Source: https://www.wsj.com/business/consum...g-food-costs-are-ditching-big-brands-4d314161
Consumers are voting with their wallets—and some of America’s best-known food brands are losing.
Coffee drinkers are leaving Starbucks’s loyalty program. Chips Ahoy cookies are lingering longer on grocery-store shelves. Fewer customers are ordering at fast-food drive-throughs and kiosks, pressuring companies such as Wendy’s and McDonald’s.
For about three years following the Covid-19 pandemic, food companies pushed through a series of sharp price increases, saying they needed to recoup their own rising costs—and that consumers would adjust to stick with their favorite brands. As a result, the portion of U.S. consumers’ income spent on food has reached the highest level in three decades.
Now, some consumers are hitting their limits. Restaurant chains and some food manufacturers are reporting sliding sales or slowing growth that they attribute to consumers’ inability—or refusal—to pay prices that are in some cases a third higher than prepandemic times.
In Laguna Niguel, Calif., Denis Montenaro, said he recently headed to McDonald’s for a favorite order: bacon and egg bagel with a coffee. The 75-year-old retired manager was stunned to see the $9.67 bill.
“I’m done with fast food,” Montenaro said.
The pace of food inflation in supermarkets and restaurants has slowed significantly over the past year, but prices for goods from burgers to mayonnaise are still far more expensive than they used to be. Fast-food prices in March were 33% higher than 2019 levels, according to the Labor Department, while grocery prices were up 26%.
U.S. fast-food traffic declined 3.5% in the first three months of this year compared with the same period in 2023, according to market-research firm Revenue Management Solutions. U.S. grocery sales of food and beverages fell 2% by volume for the 52 weeks ended April 20 compared with the year-ago period, according to NielsenIQ.
McDonald’s and other restaurant chains have warned for months that consumers are reining in spending, particularly low-income diners. But the depth of their recent pullback still caught some U.S. restaurant executives by surprise, they said last week.
“The macro headwinds have been more significant than I think we even anticipated coming into the year,” McDonald’s Chief Financial Officer Ian Borden said on an investor call Tuesday. McDonald’s said its pricing remains competitive in the U.S., including in California, where a higher state minimum wage for fast-food workers has contributed to rising prices.
At Starbucks, U.S. traffic dropped 7% in the three months ended March 31, the steepest quarterly decline since at least 2010. Starbucks is losing occasional customers, executives said, and its active loyalty-rewards users declined by 1.5 million members from the end of the first quarter to the end of the second.
David Michael, a 58-year-old attorney from El Dorado Hills, Calif., said he used to get McDonald’s at least weekly but stopped a few months ago now that some sodas cost $1.69 instead of a dollar, and his regular meal of a small burger, fries and a Coke has climbed. He said he quit Starbucks after the price for a tall mocha climbed to $5.25.
“It’s not that I can’t afford it now,” Michael said. “It’s the frustration that the same meal now costs nearly double what it did.”
Historically, consumers who find restaurants too expensive wind up eating more at home. But some packaged-food giants are losing sales, too.
Kraft Heinz said Wednesday that its quarterly sales fell 1.2% as higher prices and reduced food-stamp benefits in the U.S. weighed on demand. Kellanova, which makes Pringles and Pop-Tarts, said Thursday that North American sales volumes slid 5% after the company increased prices by the same amount.
At snack maker Mondelez International, cookie sales are under pressure, especially Chips Ahoy, which the company said are favored by lower-income shoppers. Mondelez has long touted consumers’ loyalty to its brands as the company raised its prices, but Chief Executive Dirk Van de Put said shoppers are now contending with lower food-stamp benefits and higher interest rates—along with general inflation.
“We have surpassed certain price points, and that is having a big effect,” Van de Put said. While Oreos are gaining market share, he said that Chips Ahoy is losing ground to cheaper store-brand chocolate-chip cookies.
