Key Takeaways
- Earnings reports from McDonald’s and Starbucks showed consumers may be starting to feel the pressure of high prices.
- DoorDash also felt the pressure of higher restaurant prices, but it was able to blunt some of the loss by growing its grocery delivery business.
- Consumers still flocked to familiar brands, as Coca-Cola, Hershey, and Procter & Gamble reported stronger sales despite raising prices.
Despite falling last year, inflation has proved persistent in 2024, and some consumers are having to carefully choose where to put their dollars.
Those decisions are beginning to show up as pressure in some companies’ financial results for the year’s first quarter, while it has been a boon to others.
One segment feeling a negative impact is restaurants and food delivery services, which are now trying to draw in customers with tighter budgets. At the same time, some consumer goods makers showed they were able to weather the inflation headwinds as people demonstrated that they are still buying their favorite brands.
Lower Restaurant Spending Hits McDonald’s, Starbucks, DoorDash
Famous for its affordability, McDonald’s (MCD) posted slowing comparable or same-store sales in the first quarter, showing that consumers may be starting to buckle under what company executives called a “pressured consumer spending environment.”
“I think consumers are obviously dealing with a lot in the current macro context. Obviously, they’re getting hit across their full basket of goods and services by all the inflationary impacts,” said McDonald’s CFO Ian Borden on the company’s earnings call.
While the fast-food chain still posted a 9% year-over-year increase in earnings per share, CEO Chris Kempczinski said the company was conscious of the pressure on its customers, and would be focusing more on advertising to promote its “value message.”
Same-store sales for Starbucks (SBUX) fell 4% in its first quarter, with the coffee chain saying loyal customers were still flocking to their locations, but higher prices made it harder to draw the occasional customer.
“You look at the underlying headwinds, particularly around the pressures that consumers face particularly with the occasional customer, what we’re seeing is that’s where the challenge is. It’s a challenge with their traffic and it’s a challenge with them coming into our stores,” Starbucks CEO Laxman Narasimhan said on a company’s earnings call.
High prices aren’t just keeping some customers from going out, they’re also impacting whether they order in. Food delivery service DoorDash (DASH) reported a bigger-than-anticipated loss in the first quarter as demand for restaurant delivery slowed. However, the delivery app was able to generate more sales in the quarter, in part by expanding its service to include must-haves through grocery and retail deliveries.
Consumers Keep Turning to Coca-Cola, Hershey, P&G
While higher prices discouraged some consumers from eating out or ordering delivery from restaurants, it didn’t stop them from buying some of their favorite items at the store.
The Coca-Cola Company (KO) demonstrated this when it posted a revenue boost after increasing its prices, with the company also raising its revenue forecast this year due to “higher than expected inflationary pricing.”
“The U.S. consumer remains in good shape,” said Coca-Cola CEO James Quincey during the company’s earnings call.
Coca-Cola executives said they see signs consumers are changing their buying patterns due to higher prices, moving to more purchasing for in-home consumption of its beverages.
“There is some purchasing power compression in the lower income echelons. And I think it’s quite clear that there’s some behavioral shift there looking for value,” Quincey said.
Consumers also had a hard time turning away from chocolate, despite a volatile cocoa market that led Hershey (HSY) to push prices up by more than 5% in the first quarter from a year ago to pull in almost 9% more revenue. Hershey CEO Michele Buck said the chocolate maker was off to a “strong start” this year as the company maintained its projection that it would grow sales by 2% to 3% this year.
Another company that continued to make sales despite higher prices was Procter & Gamble (PG), as the maker of Tide, Dawn, and Pampers reported that it raised its prices even more than analysts expected, and still saw noteworthy sales growth.