- Customers are “price fatigue” and eating out less often, restaurant executives told investors last week.
- One analyst said Starbucks had its “weakest” performance outside of the pandemic or the Great Recession.
- A number of chains have said they will be more cautious about price increases this year.
Many consumers are thinking carefully about how they spend each dollar, and some are cutting back on their visits to quick-service restaurants, executives told investors during a series of earnings calls last week. To win back the most frugal customers, some say they are considering slight price increases for the rest of the year.
Many fast food chains have described a gloomy outlook. Wendy’s Chief Financial Officer Gunther Plosch told investors Thursday that consumers are “still under pressure,” especially those with household incomes below $75,000. “They’re reducing frequency, so visits are down.”
Chains have raised prices significantly during the pandemic to offset rising labor and food costs, and it’s coming back to bite them. Some customers are cutting back on their spending, saying fast food is simply too expensive and no longer represents good value.
McDonald’s Chief Financial Officer Ian Borden told investors that consumers were “price fatigue” and “certainly” were dining out less often. Joshua Kobza, CEO of RBI, which owns brands including Burger King and Popeyes, told analysts that diners had become “a little more price sensitive.”
Chains such as McDonald’s, Burger King, Shake Shack and Wendy’s reported sluggish U.S. comparable sales, with a slow growth rate compared to the first quarter of last year, due to a decline of the number of orders.
For some restaurant chains, comparable sales have even fallen. Starbucks reported a 3% decline in comparable sales in North America, attributed to a 7% decline in the number of transactions. Sharon Zackfia, an analyst at William Blair, said in a note to clients that this was “the weakest traffic performance at Starbucks outside of the pandemic or the Great Recession.”
Global comparable sales also declined in the first three months of the year for KFC (down 2%) and Pizza Hut (down 7%) compared to the same period in 2023.
However, some chains, including Popeyes, Domino’s and Wingstop, reported comparable sales growth.
Pay attention to the prices
Before the pandemic, limited-service restaurants in the United States raised their prices by less than 3% per year on average, according to data from the Bureau of Labor Statistics. Everything has changed during the pandemic and, although the situation has eased, price inflation remains well above pre-2020 levels.
Some chains pledged last week to keep price increases low this year, although many pointed out that California’s new $20-an-hour minimum wage for fast-food workers had driven up prices in this country.
“We’re going to remain cautious on pricing,” said Plosch, Wendy’s chief financial officer. “We expect the system to charge prices in the low single digits this year. I don’t think we’re going to get too greedy.”
McDonald’s would “certainly” be “cautious and thoughtful” about any further price increases between now and the end of 2024, Borden said.
Shake Shack has gone even further. Chief Financial Officer Katie Fogertey told investors Thursday that the chain, which has raised prices about 10% this year, has no further increases planned for 2024.
Is fast food now too expensive? Contact this journalist at gdean@businessinsider.com
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