Chipotle, Sweetgreen, Cava Under Fire as Pricing Pressures Earnings

Sweetgreen, Cava, and Chipotle May Have to Get Aggressive on Discounts

Fast-casual restaurant chains such as Sweetgreen, Cava, and Chipotle are struggling to retain customers amid a softening economy and shifting consumer priorities. These companies have seen their stock prices fall sharply over the past year, with declines of 82%, 60%, and 48%, respectively according to financial reports. The decline has been driven by a combination of runaway menu prices, weak sales, and a broader retreat from discretionary spending as consumers tighten their budgets.

The issue is particularly acute for chains that once positioned themselves as affordable alternatives to full-service dining. Chipotle, for instance, charges around $13.50 for a bowl with guacamole and premium protein, while Sweetgreen's Power Max Protein Bowl costs $22.45 according to financial reports. With inflation lingering and labor markets cooling, these price points have alienated lower-income customers who are increasingly opting for cheaper options.

Earnings reports from the three companies highlight the severity of the problem. Chipotle and Sweetgreen both missed revenue expectations in their Q3 reports, with Sweetgreen posting a wider-than-expected loss. Cava also underperformed, signaling ongoing challenges in gaining traction with consumers according to financial reports. These results have raised concerns among investors and analysts alike.

Why the Standoff Happened

The struggle to maintain customer traffic has been exacerbated by a broader economic backdrop. Consumer confidence has weakened as inflation, stagnant wages, and rising interest rates have strained household budgets. Many Americans are dining out less frequently or choosing more budget-friendly options, such as fast-food chains and meal kits according to financial reports.

Chipotle's leadership, including Chief Restaurant Operator Scott Boatwright, has attributed the traffic declines to macroeconomic pressures but has downplayed the impact of pricing. During the Q3 earnings call, Boatwright noted that lower-income households-approximately 40% of Chipotle's sales-were dining out less frequently due to economic concerns according to earnings reports. However, he also emphasized that "value as a price point is not and will not be a Chipotle strategy," suggesting a focus on menu innovation and execution rather than cost-cutting according to leadership statements.

The same reluctance to embrace aggressive discounting is evident at Sweetgreen and Cava. While both companies have introduced promotions and digital initiatives, their revenue growth has continued to slow. Sweetgreen's revenue growth dropped from over 54% in 2021 to less than 16% in 2024, and Cava, despite a strong start after its 2023 IPO, has seen its operating cash flow growth decline sharply according to financial reports.

The financial outlook for the rest of 2025 is also uncertain. While holiday spending could provide a temporary boost, there are no clear signs that consumer discretionary spending will rebound meaningfully. Analysts have warned that unless these companies address pricing concerns and reintroduce more value-focused options, their earnings will likely continue to disappoint.

The challenge for fast-casual chains is not just about retaining existing customers but also about attracting new ones who are increasingly price-sensitive. With competitors like McDonald's and Panera offering more affordable options, and meal delivery platforms offering convenience and variety, the pressure on fast-casual chains to innovate and reduce costs is mounting.

What This Means for Investors

For investors, the underperformance of Sweetgreen, Cava, and Chipotle underscores a broader trend in the consumer discretionary sector. The sector has been among the worst performers in the S&P 500, with many stocks struggling to adapt to the new economic reality according to financial analysis. The key for investors is to assess whether these companies can pivot effectively to regain market share.

Analysts are watching for signs that the companies will introduce more aggressive discounting, expand their digital offerings, or streamline their operations to reduce costs. While Chipotle has historically been more profitable, its reluctance to adjust pricing could limit its ability to recover. Sweetgreen and Cava, on the other hand, may need to make more drastic changes to their business models to remain competitive.

Until these companies address the affordability issue, their financial performance and stock valuations are likely to remain under pressure. For now, the focus for investors is on how quickly and effectively these chains can adapt to a changing consumer landscape.