen, they are really challenged right now. Their same-store sales are down 9%. And all these companies have taken a stock hit as well.
--:-- Caitlin McCabe: Matt, what do you make of these comments? Is this a cyclical period for Gen Z and millennials? Do we expect their financial and economic prospects to get better?
--:-- Matt Grossman: It could really go either way. On the one hand if this is more about companies not being sure about which way the business climate is going to go because of tariffs at some point soon we're going to get answers to that. Either tariffs will stabilize or we learn that there some drag on the economy.
--:-- Matt Grossman: On the other hand, in the situation we've been in where it's taking younger people longer to find jobs, perhaps they're not having those thriving early career experiences where they're going to the office every day and then eating at these restaurants for lunch and dinner.
--:-- Caitlin McCabe: Heather, how much of this do you think is a pullback from this group due to economic pressures or how much of it is just shifting consumer preferences? Do we know anything about that?
--:-- Heather Haddon: It's hard to totally know. But once Chipotle came out with this 25 to 35 year old slowdown that Kava and Sweetgreen then all just adopted it as well. So that does seem to say that maybe they've all decided that this is a good thing that they can point to.
--:-- Heather Haddon: And I'm sure there's truth to it. These restaurant chains now have credit card data and other ways to analyze their consumers in ways that they didn't prior. And you look at what Chipotle is doing to try to improve sales. It's very focused on some of these younger consumers, including digital games to get free food, share your knowledge of Chipotle trivia, and this CollegeU program to try to get college students.
--:-- Caitlin McCabe: Matt, do we know if this is translating across other categories like retail or travel or entertainment? Because the government shutdown, we haven't been getting the government data that we rely on for the past six weeks or so.
--:-- Matt Grossman: We have to look at other sources for this instead. When you look at credit card spending data, for example, this is the information that the banks put out based on how their credit card users are spending. A lot of these categories are down a little bit from a year ago.
--:-- Matt Grossman: If you look at things like lodging, travel, airfare, seeing that the spending is down in the mid single digit percentages, 3%, 5%. So not anything drastic there, but it's certainly not trending in the right direction.
--:-- Caitlin McCabe: Prices are still going up faster than anybody wants. And that definitely doesn't help.
--:-- Matt Grossman: When you look at what other companies in the space are saying, it does vary a bit. Delta Airlines has said a couple times in the past few months that young people are actually very strong customers for them, that you're seeing strong loyalty and propensity to travel.
--:-- Matt Grossman: On the other hand, Six Flags executives have said that they're really seeing a lot of price sensitivity, that a lot of their younger customers are less willing to go out and spend a lot of money on a fun day out.
--:-- Caitlin McCabe: Coming up, we explore how this shift is echoing through the broader economy and how these companies are responding. That and more after the break.
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--:-- Caitlin McCabe: Picking up where we left off, Matt, I think the big question that everyone is wondering is, what does this mean for the broader American economy? How much do 20 and 30-year-olds drive economic spending?
--:-- Matt Grossman: They're not the most important spending bucket, in part because they're just not the wealthiest Americans. On the other hand, younger people's spending can be a lot more. If you're a younger person and you've got an extra dollar, it can really go a long way in determining how much you're spending and what your plans are.
--:-- Caitlin McCabe: And so in that sense, young people's spending can swing a lot faster.
--:-- Heather Haddon: Heather, how much of this do you think is a pullback from this group due to economic pressures or how much of it is just shifting consumer preferences? Do we know anything about that?
--:-- Heather Haddon: It's hard to totally know. But once Chipotle came out with this 25 to 35 year old slowdown that Kava and Sweetgreen then all just adopted it as well. So that does seem to say that maybe they've all decided that this is a good thing that they can point to.
--:-- Heather Haddon: And I'm sure there's truth to it. These restaurant chains now have credit card data and other ways to analyze their consumers in ways that they didn't prior. And you look at what Chipotle is doing to try to improve sales. It's very focused on some of these younger consumers, including digital games to get free food, share your knowledge of Chipotle trivia, and this CollegeU program to try to get college students.
--:-- Caitlin McCabe: If this trend is relatively long lasting, this seems bad for places like Chipotle and Sweetgreen that really built a business model on courting younger customers.
--:-- Heather Haddon: That's right. And it is interesting that a lot of these chains like Sweetgreen or Chipotle are now looking at overseas. Maybe that's where their future lies is expanding in the Middle East, even Mexico are places they're looking at to grow.
--:-- Caitlin McCabe: And when I was talking to the CEO of Dime Brands, which owns Applebee's, it was like we've created a whole in-house social media team because we realized that's where consumers are and that's where you have to advertise and figure things out.
--:-- Caitlin McCabe: But it's not cheap. You have to get your board to agree to spend a lot of money to invest. And so we'll also have to see if they have the balance sheet to do that.
--:-- Caitlin McCabe: That's Heather Haddon, the Journal's restaurants reporter, and Matt Grossman, an economics reporter. Thanks to both of you for being here.
--:-- Heather Haddon: Thanks so much.
--:-- Matt Grossman: Thanks to both of you for being here.
--:-- Caitlin McCabe: Thanks to both of you for being here.
--:-- Caitlin McCabe: And that's it for What's New Sunday for November 16th. Today's show is produced by Zoe Kolkin with supervising producer Sondra Kilhoff and deputy editor Chris Zinsley.
--:-- Caitlin McCabe: I'm Caitlin McCabe, and we'll be back tomorrow morning with a brand new show. Until then, thanks for listening.
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--:-- Caitlin McCabe: TrueStage is the marketing name for TrueStage Financial Grouping. Get subsidiaries and affiliates. Corporate Headquarters is located in Madison, Wisconsin.
