As Restaurant Prices Rise, Fast Food Chains See Lower-Income Consumers Pinching Pennies

In the face of skyrocketing food prices, many consumers are rethinking their restaurant spending. Lower-income diners especially are forced to make more value-motivated choices rather than splurging on more exciting restaurant experiences.

Take, for instance, quick-service restaurant (QSR) giant McDonald’s, which has almost 40,000 locations across more than 100 countries. On a call with analysts Tuesday (July 26) discussing the company’s second-quarter fiscal year 2022 financial results, company President and CEO Chris Kempczinski noted that these consumers have been pulling back their spending.

“We are seeing some trade down,” Kempczinski said. “We’re seeing customers, and specifically lower income customers, trade down to value offerings and fewer combo meals.”

However, he later argued that the effects of this shift are somewhat mitigated by higher-earning consumers’ trade downs from more expensive dining options to lower-price restaurants such as McDonald’s.

“There is challenge on the lower income, but that we are getting trade down out of things like full-service restaurants, getting trade down out of fast-casual that’s helping offset any of that impact,” he said.

His remarks echo those of Paytronix CEO Andrew Robbins, who explained to PYMNTS’ Karen Webster in an interview for an edition of “This Week in Payments” earlier this month that restaurants continue to bring in customers. However, those customers may change. The person who usually buys a $12 lunch might start going somewhere that offers a $9 lunch, for instance.

“If you’re in the low- to mid-end of restaurant expense, you’re going to see some trade down where higher-end people are going to come to you, but you’re going to lose some to grocery,” Robbins said. “So, you’re going to be fine, net-net, but you’ll see some shifting of people in the trade-down process.”

Related news: This Week in Payments: Inflation Drives Shift in Customer Mix for Restaurants as Consumers Trade Down

Similarly, Newport Beach, California-based fast-casual giant Chipotle Mexican Grill, which has more than 3,000 locations across five countries, noted the same trend on its Q2 2022 earnings call Tuesday.

“The low-income consumer definitely has pulled back their purchase frequency,” the brand’s chairman and CEO Brian Niccol said. “The first indicator was in our … rewards data, where we saw some of these low-income consumers starting to slow down on purchase frequency.”

However, he stated that “the majority” of the brand’s customers are “a higher household income consumer,” such that the brand has not been as affected by this trend as it may otherwise have been.

Still, many consumers do not have a financial safety net on which to rely. Research from the July edition of PYMNTS’ New Reality Check study, “New Reality Check: The Paycheck-To-Paycheck Report – Financial Distress Factors Edition,” created in collaboration with LendingClub, which draws from a survey of more than 3,700 U.S. consumers, found that 58% of consumers were living paycheck to paycheck in May 2022, up from 54% in May 2021. Moreover, 62% of those earning $50,000 to $100,000 annually and 77% of those earning less than $50,000 do so, many of whom have difficulty paying their monthly bills. As such, with prices skyrocketing, it is no wonder that these consumers may choose not to add fries and a soda.