Starbucks surprised everyone by announcing a drop in sales at its stores during the last quarter, causing its shares to fall 17% on Wednesday. Pizza Hut and KFC also reported that their sales were down. Even McDonald’s, a big player, said it was fighting hard to keep its customers who look for good deals.
Economists had been saying for a while that people would spend less because prices and interest rates were going up. But it’s taken some time for fast-food places to see their sales go down, even though they’ve been warning investors that people with lower incomes were spending less and others were choosing cheaper options.
Some companies blamed bad weather and tough comparisons to last year’s strong sales for their poor results this quarter. But it seems like the competition for fewer customers has become fiercer as people who still want to eat out become choosier about where they spend their money.
Eating at fast-food places has gotten more expensive compared to eating at home. The prices at these restaurants went up 5% in March compared to last year, while grocery prices didn’t go up as much, according to the Bureau of Labor Statistics.
McDonald’s CFO Ian Borden said they were fighting hard for customers who were visiting less often. He said on Tuesday that McDonald’s needed to be tough to win customers no matter what.
Some places show that people will still buy their favorite foods, even if they’re more expensive than last year. For example, Wingstop and Chipotle had more people coming in. Popeyes also saw more sales.
Wingstop’s CEO said their customers don’t come in very often, but they’re coming back more now. He said people see Wingstop as a treat, not just a quick meal. But many companies, not just restaurants, say people are still careful about spending money.
McDonald’s CEO Chris Kempczinski said this caution about spending is happening all over the world. He said in the first quarter, fewer people were going to restaurants in the U.S., Australia, Canada, Germany, Japan, and the U.K.
Starbucks CEO Laxman Narasimhan said some people weren’t buying coffee there because they wanted more variety and good deals. Yum CEO David Gibbs said KFC’s sales in the U.S. were hurt by other restaurants’ deals for chicken, but Taco Bell, which offers good value, was doing well.
It’s not clear how long it will take for fast-food places to start making more sales again. But Yum said the first quarter was the worst and McDonald’s plans to make a menu that’s cheap all over the country. However, some McDonald’s owners might not like this plan because it could hurt their profits.
Still, competition might push McDonald’s owners to try harder. For two quarters in a row, Burger King’s sales were better than McDonald’s. Burger King has been trying hard to do better over the past two years.
Starbucks also hopes to bring in more customers with deals. They are updating their app so that everyone can use it to order, pay, and get discounts. Narasimhan said they also launched a new line of drinks in March, but sales were still slow in April.
