Cava Aims to Keep Customers with Trendy New Items, Renovated Stores

Cava CFO Tricia Tolivar discusses the fast casual chain's plan to keep customers coming back as casual restaurants see a spending slowdown. Tolivar says restaurant renovations and trendy items could be the key.

As inflation and a slowing economy start taking their toll on the US consumer, the pain is mounting across the restaurant industry. Shares of Chipotle Mexican Grill Inc., Cava Group Inc. and Sweetgreen Inc. — hot names in what had been a booming fast-casual segment — have each sunk around 20% or more since reporting lackluster second-quarter earnings. Even McDonald’s Corp., among the most resilient of fast-food standbys, is barely keeping pace with the broader market.

All of which makes the robust earnings and stock rallies coming from a slightly more expensive segment of the restaurant world surprising. Casual-dining chains are posting strong sales growth that is suddenly rekindling investor interest in a business that many had condemned in recent years to a slow demise.

Wall Street is taking notice: shares of Cheesecake Factory Inc. — known for massive portions and over-the-top decor — are up nearly 29% this year, more than tripling the S&P 500 Index. Other names, such as Chili’s owner Brinker International Inc., have also delivered double-digit gains.

For many of the casual-dining brands, it’s been a story of small adjustments. Long seen by consumers as far too expensive for what they offered — how much better is it, really, to sit down (and pay a tip) at a Chili’s rather than grab a meal at Chipotle? — they have made incremental but well-targeted changes that drew diners looking to get maximum value for their money: trimming prices, spiffing up interiors and pouring money into marketing. Some are also working hard to tempt clients with more expensive items such as drinks and desserts once they’re through the door.

Even Applebee’s, which has struggled with years of weak sales, seems to be making the formula work. In March, it relaunched a promotion featuring two entrees and an appetizer for $25. The response was swift, as diners flocked to sample honey-glazed chicken and six-ounce sirloin steaks. Sales climbed last quarter for the first time since 2023.

Telling inflation-weary diners how much their night out would cost was key, said John Peyton, CEO of Dine Brands Global Inc., which owns Applebee’s.

“That was sort of a moment where you bonk your head and you say: ‘Wow, we had the answer all along,’” Peyton said in an interview.

Trading Up

The shift is, in some ways, a microcosm of the nation’s economic moment. While growth continues apace, the job market has become more fragile and wage gains have largely stalled. Meanwhile, inflation has slowed from its blistering post-pandemic pace but continues grinding higher. Although consumers haven’t pulled back on spending in a meaningful way, many are trying to make their dollars go further, boosting the appeal of a $25 night out at Applebee’s versus, say, a $17 salad from Sweetgreen.

“You would typically assume or expect casual dining to suffer in this environment because it is a higher ticket,” said Eric Gonzalez, an analyst at Keybanc Capital Markets Inc. However, “people have figured out that they can get a decent meal at a casual-dining restaurant for not quite what it costs to eat at McDonald’s or one of the fast-food guys.”

It’s a trend that Chili’s executives sensed more than a year ago, when they spotted irate fast-food diners posting receipts for pricey meals on social media. Sensing an opportunity, the once-beleaguered chain launched a combo offering a burger, fries and a drink — on top of unlimited chips and salsa — for $10.99 (a medium Big Mac Meal with fries and a beverage, by comparison, was listed for $9.69 at a Chicago McDonald’s in August).

“One of the promises of fast food is that it’s convenient and that it’s a really great value,” said Kevin Hochman, chief executive officer of Chili’s owner Brinker. “I think people were feeling like the promise was being broken.”

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