Pressure on consumer finances is beginning to impact the fast-food sector, with most major chains, including Chipotle, Domino’s, Starbucks, Pizza Hut, KFC and McDonald’s, seeing sales cool and guidance tempered. On the demand side, low-income customers, in particular, pulled back on their spending, but so did middle-income households. Higher income households appear to be sustaining their spending patterns. Overall, people are just being more judicious.
There are probably a number of factors contributing to slowing demand for fast-food meals, including higher prices, driven by rising food and labor costs. The industry is seeking to address the price issue through deals to generate increased traffic. It is also worth noting that, it’s not just higher restaurant prices, consumers are seeing rising prices for almost all parts of their budget, making a family dinner at McDonald’s, for example, a bigger decision.
Investors should carefully parse the impact of inflation on different sectors and recognize that the softening in fast-food sales may be another example of the divided US economy.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA
