Long-Predicted Consumer Pullback Finally Hits Restaurants Like Starbucks, KFC and McDonald’s

Starbucks announced a surprise drop in same-store sales for its latest quarter, sending its shares down 17%. Pizza Hut and KFC also reported shrinking same-store sales, while McDonald’s adopted a “street-fighting mentality” to compete for value-minded diners. For months, economists have been predicting that consumers would cut back on their spending in response to higher prices and interest rates. However, it has taken a while for fast-food chains to see their sales actually shrink, despite several quarters of warnings to investors that low-income consumers were weakening and other diners were trading down from pricier options.

Many restaurant companies also offered other reasons for their weak results this quarter. Starbucks said bad weather dragged its same-store sales lower. Yum Brands, the parent company of Pizza Hut, KFC, and Taco Bell, blamed January’s snowstorms and tough comparisons to a strong first quarter last year for its brands’ poor performance. But those excuses don’t fully explain the weak quarterly results. Instead, it looks like the competition for a smaller pool of customers has grown fiercer as the diners still looking to buy a burger or cold brew become pickier with their cash.

The cost of eating out at quick-service restaurants has climbed faster than that of eating at home. Prices for limited-service restaurants rose 5% in March compared with the year-ago period, while prices for groceries have been increasing more slowly, according to the Bureau of Labor Statistics. McDonald’s CFO Ian Borden said that everyone is fighting for fewer consumers or consumers that are visiting less frequently, and they have got to make sure they have that street-fighting mentality to win, irregardless of the context around them.

Outliers show that customers will still order their favorite foods, even if they are more expensive than they were a year ago. Wingstop, Wall Street’s favorite restaurant chain, reported its U.S. same-store sales soared 21.6% in the first quarter. Chipotle Mexican Grill, whose customer base is predominantly higher income, saw traffic rise 5.4% in its first quarter. And Restaurant Brands International’s Popeyes reported same-store sales growth of 5.7%.

Read More @ CNBC

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