According to a new analysis, recent inflation by major food and beverage franchises such as McDonald’s and Starbucks has led to a significant decrease in consumption among Americans despite their high brand loyalty.
On May 5 (local time), The Wall Street Journal (WSJ) reported that large food companies had been banking on customer allegiance when implementing drastic price increases following the COVID-19 pandemic. However, this strategy backfired, as some customers abandoned these brands.
The cost increases following the pandemic led to price hikes by food and beverage companies. As a result, the proportion of income that American customers spend on food has reached its highest level in 30 years. Consequently, some purchasers started to reduce the amount of money they spent on food and beverage companies, and a third of the companies that raised their prices saw either a decrease in sales or a slowdown in sales growth compared to pre-pandemic levels.
Dennis Montenaro, who lives in Laguna Niguel, California, told WSJ that he had recently ordered Bacon, Egg & Cheese Bagle, and coffee from McDonald’s and had to pay $9.67. After looking at the receipt, he vowed to stop eating fast food.
David Michael, 58, a lawyer living in El Dorado Hills in the same state, no longer visits McDonald’s even though he used to frequent almost every week. He was shocked to see the price of soda increase from $1 to $1.69. He also stopped going to Starbucks since the costs have skyrocketed compared to the past. He said, “Honestly, it’s not unbearable, but I can’t accept that it’s almost twice as expensive as before.”
According to the U.S. Department of Labor, as of March this year, fast food prices were 33% higher than in 2019, and grocery prices were up 26%.
This has indeed led to a slowdown in consumption. According to market research firm Revenue Management Solutions, the number of fast food customers in the U.S. decreased by 3.5% in the first quarter (January to March) of this year compared to last year.
With its large base of loyal customers, Starbucks experienced a 7% drop in U.S. store traffic over the three months ending March 31 of this year. Similarly, McDonald’s has observed a clear trend of spending restraint, particularly among low-income consumers, leaving their management teams puzzled. In response, both companies have shifted their strategies to regain customers. McDonald’s and Starbucks plan to introduce more promotions and discounts, while Mondelez is exploring various options, including price cuts and adjustments to the quantity and pricing of their products.
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