The &#34;coffee giant&#34; Starbucks saw the largest decline in customer traffic in 14 years, while the &#34;poor man's supermarket&#34; is rising globally.
On May 1st, Starbucks released its Q2 financial report for the 2024 fiscal year. The report showed that Starbucks' store sales in the United States in the second quarter decreased by 3%, with customer traffic declining by 7%, the largest quarterly decline since 2010. In addition, its sales in the Chinese market also dropped by 11% year-on-year, far below previous expectations. As a result, Starbucks' stock price fell by 17% that day.
Not only Starbucks, but also the two global food giants Pizza Hut and KFC reported a shrinkage in quarterly sales in their latest financial reports.
In stark contrast, with its low-price strategy, &#34;poor man's supermarket&#34; ALDI is continuously rising globally.
This seems to indicate a new trend in the global consumer market: in an environment of high inflation and high interest rates, consumers are abandoning big brands and embracing &#34;low prices&#34;.
<h2>High Prices &#34;Drive Away&#34; Consumers</h2>
To make up for losses during the pandemic, many catering companies have started to raise menu prices. Data shows that the proportion of food spending by American consumers as a share of income has reached the highest level in thirty years.
From a more macro perspective, inflation and a high interest rate environment are also suppressing consumer behavior. Dirk Van de Put, CEO of snack maker Mondelez International, said:
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&#34;Consumers are struggling with lower benefits, higher interest rates, and widespread inflation.&#34;
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At the same time, the cost of dining out is rapidly rising. Data from the US Bureau of Labor Statistics shows that in March, fast food prices in the US rose by 5%, while grocery store prices increased at a slower pace. Compared to the same period in 2019, US fast food prices have risen by 33%, while grocery prices have only risen by 26%.
With high prices, consumer spending in the catering sector is showing signs of weakness, directly reflected in the &#34;headwind&#34; of consumer brand performance.
After releasing the latest financial report, Starbucks executives stated that Starbucks is losing &#34;occasional visitors&#34; type of customers, with 1.5 million active loyalty reward users decreasing from the end of the first quarter to the end of the second quarter.
Some pre-packaged food giants also reported a decline in their latest sales. Kraft Heinz announced last Wednesday that its quarterly sales fell by 1.2% due to inflation and reduced promotional efforts, while Kellanova, the parent company of Pringles, stated last Thursday that its North American sales declined by 5% due to price increases.
According to data from market research company Revenue Management Solutions, fast food customer traffic in the US decreased by 3.5% in the first three months of this year compared to the same period in 2023. According to Nielsen IQ data, in the 52 weeks ending on April 20th, grocery sales of food and beverages in the US decreased by 2% compared to the same period last year
The CEO of Wingstop, the most popular chain restaurant on Wall Street, Michael Skipworth, said in a media interview:
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&#34;What we see in consumers is that if they feel stressed, they tend to reduce high-frequency fast food consumption.&#34;
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Skipworth also mentioned that the recent trend at Wingstop stores is that customers visit once a month on average, considering their consumption there as a &#34;reward meal&#34; rather than a &#34;daily meal&#34;; furthermore, low-income consumers visit the stores more frequently.
<h2>Cheap is the Key</h2>
As the pioneer of low-price supermarkets, Aldi has won consumers' favor solely based on being &#34;cheap&#34;.
According to data from retail research and consulting company Customer Growth Partners, in the first three months of this year, looking at the prices of a basket of 50 typical household items, Aldi is about 6% cheaper than Walmart, and fresh and frozen foods are nearly 16% cheaper.
This directly eases the wallets of consumers who have been squeezed by high inflation. According to mobile device location data from analytics company Placer.ai, foot traffic at Aldi's U.S. stores in March increased by about 26% year-on-year, higher than Kroger's 6% growth and Trader Joe's 15% growth.
One consumer described Aldi as:
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&#34;You don't feel inflation here.&#34;
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Currently, Aldi has around 2,400 stores in the U.S., expanding at a rate of approximately 100 new stores per year over the past decade. Last month, Aldi announced plans to invest $9 billion to double the speed of opening new stores and add 800 stores across the U.S. by the end of 2028.
<h2>How Long Will the &#34;Headwinds&#34; Last?</h2>
Despite warnings from other chain restaurants like McDonald's in recent months about consumers cutting back on spending, the recent pullback seems to have exceeded the expectations of some executives.
McDonald's CFO Ian Borden said in a conference call last week:
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&#34;The macro headwinds are even greater than we expected.&#34;
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McDonald's CEO Chris Kempczinski also told analysts that cautious consumer sentiment is spreading globally.
However, Yum Brands stated that the first quarter would be the weakest quarter of the year, but it seems optimistic about a consumer rebound in the future.
As for when the rebound will happen specifically, the answer remains unknown.
However, in a tight consumer environment, major food and beverage brands are determined to lower prices to gain market share.
Domino's CEO Russell Weiner stated that since 2022, the company has kept its national mix-and-match meal pricing at $6.99, helping it grab share from competitors.
Kellanova CEO Steve Cahillane mentioned that the company will offer more discounts and plans to promote large packaging at the beginning of the month (when consumers have the most cash on hand) and small packaging at the end of the month
Starbucks also stated that it will open transactions limited to its application for the first time to non-loyal members in July. According to The Paper, Starbucks is also quietly offering discounts, launching various promotions such as group purchases, full reductions, discounts, etc., choosing to &#34;increase sales through price reductions&#34;.
Currently, perhaps for consumers, &#34;no price increase&#34; is already the best news. As Weiner said:
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&#34;Customers just don't want surprises.&#34;
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