It’s finally here: the long-predicted consumer pullback.
Starbucks announced a surprise drop in same-store sales for its latest quarter, sending its shares down 17% on Wednesday. Pizza Hut and KFC also reported declines in same-store sales. And even stronger McDonald’s said it has adopted a “street-fighting mentality” to compete for value diners.
For months, economists have been predicting that consumers will cut back on spending in response to higher prices and interest rates. But despite several quarters of warnings to investors that low-income consumers are weakening and other eateries are trading down on pricier options, it may be some time before fast-food chains see their sales actually shrink. It seems
Several restaurant companies cited other reasons for their weak results this quarter. Starbucks said bad weather reduced same-store sales. Yum BrandsPizza Hut, the parent company of KFC and Taco Bell, blamed the poor performance of its brands on January’s blizzard and a tough comparison to last year’s first quarter.
But those reasons don’t fully explain the weak quarterly results. Instead, competition for a smaller pool of customers seems to have intensified as diners still want to buy a burger or a cold drink and are being pickier with their cash.
The cost of eating out at a quick-service restaurant has risen faster than eating at home. Limited-service restaurant prices rose 5 percent in March from the year-earlier period, while grocery prices rose more slowly. Bureau of Labor Statistics.
McDonald’s CFO Ian Borden said, “Obviously everyone is fighting for fewer customers or customers that are definitely coming in less, and we have to make sure we have a street-fighting mentality to win.” , regardless of the context around us”. The company’s conference call on Tuesday.
Outliers show that customers will still order their favorite foods, even if they are more expensive than a year ago. Wing stopWall Street’s favorite restaurant chain reported that its U.S. same-store sales rose 21.6 percent in the first quarter. Chipotle Mexican Grillwhose customer base is primarily high-income, saw a 5.4 percent increase in traffic in its first quarter. And Restaurant Brands International Popeyes reported a 5.7 percent increase in same-store sales.
“What we’ve seen with users is that if they’re feeling pressure, they tend to back off at a much higher frequency. [quick-service restaurant] opportunities,” Wingstop CEO Michael Skipworth told CNBC.
He added that the average Wing Stop customer visits only once a month, using the chain’s chicken sandwiches and wings as an opportunity to treat themselves instead of a routine that could easily be cut due to budget concerns. Is. Skipworth also said Wingstop’s lower-income customers are coming back more often these days.
Even so, many companies in the restaurant sector and beyond warn that consumer pressure may persist. McDonald’s CEO Chris Kempczynski told analysts that spending prudence is spreading across the globe.
“It is worth noting that in [the first quarter]He said that industrial traffic has decreased in America, Australia, Canada, Germany, Japan and United Kingdom.
Two chains that struggled in the first quarter cited value as a factor. Starbucks CEO Laxman Narasimhan said occasional customers were not buying the chain’s coffee because they wanted more variety and value.
“In this environment, many customers have tightened up about where and how they choose to spend their money, especially with stimulus savings being spent more,” Narasimhan said on the company’s Tuesday call.
Yum CEO David Gibbs noted that competitors’ pricey deals for chicken menu items hurt KFC’s U.S. sales. But he said the change in value should benefit Taco Bell, which accounts for three-quarters of Yum’s domestic operating profit.
“We know from industry data that value is more important and that others are struggling with value, and Taco Bell is a value leader. You’re seeing some low-income consumers fall into the industry. “We’re not looking at Taco Bell,” he said Wednesday.
It’s unclear how long it will take for the fast-food chains’ sales to bounce back, though executives provided optimistic timelines and plans to get sales back on track. For example, Yum said its first quarter would be its weakest of the year.
For its part, McDonald’s plans to create a nationwide value menu that appeals to frugal customers. But the burger giant could face pushback from its franchisees, which has become more pronounced in recent years. While the deals boost sales, they put pressure on operators’ profits, especially in markets where it’s already expensive to operate.
Still, losing ground to the competition could be a boost for McDonald’s franchisees. This marks the second quarter in a row that Burger King reported stronger growth in U.S. same-store sales than McDonald’s. The chain of restaurant brands has been in turnaround mode for the past two years and has been spending heavily on advertising.
Starbucks is also betting on deals. The coffee chain is preparing to release an upgrade to its app that allows all customers — not just loyalty members — to order, pay and receive discounts. Narasimhan also mentioned the success of his new lavender drink line launched in March, although business was still slow in April.
Credit : www.cnbc.com
