There’s a big difference between reporting the market’s movements to feeling those movements in day-to-day life. Consumers who experience the economy in real-time are more likely to put off former habits for cheaper alternatives, which leads to better-than-expected performance for affordable brands. But what happens when those affordable options hike their prices? French fries become the stock market’s best friend.
McDonald’s Surprising Performance
Those difficult times everyone keeps talking about aren’t so difficult for McDonald’s, which increased sales by 11% and revenue by 14% ($6.69 billion) in Q3, while EPS jumped to $3.19, which is 19% more than last year. It especially saw developments in the United States, as consumers adjust their spending habits but don’t stop them.
This opportunity is often overlooked when the frenzy of the market takes place. If investors go into a panic about the traditional stocks they invested in (ex., Apple), and then those stocks start dipping because of consumer behavior, it means it’s time to look elsewhere. Spending habits haven’t stopped in the US; in fact, GDP is up, meaning they’ve simply shifted to other areas.
How Did McDonald’s Pull It Off?
For middle and higher-income families, household spending budgets have been cut to adjust for inflation, volatility, and difficult times, leading to them frequenting the restaurant. On the other hand, lower-income families who are struggling to purchase groceries because of higher rates are heading to the restaurant more than usual.
Consumers' wallets are struggling, so McDonald’s perform well? Partly. McDonald’s also began increasing prices, with some stores selling the Big Mac combo for as much as $18. Other technology advancements include app upgrades and in-store kiosks.
However, economic uncertainty definitely isn’t hurting McDonald’s, with CEO Chris Kempczinski stating that the economy’s “difficult times” are an opportunity for the chain.
It’s Not Just McDonald’s!
It isn’t just McDonald’s reaping the benefits of consumers' tears and dollars; other restaurants and chains benefit from the economic pressure on American consumers. Including the following;
- Amazon: The e-commerce giant saw an increase in revenue of 13% as consumers looked for easy affordable alternatives, which the diverse company clearly provided.
- Chipotle: The burrito king experienced an overall revenue boost of 11% while consumers enjoyed the splurge, which far out beat analysts' expectations.
- Domino’s Pizza: The fast-food pizza place boosted revenue by 8.8%, which put them back on the map (not a map I’m on) as consumers eat up the promotional deals sent out.
The biggest note for the positive Q3 reports is that consumers are still spending but in cheaper yet likable locations. Investors should look for companies that are well-positioned to meet the needs of consumers during an economic downturn. These companies may include those that offer affordable products and services or those that can innovate and adapt to changing consumer behavior.
When investors become overly concerned with the lack of consumers for a popular brand during an economic downturn, it typically means that consumers have simply moved their spending to other brands that offer more affordable prices, convenient options, or a better value proposition.
Target and Walmart may be struggling because consumers are looking for cheaper alternatives, such as cheap online shopping provided by Amazon. Red Lobster and The Cheesecake Factory may have decreased sales because consumers are cutting back on discretionary spending and choosing more affordable options like McDonald's and Chipotle. Fine dining might not be the best bet for boosting the economy, but maybe french fries and burritos will do more than expected.
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