The inflation crisis that has been hammering the U.S. economy is now taking a visible toll on consumers. Last month, data showed that consumer confidence in the U.S. fell to a five-year low. The country’s economy shrank in the first quarter for the first time since 2022.
The current earnings season is highlighting the struggles of companies exposed to consumer spending. Fast-food giant McDonald’s Corp (NYSE:MCD) March quarter earnings and revenue missed Wall Street’s estimates, while the company saw a 3.6% drop in same-store sales in the U.S., the biggest decline since 2020.
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McDonald’s CEO Chris Kempczinski was frank in pointing out the plight of consumers impacting the company during its earnings call with analysts. The executive said that quick-service restaurant industry traffic from the low-income consumers plunged by double digits compared with the previous quarter. Middle-income consumers, who had been holding up relatively well until a few months ago, also saw similar declines, which indicates that economic pressure on traffic has “broadened,” according to Kempczinski.
However, as the average American’s wallet feels the squeeze, fast-food spending from rich customers remains resilient.
“Traffic growth from the high-income cohort remains solid, illustrating the divided U.S. economy, where low and middle-income consumers in particular are being weighed down by the cumulative impact of inflation, and heightened anxiety about the economic outlook,” Kempczinski said.
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McDonald’s saw consumer weakness despite launching new $5 value meals earlier this year across its U.S. restaurants to woo customers. Kempczinski said in the latest earnings call that the company knows affordability and value are “paramount” in the current environment, and it has launched cheaper meals across five major international markets.
The economic struggles of consumers aren’t just limited to the U.S. Kempczinski said during the call that the company is seeing a “similar story” in international markets, where comparable sales declined 1% from last year. Traffic was positive in just two of the five major markets.
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McDonald’s total revenue fell 3% year over year in the first quarter. The company also saw comparable sales declines in the UK, while the Middle East and Japan posted gains.
“We’ll remain agile to ensure McValue continues to meet consumer needs and positions us for success in a challenging marketplace,” Kempczinski added. “For the remainder of 2025, we’ll continue to include everyday value meal deals starting at $5, given how the current $5 Meal Deal in particular has resonated with customers.”
McDonald’s rivals are also beginning to see the impact of contractions in consumer spending. Yum! Brands (NYSE:YUM), the owner of Pizza Hut, Taco Bell and KFC, recently missed Q1 revenue expectations as Pizza Hut’s same-store sales slid 5% in the U.S.
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This article ‘A Divided Economy’: McDonald’s CEO Says Rich Keep Dining Out But Average Income Consumers Feeling Economic ‘Anxiety’ originally appeared on Benzinga.com
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