The rebellion from consumers is prompting some food companies to shift their strategies, even if offering deals comes at a cost. McDonald’s and Starbucks plan to launch more promotions and communicate them more clearly to consumers. Mondelez said it would offer pricing specials and smaller pack sizes, and Kraft Heinz is rolling out new mac & cheese products.
Some restaurant chains, such as Domino’s Pizza and Cava have chosen to stand firm on their prices, resisting raising them to try to gain a bigger share of customers, even if it cuts into profit margins.
Domino’s has kept its national mix-and-match deal pricing at $6.99 since 2022, helping it to steal share from competitors, Domino’s CEO Russell Weiner said. “Customers just don’t want surprises,” Weiner said in an interview.
Van de Put said Mondelez will introduce new, smaller multipacks for Clif Bar, for example, with 10 energy bars instead of 12 inside, to offer the bars at a lower price.
Kellanova CEO Steve Cahillane said the company is offering more deals and adjusting their timing throughout the month, promoting large pack sizes at the beginning of the month, when consumers have the most cash on hand, and smaller ones toward the end of the month.
“With Pop-Tarts, you may not buy the 20-count, you may buy the eight-count,” Cahillane said. Kellanova said its comparable sales rose 5% for the latest quarter and that volume declines in North America continue to moderate.
Starbucks, which has long promoted itself as a premium brand, is now trying to emphasize value. The world’s largest coffee chain by sales for the first time in July will open up deals limited to its app to customers who aren’t loyalty members.
“These efforts take time, but our team is working with great energy and speed,” Starbucks CEO Laxman Narasimhan said. Starbucks executives said their customers care about convenience and new products, not just price.
Penny Rackley, a life coach and automotive-services franchise owner in Texas, said she and her husband have scaled way back on their packaged-food purchases in recent years. Rackley, 58, said she has cut pasta sauce and snack mixes from her shopping cart as prices surged, opting to make homemade versions after routinely discovering that the products were $2 or $3 more than she was expecting.
“It’s gotten to where you think they’ve made a mistake,” Rackley said. “Over time you just feel like a boob.”
Consumers Fed Up With Food Costs Are Ditching Big Brands
After years of price increases, food companies say more consumers pull back; fast-food chains and snack makers plan new deals and flavors
May 5, 2024 5:30 am ET
Consumers are voting with their wallets—and some of America’s best-known food brands are losing.
Coffee drinkers are leaving Starbucks’s loyalty program. Chips Ahoy cookies are lingering longer on grocery-store shelves. Fewer customers are ordering at fast-food drive-throughs and kiosks, pressuring companies such as Wendy’s and McDonald’s.
For about three years following the Covid-19 pandemic, food companies pushed through a series of sharp price increases, saying they needed to recoup their own rising costs—and that consumers would adjust to stick with their favorite brands. As a result, the portion of U.S. consumers’ income spent on food has reached the highest level in three decades.
Now, some consumers are hitting their limits. Restaurant chains and some food manufacturers are reporting sliding sales or slowing growth that they attribute to consumers’ inability—or refusal—to pay prices that are in some cases a third higher than prepandemic times.
In Laguna Niguel, Calif., Denis Montenaro, said he recently headed to McDonald’s for a favorite order: bacon and egg bagel with a coffee. The 75-year-old retired manager was stunned to see the $9.67 bill.
“I’m done with fast food,” Montenaro said.
The pace of food inflation in supermarkets and restaurants has slowed significantly over the past year, but prices for goods from burgers to mayonnaise are still far more expensive than they used to be. Fast-food prices in March were 33% higher than 2019 levels, according to the Labor Department, while grocery prices were up 26%.
U.S. fast-food traffic declined 3.5% in the first three months of this year compared with the same period in 2023, according to market-research firm Revenue Management Solutions. U.S. grocery sales of food and beverages fell 2% by volume for the 52 weeks ended April 20 compared with the year-ago period, according to NielsenIQ.
McDonald’s and other restaurant chains have warned for months that consumers are reining in spending, particularly low-income diners. But the depth of their recent pullback still caught some U.S. restaurant executives by surprise, they said last week.
