According to Fortune, McDonald’s CEO Chris Kempczinski reported that lower-income quick-service restaurant traffic declined nearly double digits in Q3 2024, a trend that’s persisted for nearly two years, while higher-income traffic grew nearly double digits. McDonald’s missed earnings estimates despite reporting a 2.5% increase in U.S. comparable sales, while Cava reported only 1.9% comparable sales growth versus expectations of 2.7%. Cava CEO Brett Schulman specifically called out challenges with younger customers aged 25-35, noting Gen Z unemployment is twice the national average and pointing to student loan repayment and inflationary pressures. Both chains are experiencing what their CEOs describe as a “bifurcated consumer base” or K-shaped economy, where wealthier customers continue spending while lower-income Americans pull back significantly.
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The Great Restaurant Divide
Here’s the thing – we’re not just talking about different spending habits. We’re talking about two completely different economic realities playing out at the same fast-food counters. McDonald’s is seeing nearly double-digit declines in lower-income traffic while wealthier customers are increasing their visits by similar percentages. That’s not a slight shift – that’s a chasm. And it’s been going on for nearly two years according to Kempczinski’s comments during the Q2 earnings release.
Cava’s experiencing the same split personality, but from the fast-casual side. Their wealthier customers are actually spending more – adding premium proteins like steak and extra sides. But the younger crowd? They’re disappearing. Schulman told investors that when you look at the data from their Q3 earnings release, the 25-35 cohort “doesn’t have the steam that they had last year.” Basically, they’re choosing between Cava bowls and paying their student loans.
Young Consumers Get Squeezed
So why are younger customers pulling back so dramatically? Look at the perfect storm they’re facing. According to a recent FICO report, young people have experienced the steepest annual drop in credit of any generation since 2020. The Federal Reserve Bank of St. Louis data shows unemployment for 16-24 year olds is nearly triple that of millennials and Gen X. And a Redfin survey found 40% of Gen Z and millennial renters are eating out less just to afford bills – with one in five skipping meals entirely to save money.
Think about that for a second. We’re not just talking about cutting back on avocado toast – we’re talking about fundamental trade-offs between eating and paying rent. Student loan repayments have kicked back in, housing costs are insane, and these kids are entering a job market where AI threatens to automate entry-level positions. Is it any wonder they’re choosing groceries over restaurant meals?
Diverging Strategies
Now here’s where it gets really interesting. Both chains see the same problem, but their solutions couldn’t be more different. McDonald’s is leaning hard into affordability with their $2.99 Snack Wraps and the return of Extra Value Meals. They’re essentially saying “we know you’re broke, here’s how you can still afford us.”
But Cava? They’re taking the complete opposite approach. Schulman explicitly said they’re “not going to get into that heavy discounting.” Instead, they’re doubling down on premium proteins and better-for-you branding. They’re betting that their wealthier customers will keep spending extra for quality, even if it means losing the budget-conscious crowd entirely. It’s a bold move when everyone else is racing to the bottom on price.
Broader Implications
This isn’t just about two restaurant chains. Chipotle and Shake Shack CEOs are reporting the same patterns. We’re seeing a fundamental restructuring of consumer spending that’s hitting the restaurant industry particularly hard. The middle ground is disappearing – you’re either catering to people who can afford premium experiences or people who need absolute affordability.
And here’s what worries me: this K-shaped recovery could become permanent. When young people develop habits of eating at home and avoiding restaurants during their formative spending years, those habits might stick even when the economy improves. The restaurant industry might be facing not just a cyclical downturn, but a structural shift in consumer behavior. That’s a much harder problem to solve than just waiting for the economy to bounce back.
