The inflationary economy came after Large Food.
Inflation has fallen far from 2022 highs, but remains elevatedthwarting the Federal Reserve’s efforts and maintaining high interest rates. Consumers are a bit confident – but I’m worried about this inflation. And the overall economy continues to grow.
But vast quick food chains and other food companies have struggled to keep inflation fears from affecting sales. Management says this has an impact on pricing, traffic and growth plans. The slew of quarterly earnings reports released in recent weeks by some of the largest food companies has shed airy on higher menu prices, labor shortages, wage increases and turnaround efforts – some of which include relying on Artificial intelligence technology.
“We definitely need to tighten our belts,” Jerry Sheldon, vice president of market research firm IHL Group, said of inflation-weary customers. “Consumers are saying, ‘Oh, wait a minute.'”
Far from the grocery sector, even e-commerce giant Amazon sees consumers withdrawing and is adapting the way it sells food to compensate.
“Consumers are spending, but they are just being very careful about what they spend and how much they spend.” Amazon CEO Andy Jassy told CNBC last week. “So they reduce the average selling price wherever they can. You see consumers, wherever they might find a deal, they take it.”
Retail food and hospitality sectors that cover ordinary meal AND grocery stores, they both face challenges. On earnings calls, executives said they could win back customers by focusing on lower prices and selling their apps, all with fewer employees.
Rapid food managers are well aware of this consumers are stretching every dollar. At Wendy’s, that is being cautious about pricing. Business faced a public relations failure over the possibility of this happening implement “increased prices” — or “lively pricing,” as Wendy’s preferred to call it. Business he fell back amidst the screaming.
Nick Villa, an economist at Moody’s, described it as a turning point for consumers. He highlighted “the growing dissatisfaction of many Americans after years of seeing a noticeable decline in their purchasing power for goods and services,” he said.
Despite Wendy’s reports: Global sales augment by 2.6%. in the first quarter of this year fell miniature of Wall Street’s earnings expectations last week. That was partly due to a pullout by consumers earning less than $75,000 a year, Gunther Plosch, Wendy’s chief financial officer, said during the company’s earnings call Thursday. Plosch also said that the company won’t be “too greedy” when it comes to pricing.
Higher-earning consumers weren’t as scared by higher prices. For example, Chipotle raised prices by 7% and still reported 7% augment in sales in the first quarter of the year. This growth was partly due to modern restaurant openings and higher sales. And digital sales – such as in-app orders – accounted for over 36% of total food and beverage revenues.
Wingstop treads similar waters. While appeal about the company’s results last Wednesday, Wingstop CEO Michael Skipworth said the chicken wing restaurant “attracts upper-income people, primarily Gen Z and Millennials.” He said customers are mostly those who “prefer the digital experience and tend to order boneless wings.”
On the other hand, this Large Mac and fries McDonald’s is no longer as attractive to lower-income consumers how it used to be. The quick food giant is competing with other chains for low-end customers who continue to be deterred by inflation.
McDonald’s increased menu prices by 10% in 2023. Since 2014, this increased the prices of its menu by 100%– according to a study conducted by FinanceBuzz. The data firm noticed that prices for some products, including McChicken sandwiches and medium-sized fries, increased by almost 200%.
Still, McDonald’s reported this week that U.S. sales rose 2.5% in the first quarter. This was partly due to higher menu prices, which increased the average check size. However, McDonald’s overall sales in the quarter fell year-over-year, both due to tightening wallets of U.S. consumers and others are organizing a boycott related to the Israel-Hamas war.
The slowdown is a wake-up call, said McDonald’s CEO Chris Kempczinski. He said that “consumers are more selective about every dollar they spend.”
McDonald’s isn’t alone in trying to reach consumers. Starbucks said it this week Same-store sales dropped 4% in the second quarter. And Yum Brands, owner of KFC, Pizza Hut and Taco Bell, said same-store sales worldwide were down 3% in the first quarter. KFC and Pizza Hut divisions fell by 2% and 7%, respectively. Taco Bell sales increased 1%.
Some grocery stores may be the winners for now in the inflation domino effect.
“What you tend to see when people limit themselves to restaurants is they often move to quick food, and if that starts to get really pricey, they move to grocery stores,” said Sheldon, the IHL Group analyst.
