Fast-food restaurants 'fighting' over fewer, price-weary customers

(TND) — Americans are tightening their belts at mealtime.

Inflation-weary consumers are cutting back to save money on food, and that’s not lost on the companies.

“Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending, which is putting pressure on the (fast-food) industry,” McDonald’s CEO Chris Kempczinski said during an earnings call last week.

McDonald’s quarterly U.S. comparable sales were up 2.5%. Though positive, the increase was muted compared to McDonald’s 12.6% gains a year ago.

Starbucks also held a quarterly earnings call last week, during which CEO Laxman Narasimhan said their customers have become “more exacting about where and how they choose to spend their money.”

Starbucks recorded a 7% decrease in transactions, and Narasimhan called the coffee company’s performance “disappointing.”

“Across the board, I think the commentary is pretty consistent from industry leaders that consumers are feeling the pinch,” Bankrate Senior Economic Analyst Mark Hamrick said Monday.

Overall retail spending has remained “surprisingly resilient,” he said.

But it’s clear Americans are cutting back in some areas and focusing on necessities to make ends meet.

“So, you see consumers lightening up on things like Starbucks, because they don't need Starbucks,” Hamrick said. “They're lightening up on McDonald's, because they don't need McDonald's. (Companies) like Walmart are saying we're absolutely going to cut prices this year, because we have the flexibility to do that. And that's ... one of the primary ways that (they’re) going to come at the consumer to help resolve their problems, obviously drive their sales, and then they have to worry about profitability.”

Revenue Management Solutions, a data-focused consulting firm, says quick-service restaurant traffic is down 3.5% from last year, while the average customer check is up 4.5%.

But it’s not just fast-food chains taking a hit from price-sensitive consumers.

The Wall Street Journal reports Kraft Heinz quarterly sales fell 1.2%, and the company that makes Pringles and Pop-Tarts saw its North American sales volume decline 5%.

The Journal reported that Americans are spending more of their income on food than they have in decades.

Americans overall are paying about 18% more than they were three years ago, as measured by the government’s consumer price index.

It costs about 21% more to eat out now than it did three years ago.

Meanwhile, average hourly earnings are up about 15% during that time.

Consumers are starting to catch up, but they have to dig themselves out of a pretty deep hole.

Wages are up 3.9% compared to last year, now outpacing inflation.

Prices in just the last 12 months are 3.5% higher, according to the CPI. Groceries are up 1.2% from a year ago, while restaurant prices are 4.2% higher.

“I think we may see further relief, actual declines in some prices this year,” Hamrick said. “Obviously it's not going to be enough to satisfy the problem caused by the 20% increase in the consumer price index going back to the early days of the pandemic.”

Starbucks’ CEO said they’ll be trying to lure customers back with new and exclusive in-app offers.

And McDonald’s CFO Ian Borden said food companies are “fighting” for each customer now.

“Clearly, everybody is fighting for fewer consumers, or consumers that are certainly visiting less frequently, and we’ve got to make sure we’ve got that street-fighting mentality to win irregardless of the context around us,” McDonald’s CFO Ian Borden said on the recent earnings call.

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