The long predicted consumer withdrawal has finally arrived.
Starbucks announced an unexpected decline in same-store sales for its latest quarter, sending its stock down 17% on Wednesday. Pizza Hut and KFC also reported declines in same-store sales.and even sturdy mcdonalds He said he is adopting a “street fight mentality” to attract value-oriented customers.
Economists have predicted in recent months that consumers will cut spending in response to rising prices and interest rates. But despite warning investors for several quarters that low-income consumers were on the decline and other eateries were trading away from more expensive options, fast-food chains actually reported sales It took a while for the height to diminish.
Many restaurant companies also cited other reasons for the weak performance this quarter. Starbucks said same-store sales declined due to bad weather. yum brandThe company, the parent company of Pizza Hut, KFC and Taco Bell, blamed the poor performance of its brands on January’s snowstorm and harsh comparisons with last year’s strong first quarter.
However, these excuses do not fully explain the weak quarterly results. Instead, competition for a smaller customer base appears to be intensifying as diners still looking to buy a burger or a cold beer are becoming more selective with their money.
The cost of eating out at quick-service restaurants is rising faster than the cost of eating at home. Prices at limited-service restaurants rose 5% in March from a year earlier, while food price increases have slowed, according to the Bureau of Labor Statistics.
McDonald’s Chief Financial Officer Ian Bowden said: “Obviously everyone is fighting for fewer consumers, or certainly consumers who are visiting our restaurants less often. Regardless, we need to make sure we acquire the spirit of street fighting in order to win.” The company’s conference call on Tuesday.
Outliers indicate that customers still order the food they like, even if it’s more expensive than it was a year ago. wingstopthe popular Wall Street restaurant chain reported a 21.6% jump in U.S. same-store sales in the first quarter. Chipotle Mexican Grill‘s customer base is primarily high-income, and traffic grew 5.4% in the first quarter.and Restaurant Brands International Popeyes reported a 5.7% increase in same-store sales.
“What we’ve seen with consumers is that when they feel pressured, they tend to avoid higher frequencies more. [quick-service restaurant] Sometimes,” Wingstop CEO Michael Skipworth told CNBC.
He notes that the average Wingstop customer only visits once a month and uses the chain’s chicken sandwiches and wings as a personal treat rather than a daily routine that can easily be cut back on a budget. He added that Skipworth also said Wingstop’s lower-income consumers are actually coming back more often these days.
Still, many companies in the restaurant industry and beyond warn that consumer pressure may continue. McDonald’s CEO Chris Kempczinski told analysts that there is a sense of wariness around spending around the world.
“It is worth noting that [the first quarter]”In the United States, Australia, Canada, Germany, Japan and the United Kingdom, industry traffic has been flat to declining,” he said.
Two of the chains that struggled in the first quarter cited value as a factor. Starbucks CEO Laxman Narasimhan said there are sometimes customers who don’t buy Starbucks coffee because they want more variety and value.
“Many customers have become more demanding in this environment. When it comes to choosing where and how they spend their money, especially their stimulus savings, which are mostly spent,” Narasimhan said on the company’s call Tuesday.
Yum CEO David Gibbs said competitors’ bargain deals on chicken menu items were hurting KFC’s U.S. sales. But he said the shift to value should benefit Taco Bell, which accounts for three-quarters of Yum’s domestic operating profit.
“We know from industry data that value matters more and that other companies struggle with value. And Taco Bell is a value leader. “We’re not seeing anything like that at the moment at Taco Bell,” he said Wednesday.
It’s unclear how long it will take for the fast-food chain’s sales to recover, but executives offered an optimistic timeline and plans to get sales back on track. Yum, for example, said the first quarter would be the weakest of the year.
Meanwhile, McDonald’s plans to create a value menu nationwide that appeals to frugal customers. But the burger giant could face a backlash from its franchisees, who have become more outspoken in recent years. While trading drives sales, it also cuts into operators’ profits, especially in markets where operating costs are already high.
Still, losing out on competition could motivate McDonald’s franchisees. This is the second consecutive quarter that Burger King has reported stronger U.S. same-store sales growth than McDonald’s. The restaurant brand chain has been in rebuilding mode for the past two years, spending heavily on advertising.
Starbucks is also betting on a deal. The coffee chain is preparing to release an app upgrade that will allow all customers, not just loyalty members, to order, pay, and receive discounts. Narasimhan also touted the success of the new lavender beverage line launched in March, although April’s performance remained weak.
