Restaurants compete for the dollars of frugal diners

A version of this story first appeared in CNN Business’s Before the Bell newsletter. Not a subscriber? You can sign up here. You can listen to an audio version of the newsletter via the same link.

New York
CNN
—

Eating out these days may seem like a luxury for Americans burdened by inflation. For some restaurants, it feels like a struggle to get the spend.

Starbucks reported a 3% decline in same-store sales during its latest quarter, the first drop since 2020 and a sharp contrast from a 12% gain the year before. Same-store sales fell 11% in China, the coffee chain’s second-largest market. Starbucks also lowered its full-year sales outlook.

The coffee giant said customers are spending money more cautiously and less often, which is weighing on the company’s revenue.

“Many customers have become more demanding about where and how they want to spend their money, especially with the (pandemic) stimulus savings being the most spent,” Starbucks CEO Laxman Narasimhan said on the company’s earnings call.

That’s consistent with what companies have reported in recent months: Consumers are tightening their wallets as they grapple with sky-high interest rates, stubborn inflation, depletion of pandemic-era savings and an uncertain economic outlook.

Now companies say they are doing their best to capture customers’ dollars. Starbucks introduces sugar-free customization options for drinks, a low-calorie energy drink and new upgrades to its mobile app to both attract new customers and encourage ‘occasional customers’ order more often.

Americans have started eating at home to save money in the face of rising menu prices. Prices of food consumed at home remained unchanged month-on-month in the March Consumer Price Index report, while prices away from home rose 0.3% from the previous month.

This shift in consumer behavior to eat more home-cooked meals is visible on McDonald’s balance sheet. The fast-food chain reported global same-store sales growth of just 1.9% during the first quarter, down from 12.6% growth the year before.

The fast-food chain, which has previously expanded its pricing power with its customer base, acknowledged earlier this year that diners are getting fed up.

“Everyone is fighting for fewer consumers or consumers who are certainly visiting less frequently, and we need to make sure we have that street-fighting mentality to win, regardless of the context around us,” said Ian Borden, Global Chief Financial Officer at McDonald’s, during a conversation with analysts.

Lower-income customers also continue to tighten their budgets. Olive Garden parent company Darden Restaurants saw same-restaurant sales decline during the most recent quarter. The company said it saw a decline in sales from households with incomes of less than $75,000 compared to last year, and that every brand in Darden’s portfolio saw a decline in transactions from households with incomes of less than $50,000.

“Lower-income consumers appear to be in retreat,” Darden CEO Ricardo Cardenas said in the company’s earnings call.

Still, higher-income customers appear to be continuing to spend, helping to support the economy. Darden saw sales from households with incomes above $150,000 increase from the previous year.

Scott Sheffield, the founder and former CEO of a leading U.S. oil producer, tried to work with OPEC and its allies to inflate prices, federal regulators alleged Thursday.

The Federal Trade Commission said Sheffield exchanged hundreds of text messages about prices, production and oil market dynamics with officials from the Organization of the Petroleum Exporting Countries (OPEC), the cartel led by Saudi Arabia.

Regulators say Sheffield, then the CEO of Pioneer Natural Resources, used WhatsApp conversations, personal meetings and public statements to try to bring oil production in Texas’ Permian Basin in line with that of OPEC and OPEC+, the broader group which also includes Russia. .

“Mr. Sheffield’s communications were intended to bolster Pioneer’s profits – and those of oil companies in OPEC and OPEC+ member states – at the expense of American households and businesses,” the FTC complaint said.

Different than at According to the OPEC countries, US oil production should be determined by the free market, and not by coordination between the big players, according to my colleague Matt Egan.

Read more here.

The American labor market has been booming over the past three years. Some economists even say that “it’s as good as it’s ever been,” reports my colleague Alicia Wallace.

This storyline isn’t expected to change on Friday when the April jobs report arrives at 8:30 a.m. ET – but it’s possible there could be a slight softening of strong first-quarter gains.

“The longer interest rates are high, the more they slowly put pressure on the economy,” Julia Pollak, chief economist at employment website ZipRecruiter, told CNN in an interview. “I think we’re going to continue to see that gradual, fairly orderly slowdown in the labor market until rates start to come down.”

So far this year, the economy has added an average of 276,000 jobs per month, according to data from the Bureau of Labor Statistics. That is approximately 25,000 more jobs per month than last year and 111,000 more per month than in 2019.

For Friday’s report, economists forecast that employers added 232,500 jobs in April, which would be less than the estimated 303,000 net jobs added in March, according to FactSet consensus estimates. The unemployment rate is expected to remain at 3.8%.

If these expectations come true, some already historic developments will increase even further. It would be the 40th consecutive month of employment growth (the fifth longest on record) and the 27th consecutive month in which the country’s unemployment rate remained below 4% (matching a 27-month streak from 1967 to 1970).

Read more here.