It’s the usual explanation for what was by most accounts a trying second quarter for restaurant chains: Lower-income consumers dined out less frequently, eroding traffic and sales for all but a few operations.
Yet executives of the First Watch breakfast-and-lunch concept see some gaps in the standard storyline.
Their charge was also affected by the lowering tide, with same-store sales slipping 0.3% on a 4-point decline in customer counts. Yet they reported seeing no trading down to lower-priced menu items or other forms of “check management,” as many of their peers have attested.
Rather, they attributed the slump in traffic and sales to occasional guests visiting less often during the week, particularly at lunch.
Those disloyal customers also tended to be from households with annual incomes of less than $70,000, according to the officials. Similar assertions have been made by peers at any number of chains, including McDonald’s and Denny’s.
If there was any trading-off to lower-cost options, it might have come from customers on their phones at home. Delivery sales through third-party services dropped, while the volume of to-go orders conducted directly with First Watch stayed “still pretty healthy,” said CEO Chris Tomasso. The variance suggests delivery was dampened by a price sensitivity the chain officials said they didn’t see at all among customers who dined onsite.
Nor did they report any reduction in visits by hardcore regulars. “The behavior of our repeat customers remained relatively consistent, which is encouraging,” Tomasso told financial analysts in recounting First Watch’s second-quarter results on Tuesday.
He told the analysts that the daytime-dining brand will try to draw more visits from customers by stepping up its communications via the channels it controls, like its loyalty program. First Watch has access to about 7 million guests through those pipelines, Tomasso said.
“We will lean into traffic-driving marketing initiatives,” he said.
But that does not mean fly-casting deals toward the great mass of consumers and hoping they bite. All that does, Tomasso stressed, is lure bargain hunters for a single visit or give away value to customers who might have visited anyway.
In an interview after the quarterly presentation to analysts, Tomasso explained that the chain will likely spotlight popular menu draws more frequently. “It all comes down to the messaging,” he said.
He repeated that the chain will not discount, regardless of what its competitors might do. “The history of this industry is littered with accounts of brands that lost their way,” he said.
Meanwhile, the chain intends to continue growing at a rapid clip. About 130 development projects are in the works, and new stores tend to deliver higher volumes than their older sister units. The chain finished the quarter with 538 restaurants, 459 of them company owned.
“Times are good for us,” he told the Wall Street analysts, “but not in the usual way.”
Overall, First Watch reported a net income for the second quarter of $8.9 million, an 11.8% rise from the year-ago quarter, on revenues of $258.6 million, up 19.5%.
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