This past week was a busy period for restaurants reporting results, and much of the conversation focused on whether or not QSR consumers have started to shift to other channels because of macro headwinds. McDonald’s CEO Chris Kempczinski summarized the situation:
“Specific to the U.S., we've been talking about how the consumer is more discriminating because of all of the price pressures that they're facing, as well as interest rates. What you end up seeing is that the pressure is felt more on the lower income consumer. One of the things that we saw industry-wide is that that low income consumer, which we would say is $45,000 and under, was negative from an industry standpoint…So I think we're just going to need to continue to keep a close eye on that $45,000 and under consumer, because of the pressure that they're feeling there, and make sure that we're offering value, but hopefully the industry stays disciplined as well on pricing.”
Kempczinski also mentioned that traffic trends turned “slightly negative” in Q3 2023, but that was also partly because of tougher comparisons (recall that the company saw a lift in visits because of its loyalty program as well as its Famous Order and other promotions in Q3 2022; the company also faced difficult comparisons in October as it lapped its extremely successful “Adult Happy Meal” promotion with Cactus Plant Flea Market). Still, management noted that traffic is up on a two-year comparison basis (2023 versus 2021) which is consistent with our data.
Back to the more pressing question at hand: if lower-income consumers aren’t frequenting QSR chains as frequently, where are they going? We believe the answer is dollar stores and value-oriented grocery stores (like Aldi and Grocery Outlet), two categories we’ve spent a lot of time on this year. Below, we show year-over-year visitation trends for the QSR category versus dollar stores and value grocery chains. Our visitation data suggests that there was a channel shift during Q3 2023, with many consumers bypassing QSR chains and instead visiting dollar stores more. However, we also saw more significant declines among dollar stores and value-oriented grocers the last week in October, which may suggest further channel shifts or even trading out. This will be a key trend to monitor as we continue into 2024.