We’ve officially reached the point in summer when it’s socially acceptable to look back. Lazy pool days in June and those barbecues in July feel more and more like hazy memories.
But since we’re CFO Brew, instead of looking back at marvelous vacation pics, we’re finally ready to look back at what companies have said about consumer weariness in summertime earnings calls and other public remarks. Because for us, that sounds like a good time.
Well, maybe not fun-fun, but at least useful: A growing number of execs have started ringing the warning bell about a pullback in consumer spending, and CFOs need to take note.
“It truly is a moment of the cup half full or the cup half empty, depending on…which bit of the world you want to look at. In aggregate, there’s still a very robust global economy out there and robust consumer spending in total,” James Quincey, Coca-Cola’s CEO and chairman, said at a late June consumer conference, adding that while “there’s some pretty strong consumer spend out there” plenty of that spend “is under pressure.”
He specifically called out the inflation pressure felt by many consumers on the “lower end of the income spectrum in the US,” noting that “you can see that pressure coming through, saw that pressure coming through in [quick-service] restaurants and a number of areas where…basket size was under pressure and, of course, consequent behaviors like looking for affordability.”
These comments from a beverage company CEO looked prescient when competitor PepsiCo’s CEO Ramon Laguarta stressed the prevalence of value conscious consumers in a July earnings call, explaining that across income levels, “the consumer is much more price conscious.”
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He explained some potential income differences, noting that for high income consumers, perhaps “they’re not going to expensive restaurants, they’re adjusting their behavior to more affordable restaurants, or they stay at home and then they create their own entertainment moments or fun moments at home.” Yet while he noted “the consumer is more cautious, the consumer is more choiceful” across the board, “the consumer is willing to spend in areas where they see value.”
And it all came down to value when McDonald’s latest earnings report made clear that lower income consumers in particular are holding onto their cash, as the fast food giant posted its worst sales since 2020.
While McDonald’s CEO Chris Kempczinski cited some external pressures, like global conflict, he noted on the company’s late July earnings call that “there were also factors within our control that contributed to our underperformance, most notably our value execution.”
“Beginning last year, we warned of a more discriminating consumer, particularly among lower-income households,” Kempczinski said. “And as this year progressed, those pressures have deepened and broadened.”
He continued: “Consumers still recognize us as the value leader versus our key competitors, but it's clear that our value leadership gap has recently shrunk. We are working to fix that with pace. Over the last several years, our system has sustained significant inflationary cost increases ranging from 20% to 40% depending on the market.”
As the summer comes to an end, it seems like the next season will be all about getting every bit of value out of your buck.