With higher prices and elevated interest rates stubbornly sticking around,\u00a0Chipotle\u00a0burrito bowls and European vacations are still on the table for many consumers. But Big Macs and kitchen remodels aren\u2019t.<\/p>\n
The most recent round of quarterly\u00a0earnings\u00a0reports helped to sort companies into largely two camps: McDonald\u2019s, Starbucks and\u00a0Home Depot\u00a0were among the consumer-centric companies that surprised investors with weaker-than-expected results, saying customers had pulled back their spending. Others, like\u00a0Sweetgreen\u00a0and\u00a0Delta Air Lines, bucked the trend and reported\u00a0growth.<\/p>\n
The takeaway? Consumers have become more selective about how and where they spend their dollars.<\/p>\n
\u201cConsumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending,\u201d McDonald\u2019s CEO Chris Kempczinski said on the company\u2019s conference call in late April.<\/p>\n
For more than two years, consumers have dealt with sharply rising prices. This year, most companies expect that their pricing strategies will return to their pre-pandemic approaches, thanks to stabilizing commodity prices. But that doesn\u2019t mean the actual prices seen on grocery store shelves or restaurant menus will fall, and shoppers are feeling that pinch.<\/p>\n
The\u00a0consumer price index rose\u00a03.4% over the last 12 months through April, according to Department of Labor data. On Tuesday, a day before the monthly CPI report, Federal Reserve Chair\u00a0Jerome Powell reiterated\u00a0that inflation is falling more slowly than expected, which likely means the central bank won\u2019t be cutting interest rates anytime soon.<\/p>\n
Making matters worse, many consumers have run through the savings they accumulated during the pandemic when they were collecting stimulus checks in place of traveling. Instead, many are paying their everyday bills with credit cards as they face higher costs for gas, rent and groceries. The average consumer owes $6,218 on their credit cards, up 8.5% year over year, according to a TransUnion quarterly report out last week.<\/p>\n
Aurelia Concepcion, 57, a case manager in New York, said she is planning only essential travel this year, drawing the line at visiting family in Georgia and Ohio.<\/p>\n
\u201cEverything is too high \u2026 taxis, rent.\u201d Concepcion says she avoids restaurants: \u201cIt\u2019s too expensive. I\u2019d rather prepare my own food.\u201d<\/p>\n
Concepcion isn\u2019t the only consumer changing spending habits. Executives have been warning about a more cautious spending environment for awhile. But it\u2019s finally starting to show up in some companies\u2019 quarterly results.<\/p>\n
KFC, Pizza Hut and\u00a0Starbucks\u00a0were among the restaurant companies that reported declining same-store sales in the most recent quarter. Home Depot\u2019s revenue was weaker than expected because potential customers are putting off renovations until interest rates fall, executives said. And\u00a0Apple\u00a0iPhone sales fell 10% in the tech company\u2019s latest quarter, suggesting consumers weren\u2019t upgrading to the latest version of the smartphone in the patterns that they have in the past.<\/p>\n
\u201cSome of the things that have seen the biggest run-up in prices over the last few years are items that confront people on a daily basis: the cost of eating out, the cost of groceries and the costs of fuel and gasoline and rents,\u201d said Columbia Business School economics professor Brett House. \u201cRegardless of whether inflation is slowing amongst those goods, even with lower inflation, prices remain very high, and people get a daily reminder of that.\u201d<\/p>\n
Big-box giant\u00a0Walmart\u00a0said last Thursday that shoppers are prioritizing buying food and health-related items over general merchandise, like home goods and electronics. The retailer has reported\u00a0<\/strong>that trend for several quarters now.\u00a0Finance chief John David Rainey told\u00a0CNBC that Walmart\u2019s grocery business has gotten a boost from the widening gap between restaurant prices and the cost of cooking at home.\u00a0<\/p>\n Lower-income consumers are struggling more than other demographics. They couldn\u2019t save as much during the pandemic, and evidence suggests that they\u2019ve exhausted those savings, according to House. On top of that, rent prices have surged, and low-income consumers are more likely to rent than own.<\/p>\n PepsiCo, for one, particularly called out a weaker low-income consumer. The Gatorade owner saw volume for its North American\u00a0beverage business fall\u00a05% in the quarter.<\/p>\n \u201cThe lower-income consumer in the U.S. is stretched \u2026 [and] is strategizing a lot to make their budgets get to the end of the month,\u201d CEO Ramon Laguarta told analysts on the company\u2019s conference call in April.<\/p>\n Pepsi is leaning into promotions and discounts to lure back the low-income shopper. Other companies are similarly hoping deals will attract more customers. McDonald\u2019s, king of the low-price fas-food segment, plans to start offering a $5 value meal on June 25.<\/p>\n While some CEOs have said that consumers are growing more cautious, others \u2014 like those in the airline industry \u2014 have celebrated strong and persistent spending.