Cash-squeezed Gen Zers and millennials are bringing down America’s favorite slop bowl chains

• Chipotle, Cava, and Sweetgreen are bearing the brunt of younger customers' money squeeze.
• Executives of all three chains said 25- to 35-year-old customers are visiting their stores less.
• Lowering prices is not the silver bullet, an analyst told Business Insider.

Gen Zers and millennials are cutting back on dining out, hurting America's biggest fast-casual chains.

Chipotle, Cava, and Sweetgreen reported earnings in the last two weeks, and all three reported the same problem: Diners age 25 to 35 are visiting their stores less frequently as they pinch pennies.

The chains offering what's colloquially called slop bowls became a hit in the US for diners seeking something fresher, more customizable, and healthier than fast food with quick service.

Now, unemployment, lower spending power, and high living costs are dragging down younger customers. Dining out is the first thing they cut back on, according to an October study by TD Cowen.

The customer squeeze adds to the existing list of problems that these chains are facing, including being priced out by fast food chains like McDonald's.

Investors are taking note: Chipotle, Cava, and Sweetgreen's stock all slumped in after-hours trading after their earnings reports. In the last month, Chipotle is down 26%, Cava is down 27%, and Sweetgreen is down 21%.

Andrew Barish, a senior equity research analyst at Jefferies, told Business Insider the solution is more than just slashing prices.

Younger customers' financial woes

Chipotle's CEO, Scott Boatwright, said on an October 29 earnings call that the 25 to 35 age group is facing financial issues "including unemployment, increased student loan repayment, and slower real wage growth."

He said they were patronizing Chipotle less.

"We're not losing them to the competition. We're losing them to grocery and food at home," Boatwright said.

"They feel the pinch, we feel the pullback from them as well," he added.

Cava's CEO, Brett Schulman, echoed Chipotle's concerns on a Tuesday earnings call.

"We recognize that today's environment is creating real pressures for consumers, especially younger guests who are making more deliberate choices about where they spend."

Sweetgreen's finance chief, Jamie McConnell, said on a Thursday earnings call that spending from the 25 to 35 age group, which makes up about 30% of the chain's consumer base, was down 15% in the recent quarter.

The group was "most under pressure," McConnell said.

Fast food is winning over slop bowls

Barish, the Jefferies analyst, said that intense promotions in restaurants, such as Chili's $10.99 "3 for Me" meal and McDonald's $8 Big Mac Extra Value meal in September, were squeezing slop bowl chains.

When Business Insider tried meals from Chipotle, Cava, and Sweetgreen in September, they cost $19.01, $28.97, and $29.01, respectively, including drinks and sides.

Jean-Pierre Lacroix, the president of brand strategy firm SLD, told Business Insider in September, "If I'm going to spend an extra $4 or $5 to go to Chipotle or Cava versus McDonald's, that value still needs to be there — it just needs to be a different type of value."

"They need to find that balance and provide value while creating something unique that is memorable and shareable," Lacroix said in September.

Schulman, Cava's CEO, pushed back during this week's earnings call on criticism that the chain was selling unaffordable meals.

"Well, the reality is you can get a chicken fillet at Cava with all the toppings included — three different spreads, greens, and grains — for $10.65 to our highest price of $12.95 in New York City," Schulman said. "So that's a sub-$13 bowl in the most expensive market, not a $20 lunch."

But lowering prices is not enough

Fixing the Gen Z and millennial problem requires more than just lowering prices.

Barish said that the chains need to get consumers excited with menu innovation and good marketing.

"I don't think either Chipotle or Sweetgreen really has that, but Cava is on trend," he said, citing Cava's new chicken shawarma option.

He added, "Value is more than just price; it includes quality, variety, customization, service, and ambience, which fast-casual can deliver when done right."

A Chipotle spokesperson told Business Insider the chain is exploring "new and creative ways to emphasize our value proposition."

The company is looking to improve its execution in stores, innovate its menu, and double down on its rewards program, the spokesperson said.

On an August earnings call, Sweetgreen CEO Jonathan Neman announced a turnaround plan to get customers back in the door, including 25% larger portions of chicken and tofu, recipe upgrades, and $13 salads for members.

Representatives for Cava and Sweetgreen did not respond to requests for comment from Business Insider.