Fast Food Profits Plunge as Diners Seek Savings

As Americans across the nation are feeling the cost of living crisis, more and more people are beginning to ditch their favorite fast food chains and brands in favor of lower-cost options. The brands have begun to notice the difference reflected in their profits.

Rising Prices Across the Board

The last two years have seen prices increase across the board nationwide. Fast food joints, restaurants, gas prices, groceries – you name it, it’s increased in price. 

Protesting Through Purchases

After so long battling these soaring prices, customers have begun to make their voices heard – by protesting with their wallets.

Industry Impact

Big-name chains like Wendy’s, Starbucks, and McDonald’s are feeling the effects of this, as their profits take a hit and customers move away from buying their products and instead choose the lower-cost option.

Profit Decline

Chains raised their prices to counter the increased labor and food costs, but it’s not working out well for them as diners have begun scaling back their visits and complaining that fast food is too expensive. 

Pre-Pandemic Prices

According to data from the Bureau of Labor Statistics, before the pandemic, restaurants, on average, increased their prices by less than 3% a year. 

Comparing Cost Increases Over Time

However, once the pandemic hit, they went crazy with the price changes, doubling and, in some places, tripling costs. Nowadays – although prices have cooled slightly – they’re still well above pre-pandemic levels.

Fast Food vs. Restaurants

Fast food’s allure used to be its low cost, but as prices have risen to almost as much as a meal in an upmarket restaurant – in some states – diners are making different choices.

Grocery Shopping

Products on store shelves are also staying there longer than usual, partly because loyal customers are fed up with spending so much on groceries.

Business Models

During a series of particularly tough earnings calls last week, restaurant executives told investors that their business models weren’t cutting it anymore.

Decreased Frequency and Visitation

Gunther Plosch, CFO of Wendy’s, told investors that diners are “still under pressure” and “They are reducing frequency, so visitation is down.” 

Customer Pressure

Ian Borden, McDonald’s CFO, echoed these comments, calling customers “price weary” and telling investors that “Clearly, everybody is fighting for fewer consumers or consumers that are certainly visiting less frequently.”

Sales Performance

Fast food chains like McDonald’s, Burger King, Shake Shack, and Wendy’s saw slow growth in their sales compared to last year’s first quarter – mainly due to fewer orders being placed. Some chains even saw a decrease in their sales. 

Starbucks Decline

Starbucks, for example, reported a 3% decrease in comparable sales in North America, which they linked to a 7% decline in the number of transactions. 

Impact on Stock Performance

Starbucks stock is down 32% in the last year, as budget-conscious customers are choosing to skip their morning coffees in favor of instant coffee.

McDonald’s Sales

McDonald’s reported a 2.5% rise in comparable sales in the US for the quarter ending March 31 – a far cry from the 12.6% increase in the same quarter last year. Despite this, the company’s total revenue for the quarter increased by 5% compared to the previous year, reaching $6.17 billion.

KFC and Pizza Hut Experience Declines

Two other huge fast food joints, KFC and Pizza Hut, were hit by lower global comparable sales in the first three months of 2024. KFC was down 2%, while Pizza Hut was down 7% compared to the same period last year.

Chains Introducing New Strategies

To solve this, some chains have announced plans to introduce new promotions in an effort to win back customers who are feeling the pinch at the moment. 

Chains Planning to Keep Increases Low

Although many restaurants have told their investors that they’re planning to keep price increases low in 2024, that probably won’t be enough to tempt back a lot of customers – who already think prices are too high. 

Profit Levels

According to investor research platform Macrotrends, many of these companies are already making billions in gross profit – for example, McDonald’s made almost $4 billion last year, Starbucks made $25 billion, and KFC made around $3 billion. 

Customer Outrage 

It likely won’t be until these businesses start lowering prices that they’ll see a significant uptick in customers coming back, as many are outraged that the same meal they used to purchase now costs nearly double.

The post – Fast Food Profits Plunge as Diners Seek Savings – first appeared on Mechanic Insider.

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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.