<\/p>\n \u201cConsumers continue to prioritize travel as a discretionary investment in themselves,\u201d Ed Bastian, CEO of Delta Air Lines, the most profitable U.S. carrier, said in an interview in April.<\/p>\n Delta and its rival\u00a0United\u00a0last month each\u00a0forecast earnings\u00a0ahead of analysts\u2019 estimates for the second quarter. Both carriers offer sprawling global networks and have benefited from a\u00a0rebound in international travel\u00a0in the wake of the pandemic, particularly to Europe and popular destinations in Asia for U.S. travelers like Japan. Both carriers have\u00a0predicted record summer travel\u00a0demand.<\/p>\n Those airline trends align with a broader consumer shift that started after pandemic lockdowns: spending more money on experiences rather than apparel or electronics.<\/p>\n \u201cWe\u2019re still spending disproportionately on activities and services rather than on goods,\u201d House said.<\/p>\n Delta and United are also capitalizing on travelers who have been willing to pay up for more expensive seats, like first class or premium economy. U.S. airlines have been racing to add more\u00a0high-priced seating\u00a0to their planes and grow lounges for top spenders. Inflation hasn\u2019t hurt high-income consumers as much as it has the budget-conscious, giving them more room to spend.<\/p>\n Higher-income consumers have also bolstered fast-casual restaurant chains, like Chipotle, that come in at a slightly higher price point than the cheapest options. The burrito chain\u2019s\u00a0same-store sales grew\u00a07% during the first quarter, fueled by a 5.4% increase in foot traffic. Chipotle has a strong perception of value among diners, CEO Brian Niccol said on the company\u2019s conference call. Executives have also previously emphasized that most of its customers come from higher-income brackets.<\/p>\n Even Walmart have been\u00a0attracting consumers with deeper pockets.\u00a0As customers pay more for groceries, the discounter\u00a0has\u00a0attracted more\u00a0affluent customers and stolen market share from rivals\u00a0like\u00a0Target, which has historically been more popular with wealthier shoppers.\u00a0The company also credited its remodeled stores and expanded merchandise on its website for appealing to households that have a more than $100,000 annual income.\u00a0<\/p>\n Target is schedule to report its quarterly earnings on Wednesday.\u00a0<\/p>\n Not all companies with higher-income customer bases have seen the same strong demand, however. Corporate misfires can also lead to disappointing sales, even if their shoppers aren\u2019t necessarily pulling back on their spending.<\/p>\n For example, athleisure brand\u00a0Lululemon\u2019s\u00a0U.S. sales lagged\u00a0in its most recent quarter, which CEO Calvin McDonald attributed in part to a shortage in key product sizes and not enough colorful items.<\/p>\n Then there\u2019s Starbucks, which has always positioned itself as a premium coffee brand. The coffee giant announced a surprise decline in its U.S. same-store sales and lowered its full-year forecast, sending its shares tumbling. While CEO Laxman Narasimhan gave a laundry list of factors explaining the weak quarter, including a more value-minded consumer, Bank of America analyst Sara Senatore wrote in a research note that a social media boycott might still be the primary culprit.<\/p>\n And Peloton\u2019s latest report was the latest in a string of disappointing results for the company. Earlier this month, the pandemic darling fired its chief executive and announced plans to lay off 15% of its staff as fewer consumers bought its pricey equipment or its much cheaper fitness subscriptions in its latest fiscal quarter.<\/p>\n \u201cWith the economic outlook for consumers unlikely to improve across the balance of this year, Peloton\u2019s trajectory on the product front is unlikely to change course \u2026 But worryingly, app subscriptions are also under pressure \u2014 most likely because consumers are reviewing their expenses more carefully as they suffer from subscription fatigue,\u201d GlobalData managing director Neil Saunders said in emailed comments.<\/p>\n<\/p>\n With higher prices and elevated interest rates stubbornly sticking around,\u00a0Chipotle\u00a0burrito bowls and European vacations are still on the table for many consumers. But Big Macs and kitchen remodels aren\u2019t. The most recent round of quarterly\u00a0earnings\u00a0reports helped to sort companies into largely two camps: McDonald\u2019s, Starbucks and\u00a0Home Depot\u00a0were among the consumer-centric companies that surprised investors with […]<\/p>\n","protected":false},"author":0,"featured_media":4632,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-4631","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/4631","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/comments?post=4631"}],"version-history":[{"count":0,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/posts\/4631\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media\/4632"}],"wp:attachment":[{"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/media?parent=4631"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/categories?post=4631"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstriumphs.com\/index.php\/wp-json\/wp\/v2\/tags?post=4631"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}