“The macro headwinds have been more significant than I think we even anticipated coming into the year,” McDonald’s Chief Financial Officer Ian Borden said on an investor call Tuesday. McDonald’s said its pricing remains competitive in the U.S., including in California, where a higher state minimum wage for fast-food workers has contributed to rising prices.
At Starbucks, U.S. traffic dropped 7% in the three months ended March 31, the steepest quarterly decline since at least 2010. Starbucks is losing occasional customers, executives said, and its active loyalty-rewards users declined by 1.5 million members from the end of the first quarter to the end of the second.
David Michael, a 58-year-old attorney from El Dorado Hills, Calif., said he used to get McDonald’s at least weekly but stopped a few months ago now that some sodas cost $1.69 instead of a dollar, and his regular meal of a small burger, fries and a Coke has climbed. He said he quit Starbucks after the price for a tall mocha climbed to $5.25.
“It’s not that I can’t afford it now,” Michael said. “It’s the frustration that the same meal now costs nearly double what it did.”
Historically, consumers who find restaurants too expensive wind up eating more at home. But some packaged-food giants are losing sales, too.
Kraft Heinz said Wednesday that its quarterly sales fell 1.2% as higher prices and reduced food-stamp benefits in the U.S. weighed on demand. Kellanova, which makes Pringles and Pop-Tarts, said Thursday that North American sales volumes slid 5% after the company increased prices by the same amount.
At snack maker Mondelez International, cookie sales are under pressure, especially Chips Ahoy, which the company said are favored by lower-income shoppers. Mondelez has long touted consumers’ loyalty to its brands as the company raised its prices, but Chief Executive Dirk Van de Put said shoppers are now contending with lower food-stamp benefits and higher interest rates—along with general inflation.
“We have surpassed certain price points, and that is having a big effect,” Van de Put said. While Oreos are gaining market share, he said that Chips Ahoy is losing ground to cheaper store-brand chocolate-chip cookies.
The rebellion from consumers is prompting some food companies to shift their strategies, even if offering deals comes at a cost. McDonald’s and Starbucks plan to launch more promotions and communicate them more clearly to consumers. Mondelez said it would offer pricing specials and smaller pack sizes, and Kraft Heinz is rolling out new mac & cheese products.
Some restaurant chains, such as Domino’s Pizza and Cava have chosen to stand firm on their prices, resisting raising them to try to gain a bigger share of customers, even if it cuts into profit margins.
Domino’s has kept its national mix-and-match deal pricing at $6.99 since 2022, helping it to steal share from competitors, Domino’s CEO Russell Weiner said. “Customers just don’t want surprises,” Weiner said in an interview.
Van de Put said Mondelez will introduce new, smaller multipacks for Clif Bar, for example, with 10 energy bars instead of 12 inside, to offer the bars at a lower price.
Kellanova CEO Steve Cahillane said the company is offering more deals and adjusting their timing throughout the month, promoting large pack sizes at the beginning of the month, when consumers have the most cash on hand, and smaller ones toward the end of the month.
“With Pop-Tarts, you may not buy the 20-count, you may buy the eight-count,” Cahillane said. Kellanova said its comparable sales rose 5% for the latest quarter and that volume declines in North America continue to moderate.
Starbucks, which has long promoted itself as a premium brand, is now trying to emphasize value. The world’s largest coffee chain by sales for the first time in July will open up deals limited to its app to customers who aren’t loyalty members.
“These efforts take time, but our team is working with great energy and speed,” Starbucks CEO Laxman Narasimhan said. Starbucks executives said their customers care about convenience and new products, not just price.
Penny Rackley, a life coach and automotive-services franchise owner in Texas, said she and her husband have scaled way back on their packaged-food purchases in recent years. Rackley, 58, said she has cut pasta sauce and snack mixes from her shopping cart as prices surged, opting to make homemade versions after routinely discovering that the products were $2 or $3 more than she was expecting.
“It’s gotten to where you think they’ve made a mistake,” Rackley said. “Over time you just feel like a boob.”
