With poor sales from fast food chains like McDonald’s and Starbucks this week, multinational fast food titans may need to provide more aggressive discounts to entice inflation-affected consumers who are choosing to eat at home more and more.

The United States is seeing a decline in disposable income, especially among the lower-class population. Meanwhile, the industry-wide pressure on quick-service companies, such as Yum Brands, the owner of KFC, has been building over several quarters due to China’s delayed economic recovery.

Over the past year, industry-wide menu prices have increased as businesses attempt to offset increased expenses associated with commodities and the supply chain. That has, however, decreased demand and increased customer preference for eating at home in the greatest economy in the world—the United States.

“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.

Sales of packaged food firms’ baked snacks and cookies are slowing down, which is a result of decreased consumer spending, particularly from low-income households.

“Ongoing softness in U.S. biscuits is driven primarily by brands that had higher penetration among lower-income households such as Chips Ahoy!,” Luca Zaramella, the chief financial officer of Mondelez

On Wednesday, Carlos Abrams-Rivera, the CEO of Kraft Heinz, saw “a clear pullback of restaurant spend by these lower-earning households, especially in restaurants and convenience stores.”

According to traders, it appeared that Tokyo officials were once again intervening to support the faltering currency.

The cost of China’s weakening is also being felt. Starbucks’ CEO, Laxman Narasimhan, stated that consumers have chosen “between food away from home and food at home.” As a result, the coffee giant now projects full-year comparable sales internationally to fall between flat to a low single-digit rise.

For the fourth consecutive quarter, global sales of McDonald’s, the burger behemoth with a stronger exposure to the lower-income cohort, declined, forcing the company to rely more on meal offerings.

During a Tuesday post-earnings call, McDonald’s CEO Chris Kempczinski stated, “I think it’s important to recognise that all income cohorts are seeking value.”

According to a report by research company The Conference Board, Americans are aiming to save money on eating out rather than at home, which is why the U.S. consumer confidence index declined for the third consecutive month in April.

44.8% of those polled stated they intended to reduce their consumption of meals away from home in order to save money during the following six months.

Conversely, Restaurant Brands, the company that owns Burger King and Domino’s Pizza, had an increase in revenue during the reporting quarter thanks to their loyalty programmes and more aggressive marketing.

While shares of Restaurant Brands and McDonald’s have decreased by 6% and 8%, respectively, so far this year, Domino’s Pizza has seen a 27% increase in value. Starbucks’ stock has dropped 22%.

(Adapted from Reuters.com)

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