Some analysts thought a fast-food slowdown would never happen, but it is here and a lot of
economists and business leaders are trying to make sense of it.
KFC, McDonald's, Starbucks, Pizza Hut, and many other similar fast-food retailers are reporting significant sales slowdowns and it should be very concerning to all business leaders.
Starbucks, in particular, experienced a notable drop in same-store sales for the latest quarter, sending its shares plummeting by 17% on Wednesday. Joining the fray, Pizza Hut and KFC also reported shrinking same-store sales figures. Even industry stalwart McDonald's acknowledged the challenging landscape, adopting what it terms a "street-fighting mentality" to retain value-minded consumers.
Source: Company Earnings / Investor Websites
While external factors such as adverse weather conditions and tough year-over-year comparisons were cited as contributing factors to the lackluster performance, the underlying trend suggests heightened competition for a shrinking pool of customers. Rising prices for dining out, outpacing grocery costs, have led consumers to become more discerning with their spending, favoring value-driven options.
As Advantexe delivers our business acumen workshops over the next quarter or so, I know participants and leaders are going to ask us about what this means and what to do.
We have entered a new and unchartered territory with this latest twist to the economy, so here are five economic factors leaders should consider when making key decisions over the next six months.
Five Economic Factors Leaders Should Consider
- Diminishing Consumer Confidence: Fast-food sales can be a reflection of consumer confidence and disposable income. If consumers are cutting back on fast-food spending, it might indicate they're feeling less financially secure. This could signal broader economic issues such as a slowdown in general and big-ticket spending.
- Rise in Unemployment: Although the economy is experiencing unprecedented employment it is important to note that fast-food is a significant employer, especially for younger or low-skilled workers. A decrease in sales might mean reduced hours or even layoffs for these workers, which can have ripple effects throughout the economy.
- Barometer of Economic Health: There are some economists who live by the credo, “As goes McDonald's goes the economy.” Fast-food sales are often considered an economic indicator because they reflect the spending habits of a broad segment of the population. Economists use them as one of many data points to gauge the health of the economy. A significant slowdown in fast-food sales may be an economic indicator of poor health ahead.
- Ripple Effect of the Supply Chain: The fast-food industry is the lifeblood of suppliers ranging from meat producers to produce suppliers, to packing companies. A decline in fast-food sales could affect not just fast-food chains but also their suppliers. Any disruptions in these supply chains could signal broader economic issues that cause a ripple impact throughout all of the surrounding suppliers.
- Investor Confidence: Investors closely monitor consumer spending, and a decline in fast-food sales could lead to concerns about the performance of fast-food chains and related industries, impacting investment decisions.
In summary, this is not good news and it was not expected news. It’s not going to get a lot of press, but we feel strongly it is something all business leaders should start thinking about.
