The Poor Are Spending Less At McDonald’s
Fast-food giants built their empires on budget-conscious customers, but a troubling shift in spending habits is forcing McDonald's to rethink who actually shows up at the counter.
McDonald’s (NYSE: MCD | MCD Price Prediction) said its quarterly results were less than acceptable for several reasons. First, it had too many promotions offered to customers. Thus, customers got confused, and the number of promotions also appeared to slow service.
McDonald’s replaced the CEO of its McDonald’s USA operations. The overall McDonald’s CEO, Chris Kempczinski, was ebullient when talking about the expected new performance of the unit. Skye Anderson will take the job because the unit needs “focus and urgency to these efforts given her deep system knowledge, operational discipline, and proven ability to drive change and deliver results for everyone in our System.”
Finally, more important than these was Kempczinski’s comment about customer income. On the earnings call, he said, “Clearly, when you have elevated gas prices, which is the core issue that I think we’re all seeing about in the press right now, gas prices, inflation on that, that is going to disproportionately impact low-income consumers.” He expects that to continue.
Low-income consumers have been critical to the fortunes of McDonald’s and its fast-food rivals. Wendy’s (NASDAQ: WEN) has commented about the drag low-income customers have had on same-store sales. Chipotle (NYSE: CMG) and Burger King have joined that chorus.
It appears that even inexpensive fast-food companies are being hurt by what is known as the “k-shaped” economy. People with low incomes, some of whom live below the poverty line, are being stung by new hurdles like gas prices. And anyone who thinks food prices are not going up is wrong.
If McDonald’s analysis is right, fast-food companies and other companies that market to poor Americans have a problem.
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Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.
McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.
His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.
A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.
TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.
McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.