However, not all grocery stores benefit in the same way. Some, like Kroger, Aldi and retail giant Walmart, have fared better than others in an era of inflation.
Kroger, for example, scored over 18% of total foot traffic in grocery stores in 2023, according to Placer.ai, making it the most visited grocery store in the US. Walmart and Aldi had 8% and 9% of foot traffic, respectively.
RJ Hottovy, head of research analytics for Placer.ai, said increased competition among off-price food retailers is likely to continue.
“Many chains are looking to accelerate store openings this year – especially in higher growth markets in the US South and Southeast – but we are seeing increased competition for the most attractive locations,” Hottovy said.
The Aldi discount chain may be in a particularly good development situation. An April report by Placer.ai shows that the number of visits to German-owned stores is constantly increasing. Aldi attracts the average US grocery shopperwho earns nearly $67,000 a year, according to Placer.ai.
Aldi also has an aggressive expansion plan in the US. The company is planning will invest over $9 billion to open 800 modern stores across the country in the next five years. Aldi is ok 2,400 locations in the US.
Meanwhile, Walmart last week launched its own modern food brand called Bettergoods Down compete with the offerings of Trader Joe’s and Whole Foods. The brand will offer 300 modern food items with prices ranging from $2 to $15.
For Amazon, reaching customers means giving them value in a different way: a budget-friendly subscription delivery service. Announced last month, the modern grocery delivery program is open to Prime members and government-sponsored service customers EBT cards.
Packaged goods companies also have their hands full (and inventory) as shoppers cut back on purchases of higher-priced products. Some, like ketchup maker Kraft Heinz, rely on lower-income demographics. However, these consumers often rely on government support such as the Supplemental Nutrition Assistance Program (SNAP). And because they are bargain hunters, some products don’t make it onto the shopping list.
This was the fate of Kraft Heinz. company last week fell miniature of Wall Street’s earnings expectations for the first quarter, recorded a sales decline of 1.2%.. Kraft Heinz pointed to inflation-weary consumers as the culprit for sales shortfalls. The company said consumers were avoiding more pricey, branded products such as lunch kits, macaroni and cheese and chilly cuts.
Beneath all this is the reality that consumers still worry about prices. Annual inflation dropped to 3.5%a huge drop compared to Peak 9.1% in June 2022 — but still stubbornly above the Fed’s 2% target. In states like California, reduced labor demand affects both workers and employers.
Novel state law that entered into force on April 1, the minimum wage was raised from $16 to $20 for an hour. This 25% augment applies to quick food restaurants with more than 60 locations across the United States pay raise already has affected prices in quick food chains such as McDonald’s and Chipotle.
“There will be perverse effects on the labor market,” said Sara Senatore, senior restaurant analyst at Bank of America. Senatore said the restaurant labor market was tight even before the pandemic and “we’ve certainly seen wage inflation” because of that.
While workers in California celebrated a wage augment, companies are preparing for higher costs. This may mean further price increases, reduce working hours or lay off employees.
It could also mean more competition for workers.
“The labor pool for vast chains will likely compete with smaller, limited-service restaurants, convenience stores and even retailers,” Senatore said.
The solution to the labor and pricing problems in this sector may ultimately lie in technology.
Chipotle said in March that he started testing his own Autocado robot last July — essentially a robot that could slice, core and peel an avocado. Chipotle CEO Brian Niccol said last month that the company has “prototypes” and “feels really good about bringing them to restaurants.” He added that Chipotle plans to deploy some of the robots in busier locations this year.
There was McDonald’s has been testing digital kiosks since 2003, but these efforts may augment as it seeks to reduce labor costs. And as customers become more comfortable ordering digitally, the investment may well pay off.
“If the labor costs are two or three times the investment, maybe it will pay off,” Senatore said.
Food giants like McDonald’s, Chipotle, and even Wingstop can succeed in this environment – as long as they build on their digital strategies. For example, Wingstop reported that digital sales accounted for 68% of total sales in the first quarter.
IHL Group’s Sheldon said relying on technology is one way companies can not only win back customers but also reduce costs. “The technology speeds up table rotation and reduces labor costs,” he said.
“Things like kiosks are always asking for an augment in order size,” Sheldon added. “You don’t have to pay the kiosk benefits.”
