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Fast food chains are getting the message about soaring prices

Grace Dean   

Fast food chains are getting the message about soaring prices
  • Diners are "price weary" and eating out less often, restaurant executives told investors last week.
  • One analyst said Starbucks posted its "weakest" performance outside the pandemic or Great Recession.

Many consumers are thinking carefully about how they spend every dollar, with some cutting back on visits to quick-service restaurants, executives told investors on a series of earnings calls last week. To win penny-pinching customers back, some say they're planning smaller price increases for the rest of the year.

Many fast-food chains described a gloomy outlook. Wendy's CFO Gunther Plosch told investors on Thursday that consumers are "still under pressure" — especially those with household incomes under $75,000. "They are reducing frequency, so visitation is down."

Chains raised prices drastically during the pandemic to offset rising labor and food costs, and it's coming back to bite them. Some diners are cutting back, saying that fast food is just too expensive and no longer represents good value.

McDonald's CFO Ian Borden told investors that consumers were "price weary" and "certainly" dining out less often. Joshua Kobza, the CEO of RBI, which owns brands including Burger King and Popeyes, told analysts that diners had become "a bit more sensitive to price."

Chains including McDonald's, Burger King, Shake Shack, and Wendy's posted sluggish US comparable sales, with a poor growth rate compared to what they posted in the first quarter last year, driven by a decrease in the number of orders.

For some restaurant chains, comparable sales even fell. Starbucks posted a 3% drop in North America comparable sales, which it attributed to a 7% fall in the number of transactions. William Blair analyst Sharon Zackfia said in a note to clients that it was the "weakest traffic performance at Starbucks outside the pandemic or the Great Recession."

Global comparable sales also fell in the first three months of the year for both KFC (down 2%) and Pizza Hut (a 7% decline), compared with the same period in 2023.

Some chains, though, including Popeyes, Domino's, and Wingstop, posted a growth in same-restaurant sales.

Pricing caution

Before the pandemic, limited-service restaurants in the US put their prices up by less than 3% a year on average, data from the Bureau of Labor Statistics shows. That all changed during the pandemic, and while it's now cooling, price inflation is still well above pre-2020 levels.

Some chains last week vowed to keep price increases low this year, though many noted that California's new $20-an-hour minimum wage for fast-food workers had pushed up prices there.

"We're going to stay careful on pricing," Plosch, the Wendy's CFO, said. "We are expecting low-single digit pricing that the system is going to execute this year. I don't think we're going to get too greedy."

McDonald's would "certainly" be "prudent and thoughtful" about any further price increases in the rest of 2024, Borden said.

Shake Shack went one step further. CFO Katie Fogertey told investors on Thursday that the chain, which has raised prices by in the mid-single digits this year, had no further increases planned for 2024.

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