It’s finally here: the long-awaited consumer return.
starbucks announced Surprising decline in same-store sales For its latest quarter, its shares fell 17% on Wednesday. Pizza Hut and KFC Same-store sales decline also reported, And even the giants McDonald’s said this Adopted a “street fighting mentality” Competing for value-minded diners.
For months, economists have been predicting that consumers will cut back their spending in response to higher prices and interest rates. But it took some time for fast-food chains’ sales to actually take off, despite warnings to investors for several quarters that low-income consumers were weakening and other eateries were trading below pricier alternatives.
Many restaurant companies also cited other reasons for their weak results this quarter. Starbucks said its same-store sales declined due to the bad weather. Yum BrandsThe parent company of Pizza Hut, KFC and Taco Bell blamed the January snow storm and a tough comparison to last year’s strong first quarter for its brands’ poor performance.
But these excuses don’t fully explain the weak quarterly results. Instead, it seems that competition has become more intense for a smaller group of customers as those who still want to buy a burger or a cold drink have become more cash-savvy.
The cost of eating at quick service restaurants has increased faster than eating at home. Prices at limited-service restaurants rose 5% in March from a year earlier, while grocery prices are rising at a slower pace. Bureau of Labor Statistics,
McDonald’s CFO Ian Borden said, “Obviously everyone is fighting for fewer consumers or consumers who certainly come less frequently, and we have to make sure we have that street-fight mentality to win. is, no matter what the context around us is.” Company conference call is in progress Tuesday,
Outliers show that customers will still order their favorite foods even if they are more expensive than a year ago. wingstopThe Wall Street favorite restaurant chain reported that its U.S. same-store sales rose 21.6% in the first quarter. Chipotle Mexican Grill Traffic saw an increase of 5.4% first quarter, And Restaurant Brands International Popeyes reported a 5.7% increase in same-store sales.
Still, many companies in the restaurant sector and beyond warn that consumer pressures may persist. McDonald’s CEO Chris Kempczinski told analysts that caution about spending is widespread around the world.
“It is worth noting that [the first quarter]”There is a steady decline in industry traffic in the US, Australia, Canada, Germany, Japan and the UK,” he said.
The two chains that struggled in the first quarter cited price as a factor. Starbucks CEO Laxman Narasimhan Said Sometimes customers were not buying the chain’s coffee because they wanted more variety and value.
“In this environment, many customers have become more strict “They choose where and how to spend their money, especially with stimulus savings being mostly spent,” Narasimhan said on the company’s Tuesday call.
Yum CEO David Gibbs says rivals’ price deals for chicken menu items hurt KFC’s US sales. But he said the price change should benefit Taco Bell, which accounts for three-quarters of Yum’s domestic operating profits.
“We know from industry data that value is more important and others are struggling with value, and Taco Bell is a value leader. You’re seeing some lower-income consumers falling away in the industry. We don’t Looking at Taco Bell,” he said Wednesday.
It’s unclear how long it will take for fast-food chains to get their sales back on track, although executives have provided optimistic timelines and plans to get sales back on track. For example, Yum said its first quarter would be its weakest quarter of the year.
For its part, McDonald’s plans to create a nationwide value menu that will appeal to frugal customers. But the burger giant may face pushback from its franchisees, who have become more vocal in recent years. While the deals boost sales, they also put pressure on operators’ profits, especially in markets where it is already expensive to operate.
Still, McDonald’s franchisees may be motivated by falling behind the competition. This is the second consecutive quarter that Burger King has reported greater growth in U.S. same-store sales than McDonald’s. The Restaurant Brands chain 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 of its app that allows all customers — not just loyalty members — to order, pay and receive discounts. Narasimhan also spoke about the success of his new lavender drink line, launched in March, although business was still sluggish in April.