Struggling customers eat less fast food due to lack of value offers
Burger giant McDonald’s saw global sales growth slow for the fourth straight quarter
02 May 2024 - 13:23
bySavyata Mishra and Juveria Tabassum
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Disposable income in the US is declining, while the slow economic recovery in China has increased industrywide pressures for quick-service chains. Picture: ISSEI KATO
Bengaluru — Global fast-food giants may have to dole out steeper promotions to lure inflation-hit customers who are increasingly opting to eat at home, following weak sales from the likes of McDonald’s and Starbucks this week.
Disposable income in the US is declining, particularly in the lower-income cohort, while the slow economic recovery in China has increased industrywide pressures for quick-service chains including KFC owner Yum Brands, which has extended across several quarters.
Menu prices have risen across the industry over the past year as companies try to mitigate higher commodity and supply chain costs. However, that has hurt demand and boosted consumers' desire to eat at home in the US, the world’s largest economy.
“The lack of value offers has opened up consumers to shop for different options whether it be other [chains] or the grocery stores,” Razmig Poundardjian, portfolio manager for Carnegie Investment Counsel said.
Packaged food companies are also feeling the pinch of weak consumer spending, especially from low-income households, as their biscuits and baked snacks see a slowdown in sales.
“Ongoing softness in US biscuits is driven primarily by brands that had higher penetration among lower-income households such as Chips Ahoy!,” Mondelez CFO Luca Zaramella said.
Meanwhile, Kraft Heinz CEO Carlos Abrams-Rivera noted on Wednesday that “a clear pullback of restaurant spend by these lower-earning households, especially in restaurants and convenience stores”.
China’s weakness is also taking a toll. Coffee chain Starbucks expects full-year comparable sales globally to come in between flat and a low single-digit gain, lowering its previous guidance, with CEO Laxman Narasimhan saying that customers had made the trade-off “between food away from home and food at home”.
Burger giant McDonald’s, which has a higher exposure to the lower-income cohort, saw global sales growth slow for the fourth straight quarter, pushing it to lean on improving offers on its meals.
“I think it’s important to recognise that all income cohorts are seeking value,” McDonald’s CEO Chris Kempczinski said on a post-earnings call on Tuesday.
The US consumer confidence index fell for the third consecutive month in April, according to a survey conducted by research group The Conference Board, which found that the first place that Americans are looking to save money is on meals away from home.
Over the next six months, 44.8% of those surveyed said they planned to cut back on food away from home to save money.
Domino’s Pizza and Burger King owner Restaurant Brands, on the other hand, got a sales boost in the reported quarter on the back of their loyalty programmes and higher promotions.
So far in 2024, shares of Domino’s Pizza have gained 27%, while those of Restaurant Brands and McDonald’s are down 6% and 8%, respectively. Shares of Starbucks have tumbled 22%.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Struggling customers eat less fast food due to lack of value offers
Burger giant McDonald’s saw global sales growth slow for the fourth straight quarter
Bengaluru — Global fast-food giants may have to dole out steeper promotions to lure inflation-hit customers who are increasingly opting to eat at home, following weak sales from the likes of McDonald’s and Starbucks this week.
Disposable income in the US is declining, particularly in the lower-income cohort, while the slow economic recovery in China has increased industrywide pressures for quick-service chains including KFC owner Yum Brands, which has extended across several quarters.
Menu prices have risen across the industry over the past year as companies try to mitigate higher commodity and supply chain costs. However, that has hurt demand and boosted consumers' desire to eat at home in the US, the world’s largest economy.
“The lack of value offers has opened up consumers to shop for different options whether it be other [chains] or the grocery stores,” Razmig Poundardjian, portfolio manager for Carnegie Investment Counsel said.
Packaged food companies are also feeling the pinch of weak consumer spending, especially from low-income households, as their biscuits and baked snacks see a slowdown in sales.
“Ongoing softness in US biscuits is driven primarily by brands that had higher penetration among lower-income households such as Chips Ahoy!,” Mondelez CFO Luca Zaramella said.
Meanwhile, Kraft Heinz CEO Carlos Abrams-Rivera noted on Wednesday that “a clear pullback of restaurant spend by these lower-earning households, especially in restaurants and convenience stores”.
China’s weakness is also taking a toll. Coffee chain Starbucks expects full-year comparable sales globally to come in between flat and a low single-digit gain, lowering its previous guidance, with CEO Laxman Narasimhan saying that customers had made the trade-off “between food away from home and food at home”.
Burger giant McDonald’s, which has a higher exposure to the lower-income cohort, saw global sales growth slow for the fourth straight quarter, pushing it to lean on improving offers on its meals.
“I think it’s important to recognise that all income cohorts are seeking value,” McDonald’s CEO Chris Kempczinski said on a post-earnings call on Tuesday.
The US consumer confidence index fell for the third consecutive month in April, according to a survey conducted by research group The Conference Board, which found that the first place that Americans are looking to save money is on meals away from home.
Over the next six months, 44.8% of those surveyed said they planned to cut back on food away from home to save money.
Domino’s Pizza and Burger King owner Restaurant Brands, on the other hand, got a sales boost in the reported quarter on the back of their loyalty programmes and higher promotions.
So far in 2024, shares of Domino’s Pizza have gained 27%, while those of Restaurant Brands and McDonald’s are down 6% and 8%, respectively. Shares of Starbucks have tumbled 22%.
Reuters
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