General Industry

Global Fast-Food Chains Face Challenges As More People Eat At Home

By Reuters
Global Fast-Food Chains Face Challenges As More People Eat At Home

Global fast food giants may have to dole out steeper promotions to lure inflation-hit customers who are increasingly opting to eat at home, following weak sales from the likes of McDonald's and Starbucks this week.

Disposable income in the United States is declining, particularly in the lower-income cohort, while the slow economic recovery in China has increased industry-wide pressures for quick-service chains including KFC owner Yum Brands that has extended across several quarters.

Prices Increase

Menu prices have risen across the industry over the past year as companies try to mitigate higher commodity and supply chain costs. However, that has hurt demand and boosted consumers' desire to eat at home in the United States, the world's largest economy.

"The lack of value offers has opened up consumers to shop for different options whether it be other (chains) or the grocery stores," Razmig Poundardjian, portfolio manager for Carnegie Investment Counsel said.

'Clear Pullback'

Packaged food companies are also feeling the pinch of weak consumer spending, especially from low-income households, as their cookies and baked snacks see a slowdown in sales.


"Ongoing softness in US biscuits is driven primarily by brands that had higher penetration among lower-income households such as Chips Ahoy!," Mondelez CFO Luca Zaramella said.

Meanwhile, Kraft Heinz CEO Carlos Abrams-Rivera on Wednesday noted "a clear pullback of restaurant spend by these lower-earning households, especially in restaurants and convenience stores."

China Market

China's weakness is also taking a toll. Coffee chain Starbucks expects full-year comparable sales globally to come in between flat and a low single-digit gain, lowering its previous guidance, with CEO Laxman Narasimhan saying that customers had made the trade-off "between food away from home and food at home".

Burger giant McDonald's, which has a higher exposure to the lower-income cohort, saw global sales decline for the fourth straight quarter pushing it to lean on improving offers on its meals.

Consumer Confidence

"I think it's important to recognise that all income cohorts are seeking value," McDonald's CEO Chris Kempczinski said on a post-earnings call on Tuesday.


The US consumer confidence index fell for the third consecutive month in April, according to a survey conducted by research group The Conference Board, which found that the first place Americans are looking to save money is on meals away from home.

Loyalty Programs

Over the next six months, 44.8% of those surveyed said they planned to cut back on food away from home to save money.

Domino's Pizza and Burger King owner Restaurant Brands on the other hand got a sales boost in the reported quarter on the back of their loyalty programs and higher promotions.

So far this year, shares of Domino's Pizza have gained 27%, while those of Restaurant Brands and McDonald's are down 6% and 8%, respectively. Shares of Starbucks have tumbled 22%.