The economic picture is murky at best. A host of data suggests the economy is going well. GDP grew 2.9% in the fourth quarter. The economy is adding plenty of jobs, many of them at restaurants. And inflation that created so many headaches last year is easing.
At the same time, inflation did have an impact on the consumer last year and there were some signs they were pulling back, particularly after gas prices surged this summer. And restaurant sales appeared to slow in November and December.
Yet any of the impact of the economy on the biggest chains appears to be “on the margin,” to use a term McDonald’s CEO Chris Kempczinski used last week. And in fact, it appears that the restaurant consumer is more resilient than many have expected.
“There is a little bit of a decrease in units per transaction,” he said. “We’re seeing a little bit of trade-down. But I got to say, these are probably on the margin.”
“Overall,” he added, “the consumer, whether it’s in Europe or the U.S., is actually holding up better than what we would have probably expected, or maybe what I would have expected a year ago or six months ago.”
Almost to emphasize that point, we have Starbucks. “At a time when people are generally trading down, and there’s a lot of discounting going on, we had the highest average ticket in our history in the month of December,” Starbucks Interim CEO Howard Schultz said last week.
What’s more, the company increased its transaction count. “We don’t see ourselves in a situation where we need to discount heavily,” Schultz said.
To be sure, Starbucks in theory would donate share in a market in which consumers are trading down. It lost business during the Great Recession, for instance. That doesn’t appear to be happening. Then again, the economy is probably not bad enough to cause people to give up something as ritualistic as a Frappuccino.
McDonald’s, meanwhile, would be a beneficiary of such a market. But even then, the impact is apparently limited.
That said, there is plenty of discounting. Wendy’s, McDonald’s rival, introduced a 2-for-$6 offer earlier this month. Other discounting has emerged of late, while much of it coming on chains’ mobile apps. Subway, for instance, has been running a buy-one, get-one footlong sub offer through its app. McDonald’s has several discounts available.
And inflation hit some restaurants hard, and perhaps harder than we thought, particularly in light of news that McDonald’s operators’ cash flow declined by $100,000 per location last year.
At least in theory, Chipotle’s earnings results demonstrate an economy that is less tolerant of aggressive price increases. But the company’s executives suggested that traffic improved in January.
Meanwhile, at Yum Brands, executives said their brands are performing well with higher-end and lower-end consumers alike. “On the high end, we’re actually seeing more frequency from that consumer,” David Gibbs, CEO of the owner of Taco Bell, KFC and Pizza Hut, told investors on Wednesday. He suggested that might be due to “a little trade down into our brands.”
But the company is not losing lower-income consumers, either. “What we’re seeing is probably a little bit more focus on value,” Gibbs said. “That’s been the trend, and that’s continued throughout 2022 into 2023.”
But again, it’s not particularly pronounced. Thus, while there is more discounting and some economic concern, it has yet to fully reveal itself among the customers at the nation’s biggest restaurant chains. At least not yet.