Following weak sales this week from companies like McDonald’s and Starbucks, global fast food giants may have to run more promotions to lure inflation-hit customers who are increasingly choosing to eat at home.
Disposable income is declining in the United States, particularly among lower-income groups, while the slow economic recovery in China has increased industry-wide pressure for quick-service chains, including KFC owner Yum Brands, which has lost several Spread across quarters.
Menu prices have risen across the industry in the past year as companies try to reduce high commodity and supply chain costs. However, this has hit demand and increased consumers’ desire to eat at home in the United States, the world’s largest economy.
“The lack of value propositions has opened consumers up to different options to shop around, whether it’s other (chains) or grocery stores,” said Razmig Pounderdjian, portfolio manager at Carnegie Investment Counsel.
Packaged food companies are also feeling the impact of weak consumer spending, especially from lower-income households, as they see a slowdown in sales of their cookies and baked snacks.
Mondelez CFO Luca Zaramella said, “The ongoing softness in U.S. biscuits is primarily driven by brands that had greater penetration in lower-income households such as Chips Ahoy!” Meanwhile, Kraft Heinz CEO Carlos Abrams-Rivera on Wednesday said, “There has been a marked decline in restaurant spending by these low-income households, particularly at restaurants and convenience stores.”
China’s weakness is also being affected. Coffee chain Starbucks expects full-year comparable sales globally to be between flat and low single-digit profit, falling short of its previous guidance, with CEO Lakshman Narasimhan saying customers have turned to “food away from home and from home.” The trade-off between meals away has been made. Home”..
Burger giant McDonald’s, which has greater exposure to the lower-income group, has seen global sales decline for the fourth consecutive quarter, pushing it to improve offerings on its food.
“I think it’s important to recognize that all income groups are looking for value,” McDonald’s CEO Chris Kempczinski said on Tuesday’s post-earnings call.
The U.S. consumer confidence index fell for the third consecutive month in April, according to a survey by research group The Conference Board, which found that Americans are looking to dine away from home above all to save money.
Over the next six months, 44.8% of those surveyed said they planned to cut down on meals away from home to save money.
On the other hand, Restaurant Brands, which owns Domino’s Pizza and Burger King, saw sales growth in the reported quarter due to their loyalty programs and higher promotions.
Shares of Domino’s Pizza have risen 27% so far this year, while shares of Restaurant Brands and McDonald’s have fallen 6% and 8%, respectively. Starbucks shares have fallen 22%.
(Reporting by Savita Mishra and Juveria Tabassum in Bengaluru; Editing by Anil D’Silva)
