(This article was originally published Friday.) --McDonald's, Starbucks and Chipotle see softer guest traffic growth in U.S. --Restaurants blame economy, increased competition for slowdown --Industry analyst says economic uncertainty has affected consumer spending By Annie Gasparro Several typically-resilient U.S. restaurant chains are putting a face on the nation's slower economic growth, reporting a pullback in customer traffic growth in June as consumer confidence weakened--a trend that seems to have bled into July. Overall, U.S. economic growth pulled back during the second quarter, the Commerce Department said Friday, as consumer spending slowed. The nation's gross domestic product--the value of all goods and services produced--grew at an annual rate of 1.5% between April and June: a reading that suggests domestic fiscal worries may be having a greater impact on consumer confidence. McDonald's Corp. (MCD), Starbucks Corp. (SBUX) and Chipotle Mexican Grill Inc. (CMG), which have in the past proved resilient during tough economic times, said they saw a bit of a slowdown in U.S. guest count-growth in the second quarter, which took some executives by surprise. "The U.S. continues to build sales and guest counts. It is, however, happening at a slower pace amid an unpredictable economic environment and increased competition," McDonald's Chief Executive Don Thompson said on a recent conference call. Starbucks' Chief Executive Howard Schultz said he's been speaking with other heads of consumer companies, and most everyone saw a similar pattern of deceleration in June and July. "So, this is not a Starbucks issue, this is a macro problem," he said on a conference call. While the Commerce Department's initial data are better than economists expected, it marks a slowdown from the upwardly revised 2% growth rate during the prior three months and the 4.1% rate in the fourth quarter of 2011. "Americans are basically optimistic in nature; however, the current environment has been so prolonged in being uncertain and uninspiring, and the upcoming fiscal cliff and presidential election have added to that," said Hudson Riehle, research head for the National Restaurant Association. "When consumers are uncertain and anxious, their spending mirrors that attitude." Starbucks said its softer traffic trends aren't related to an individual part of the business, time of day or region of the country. "There seemed to have been just a very broad-based, over-arching change in the consumer feel," Chief Financial Officer Troy Alstead said on the conference call. "We continued to grow traffic very healthily...just not quite as rapid a pace as we had in the periods prior to that." Chipotle--a long-time leader among fast-casual restaurants--said it began to see its customer traffic growth decelerate as early as the end of April. "We were humming along nicely in the first quarter. We were humming along nicely in April, and then we saw a slowdown," Chief Financial Officer Jack Hartung said on a recent conference. The company attributes the trend to tough comparisons over last year's growth, ramped up advertising by other restaurants, and most notably, the general decline in consumer spending. Dunkin' Brands Group Inc. (DNKN) also implied a deceleration in U.S. sales growth at its established doughnut locations, and Panera Bread Co. (PNRA) forecast customer-traffic growth softening from the third to the fourth quarters. "When one looks ahead, the environment certainly is not going to have the growth rate and performance of several years ago," Mr. Riehle said in an interview, but there is room for growth among those chains that find ways to resonate with consumers. The restaurant association estimates Americans spend 12% of their cash on food, and nearly half of that goes to restaurants. Mr. Riehle said chains using social media, loyalty programs and value initiatives are winning customers in this environment. But the competition is getting fierce. McDonald's said it's seeing heightened competitive activity--from fast-food to convenience stores and supermarkets--as its peers spend more money on marketing. "We go through competitive pressures...it kind of ebbs and flows from time to time," Mr. Thompson said. "What matters most is to remain focused on what is within our realm of control," such as improving its value menu items and promoting new products. Chipotle and Starbucks have said their higher-income customers aren't as sensitive to pricing and don't mind spending a few more dollars for a better experience. But the recent trends suggest economic uncertainty is finally hitting those typically-resilient customers. Chipotle said it's sticking to its "customer and quality first" strategy, and won't resort to discounting or "gimmicky" new menu items. Starbucks said it's still trying to "crack the code" on "fractured consumer confidence," while continuing to expand beyond its core cafe business in the U.S., such as with its new line of energy drinks and pending launch of a single-serve espresso brewer this fall. Unlike its competitors, Panera's customer transactions grew more than it expected in the recent quarter, suggesting it's taking business from other chains. "Essentially, all boats float with the same macro-economic conditions, and what you do in the context of that defines whether you take market share or you lose it," Panera's co-chief executive Ron Shaich said in an interview. "We can't control the economic environment, but we can make sure we are a better alternative for consumers than our competitors." Write to Annie Gasparro at annie.gasparro@dowjones.com Subscribe to WSJ: http://online.wsj.com?mod=djnwires
