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Restaurants among those feeling the tension from tariffs, traffic trends from Placer AI showing declines in quick service restaurants by 1.6% in the first quarter. For more, we're bringing in RJ Hottovy, head of analytical research at Placer AI. Always great to see you, RJ. So, um, I'm curious when we talk about these being sort of a casualty of tariffs. Obviously, it's not necessarily a direct impact, but it's sort of the big tariff vibe right now. So, where are we seeing that the traffic changes being felt most acutely?

It really is broad-based. We're seeing traffic declines pretty much across the board and just about every category in retail. Uh, we really started to see it at the end of January when we started to see a lot more uncertainty about the macro environment. As more headlines came out about tariffs, we really started to see those year-over-year declines in February. Uh, once we got to the end of the month, we did start to see some normalization. We did start to see a little bit of pull forward, um, in some of the categories of retail. Typically, see a stock up, so we saw strength out of warehouse clubs. We saw strength out of some of the categories like, uh, luxury, electronics, home improvement. Uh, categories that, you know, at least initially were thought to be impacted by reciprocal tariffs. Um, you know, since that has gone away and we've seen the extension on the tariffs, uh, we've seen things go back to down slightly year-over-year negative. But it's been interesting to watch. If nothing else, we know that consumers are very price sensitive, and if they look, if they feel like there's going to be price increases, they're going to act on that. That is one of the things that's pretty clear with our data right now.

And yet, what's so interesting here is that the QSR, the fast food visits fell about 1.6%, but fast casual didn't fall by that much, and they're at a higher price point. Are their customers more sort of price resistant, or less economically sensitive here?

Yeah, I think that's effectively what's going on. I mean, with the QSR sector, which does lend itself usually towards the lower middle-income consumer, we've seen that group continue to shift towards value grocery and to some extent convenience stores. Uh, that has been two channels that we've seen a definite shift in that consumer. Um, we've also seen some of the players in the space fare better than others, say a Taco Bell or McDonald's more recently with its Minecraft promotion do very well, whereas some of the other chains in the category really haven't been able to lean on value, which was a big driver last summer. Some of the chains like Taco Bell and McDonald's were driving through innovation and at least driving visits that way. The fast casual customer, you're exactly right, that typically is going to be a higher, uh, more affluent consumer, one that's able to take on that $15 price point. Um, you know, but what is interesting about the fast casual space is the winners in this group, so the Chipotle, the Cava, the Sweetgreens, it's really those groups that allow for customization. And so what we're seeing is that if consumers have control over that order, if they're able to customize and get just what they want, they feel like they're getting that value even at a higher price point. So that's one of the things that we've been looking at with our data. And that's even factoring in Chipotle reported this week and mentioned that we did see some consumer uncertainty weighing on their results, but even that said, on a relative basis, they are outperforming.

What are we seeing on the coffee front, right? We've also seen, by the way, you know, tariffs aside, coffee's prices have been going way up for raw coffee beans for these companies. But you know, as we go into earnings next week for a company like Starbucks, what are you seeing in trends there and some of its competitors?

Yeah, that's actually the great question is its competitors there. We are seeing some real strength out of the kind of mid-sized regional chains. So that would be your Dutch Bros, that would be groups like Seven Brew and Scooters Coffee. Uh, if you look on the year-over-year basis on a comparable visit basis, they are really what's driving a lot of the strength. Now, some of that's just they're picking the right markets, they're picking high growth markets, uh, they're picking successful sites in these markets. But it's been a real disruption on really Starbucks and Duncan as kind of the two incumbents in the space. Um, obviously, Brian Nichols has got a plan for bringing back the experience and revitalizing the Starbucks experience. Um, but right now, what we're seeing is that there's still a lot of competition and these smaller kind of upstart chains are really taking a lot of share within the category.

Across food and beverage there, what are you seeing in terms of promotions being offered? And are these companies going to be able to keep up that cadence if some of the food items that they're, that are their ingredients are being tariffed?

Yeah, it's a good question, and it really is a catch-22 for a lot of these chains. Uh, admittedly, the global, the larger players in the QSR space generally do have global sourcing options, and so I think they'll be able to offset some of the tariff increases that would go along with it by sourcing from different locations. Uh, but that's not everybody. Some of the smaller chains may be limited in terms of the options they have in terms of promotional strategies. It is interesting, we have, since really about the fourth quarter last year, uh, certainly value is very front and center and a lot of the promotions, but it seems like we're seeing a shift away more towards innovation, new products, or intellectual properties, so things like a SpongeBob promotion that Wendy's ran, which was very successful, and the Minecraft promotion. So we are seeing a bit of a change in strategy, less anchored on price, although that certainly is important, and more on, you know, kind of innovation and newness is really what we're seeing a lot of promotions coming out of the QSR space.

RJ, great to see you. Thank you so much.

Thank you.