It\u2019s finally here: the long-predicted consumer pullback.<\/p>\n\n\n\n
Starbucks<\/a> announced a surprise drop in same-store sales<\/a> for its latest quarter, sending its shares down 17% on Wednesday. Pizza Hut and KFC also reported shrinking same-store sales<\/a>. And even stalwart McDonald\u2019s<\/a> said it has adopted a \u201cstreet-fighting mentality\u201d<\/a> to compete for value-minded diners.<\/p>\n\n\n\n For months, economists have been predicting that consumers would cut back on their spending in response to higher prices and interest rates. But it\u2019s taken a while for fast-food chains to see their sales actually shrink, despite several quarters of warnings to investors that low-income consumers were weakening and other diners were trading down from pricier options.<\/p>\n\n\n\n Many restaurant companies also offered other reasons for their weak results this quarter. Starbucks said bad weather dragged its same-store sales lower. Yum Brands<\/a>, the parent company of Pizza Hut, KFC and Taco Bell, blamed January\u2019s snowstorms and tough comparisons to a strong first quarter last year for its brands\u2019 poor performance.<\/p>\n\n\n\n But those excuses don\u2019t fully explain the weak quarterly results. Instead, it looks like the competition for a smaller pool of customers has grown fiercer as the diners still looking to buy a burger or cold brew become pickier with their cash.<\/p>\n\n\n\n The cost of eating out at quick-service restaurants has climbed faster than that of eating at home. <\/strong>Prices for limited-service restaurants rose 5% in March compared with the year-ago period, while prices for groceries have been increasing more slowly, according to the Bureau of Labor Statistics<\/a>.<\/p>\n\n\n\n \u201cClearly everybody\u2019s fighting for fewer consumers or consumers that are certainly visiting less frequently, and we\u2019ve got to make sure we\u2019ve got that street-fighting mentality to win, irregardless of the context around us,\u201d McDonald\u2019s CFO Ian Borden said on the company\u2019s conference call on Tuesday<\/a>.<\/p>\n\n\n\n Outliers show that customers will still order their favorite foods, even if they\u2019re more expensive than they were a year ago. Wingstop<\/a>, Wall Street\u2019s favorite restaurant chain, reported its U.S. same-store sales soared 21.6% in the first quarter. Chipotle Mexican Grill<\/a> saw traffic rise 5.4% in its first quarter<\/a>. And Restaurant Brands International\u2019s<\/a> Popeyes reported same-store sales growth of 5.7%.<\/p>\n\n\n\n Even so, many companies in the restaurant sector and beyond it have warned consumer pressures could persist. McDonald\u2019s CEO Chris Kempczinski told analysts the spending caution extends worldwide.<\/p>\n\n\n\n \u201cIt\u2019s worth noting that in [the first quarter], industry traffic was flat-to-declining in the U.S., Australia, Canada, Germany, Japan and the U.K.,\u201d he said.<\/p>\n\n\n\n Two of the chains that struggled in the first quarter cited value as a factor. <\/strong>Starbucks CEO Laxman Narasimhan said<\/a> occasional customers weren\u2019t buying the chain\u2019s coffee because they wanted more variety and value.<\/p>\n\n\n\n \u201cIn this environment, many customers have been more exacting <\/strong>about where and how they choose to spend their money, particularly with stimulus savings mostly spent,\u201d Narasimhan said on the company\u2019s Tuesday call.<\/p>\n\n\n\n