As of May 3rd, in the United States, facing the ongoing impact of inflation, lower-income groups have reduced their spending on hamburgers, fries, and carbonated drinks.
Meanwhile, middle to high-income groups continue to maintain a surprising level of consumer resilience, even catching the attention of the Federal Reserve.
Budgeting and Eating at Home
Ian Borden, Chief Financial Officer of McDonald's, lamented to analysts after releasing the financial report on Tuesday, stating, "Consumers are very picky about where they spend their money now."
The company has also noted that over the past few months, lower-income consumer groups have started to visit restaurants less and instead opt to cook at home.
Borden emphasized that while the impact on lower-income groups is more pronounced, it is crucial to recognize that all income levels are seeking value. The company plans to offer "value-oriented" "entry-level combos" for consumers familiar with those items.
Similarly, while reporting "strong overall demand in the U.S. and improved sales prospects" on Tuesday, Coca-Cola's Chief Financial Officer John Murphy mentioned that out-of-home revenue in North America—sales from restaurants, bars, and other establishments—fell below expectations due to economic pressures faced by lower-income groups.
Murphy analyzed that there is a certain level of purchasing power compression within the lower-income bracket, indicating a shift towards value-seeking consumer behavior. The company will provide larger, more affordable packaging for this group.
Last week, Nestle's Chief Financial Officer Anna Manz also noted that food assistance reductions for low-income Americans, combined with rising prices, have led to a 50% decrease in purchasing power for this group. However, she expressed optimism that over the next few quarters, as incomes rise, the financial pressure on this group will ease.
Ramon Laguarta, CEO of PepsiCo, also stated last week that he sees lower-income individuals facing tight budgets and is "working hard" to ensure they can make it to the end of the month.
The Clear Emergence of a K-Shaped Economy
While mass consumer goods companies collectively express concern, consumer goods targeting affluent consumers continue to show strength.
Beer manufacturer Molson Coors reported in this week's financial report that the company benefits from "affluent consumers willing to buy slightly more expensive beer for themselves," indicating strong demand.
Banks with access to credit card data have also echoed similar sentiments. Citigroup CEO Jane Fraser stated at Tuesday's annual shareholder meeting that she has seen increasing pressure on low-income consumers. In the first quarter of this year, spending on retail credit cards like Home Depot has decreased, but Citigroup's own credit card spending continues to rise.
Fraser explained that this is the so-called K-shaped economy. While many consumers continue to spend, the delinquency rate on credit cards for low-income customers is rising, and consumer behavior is becoming more cautious.
Rising Pessimism
According to data released by the Conference Board on Tuesday, the U.S. consumer confidence index fell to 97 in April, the lowest since July 2022, indicating a decline in consumer confidence in the future labor market, business, and economic conditions.
Dana Peterson, Chief Economist at the Conference Board, stated that rising prices, especially in food and natural gas, are the most concerning issues for consumers.
In terms of inflation expectations, American consumers' expectations for inflation over the next 12 months remain stable at 5.3%, while expectations for the possibility of an economic recession in the next year have slightly increased.
