Skyrocketing prices at fast-food joints and restaurants in the United States are causing people to fall down the income ladder, with executives at chains like McDonald’s and Wendy’s recently raising concerns about losing business from customers with the tightest budgets. He said there was.
Polls show that about a quarter of low-income consumers (defined as those making less than $50,000 a year) are eating less fast food, and about half are going to fast-casual and full-service restaurants less often. They answered that it had decreased. Consulting firm Revenue Management Solutions announced this in February.
Rising food prices are causing budget-conscious diners to eat less.
Food prices, whether consumed at home or in restaurants, rose 20% from January 2021 to January 2024, the fastest increase on record.
A recent Census Household Survey found that half of people with annual incomes of less than $35,000 have difficulty paying daily living expenses, and nearly 80% are moderately or “very” stressed by recent price increases. has become clear.
Loren Oxford, a musician who works part-time at a bed and breakfast in Tennessee, often stops at McDonald’s after running errands and treats herself to two double hamburgers, fries and a drink for less than $5. said. As her prices rose, she switched to small burgers and stopped buying drinks.
But her visits to McDonald’s overall have decreased since a year ago, when McDonald’s franchisees raised prices by about 10%, company executives said. “I don’t know if I can justify it right now.”
The Fed’s latest Beige Book, which compiles anecdotal reports from businesses and community stakeholders across the country, shows that in seven of the Fed’s 12 districts, low-income consumers are seeking bargains or reaching out to local organizations for more. They report changing their spending habits due to seeking help or struggling to make ends meet. Access your credits.
About one-third of Black American households and 21% of white American households had incomes of less than $35,000 in 2022, according to the latest available U.S. Census data.
For fast food companies, which often promote an affordable image, low-income consumers make up an important part of their customer base and are leading the way in long-term trends.
But they usually cut spending first and cut spending last.
But chains may be less likely to pursue customers as aggressively as they did in the past, as sales are now consistent, supported by price increases, even as traffic declines.
Mike Lukianoff, CEO of SignalFlare.ai and a veteran fast food industry consultant, said fast food companies are “not rushing to get traffic over profits like they did 10 years ago. ” he says.
For example, in 2008, Subway introduced the $5 Footlong nationwide, which became the poster sandwich for the Great Recession. This has prompted rival companies to introduce great value deals for budget-conscious customers, such as Yum!’s “$5 Filled Box.” The brand is KFC.
In 2016, after a long period of sluggish sales, McDonald’s introduced a bundle deal called “McPick 2,” which allows customers to choose two items, such as a McDouble, for $2. Within a few months, Wendy’s offered him a $4 for $4 deal. Burger King offered 5 pieces for $4. Pizza Hut had a $5 “flavor menu”.
App-driven discounts
Industry analysts say that instead of cutting menus across the board or offering broad discounts, chains are now becoming more selective, targeting specific demographics or offering specific dining options such as app or delivery-only offers at specific meal times or delivery-only options. It is said that it is limited to certain channels.
McDonald’s executives told investors in February that the company would lean on its existing “value menu” to appeal to lower-income consumers who would rather eat packaged food at home instead. CFO Ian Bowden said affordability was at the core of the brand and the company would continue to “evolve” its value products.
“The battleground is certainly low-income people,” McDonald’s CEO Chris Kempczinski told investors, referring to people making less than $45,000.
Wendy’s recently introduced a limited-time $1 burger that can only be purchased through the app.
The company’s chief financial officer, Günter Prosch, told investors in February that traffic from low-income customers was declining, but its share of the general market remained the same.
Loyalty apps are a key strategy for major fast food companies to increase retention and average spend among major brands. David Henkes, a senior principal at Technomic, said the benefit for chains is that they can collect more transactional and demographic data for consumers, adding, “This is a tradeoff that many people are willing to make. There is,” he said.
For example, McDonald’s frequently offers in-app discounts such as 20% off your order or free shipping with enough orders.
Domino’s Pizza CEO told investors at a conference in January that the company has cut the minimum purchase price in half to earn points in its loyalty program from $10 to $5. The number of purchases required to get a free pizza has also been reduced from 6 to 2.
“Essentially, we’ve made our brand more accessible to this lower-income consumer,” CEO Russell Weiner said.
To be sure, not all chains recognize the vulnerability of low-income customers. At Taco Bell, where many San Antonio locations sell a taco for his $1.40, stores in lower-income markets fared better than other stores. CEO David Gibbs told investors in February:
McDonald’s is still suing Andreas Garay, a retail employee who eats at a McDonald’s restaurant in west San Antonio. He said he plans to maintain his coffee and Big Mac habit even if his prices continue to rise.
