GLOBAL fast food giants may have to dole out steeper promotions to lure inflation-hit customers who are increasingly opting to eat at home, following weak sales from the likes of McDonald’s and Starbucks this week.

Disposable income in the United States is declining, particularly in the lower-income cohort, while the slow economic recovery in China has increased industry-wide pressures for quick-service chains including KFC owner Yum Brands that has extended across several quarters.

Menu prices have risen across the industry over the past year as companies try to mitigate higher commodity and supply chain costs. However, that has hurt demand and boosted consumers’ desire to eat at home in the United States, the world’s largest economy.

“The lack of value offers has opened up consumers to shop for different options whether it be other (chains) or the grocery stores,” Razmig Poundardjian, portfolio manager for Carnegie Investment Counsel said.

Packaged food companies are also feeling the pinch of weak consumer spending, especially from low-income households, as their cookies and baked snacks see a slowdown in sales.

“Ongoing softness in US biscuits is driven primarily by brands that had higher penetration among lower-income households such as Chips Ahoy!,” Mondelez CFO Luca Zaramella said.

Meanwhile, Kraft Heinz chief executive officer (CEO) Carlos Abrams-Rivera on Wednesday noted “a clear pullback of restaurant spend by these lower-earning households, especially in restaurants and convenience stores.”

China’s weakness is also taking a toll. Coffee chain Starbucks expects full-year comparable sales globally to come in between flat and a low single-digit gain, lowering its previous guidance, with CEO Laxman Narasimhan saying that customers had made the trade-off “between food away from home and food at home”.

Burger giant McDonald’s, which has a higher exposure to the lower-income cohort, saw global sales decline for the fourth straight quarter pushing it to lean on improving offers on its meals.

“I think it’s important to recognize that all income cohorts are seeking value,” McDonald’s CEO Chris Kempczinski said on a post-earnings call on Tuesday.

The US consumer confidence index fell for the third consecutive month in April, according to a survey conducted by research group The Conference Board, which found that the first place Americans are looking to save money is on meals away from home.

Over the next six months, 44.8% of those surveyed said they planned to cut back on food away from home to save money.

Domino’s Pizza and Burger King owner Restaurant Brands on the other hand got a sales boost in the reported quarter on the back of their loyalty programs and higher promotions.

So far this year, shares of Domino’s Pizza have gained 27%, while those of Restaurant Brands and McDonald’s are down 6% and 8%, respectively. Shares of Starbucks have tumbled 22%. — Reuters

TRAVEL by rail and car across China surged on Wednesday, the first day of a major public holiday, as consumers remained focused on keeping expenses down in a challenged economy.

In the run-up to the five-day holiday that began with May Day, domestic airline fares were falling and forecasts suggested more travelers were opting to drive rather than fly, or had booked early to save.

Travel of all kinds has rebounded since China lifted strict COVID control measures at the end of 2022, but consumer spending on those trips has failed to keep up, limiting the boost to the broader economy.

China has set an economic growth target for 2024 of around 5%, which many analysts say will be a challenge to achieve without much more stimulus.

China’s manufacturing and services activity both expanded at a slower pace in April, official surveys showed on Tuesday, suggesting some loss of momentum.

“There is indeed significant pressure,” Lin Yu, 38, who was visiting Beijing from Hangzhou. “Every family’s situation is different, and it clearly also depends on the industry you work in.”

By the fourth week of April, the average price for an economy flight in China had dropped 38% from the first week of the month to the equivalent of just under $97, according to VariFlight, an aviation data service provider.

“Chinese airlines must adapt to these changes,” said Zheng Hongfeng, VariFlight, who said the fare declines showed travelers were booking early in a highly competitive market.

About 58 million cars are expected to be on roads every day during the holiday while railways carried more than 20 million passengers on Wednesday alone, state media reported.

The number of trips taken during the first quarter was up almost 17 percent from a year earlier, according to state broadcaster CCTV.

A three-day public holiday during April was the first-time average spending per trip rose beyond 2019 levels. By that measure, spending was up then just over 1%.

Some companies have shifted to try to appeal to consumers watching their spending as they watch the road.

Yum China, the operator of KFC in China, said this week 30% of its new stores would be in lower-tier cities or roadside locations like highway rest stops.

Same-store sales at those locations were up 20% during Lunar New Year in February, Yum China chief executive officer Joey Wat said.

“They’re key to capturing the spike in travel volume during holidays,” she said. — Reuters

TOKYO — Corporate Japan is starting to wonder if the weak yen has become too much of a good thing. 

The currency fell to a 34-year low on Monday and has lost about a quarter of its value against the surging U.S. dollar in a little more than two years. 

Typically, a weak yen is seen as a boon for Japan Inc, as it makes cars and other goods cheaper overseas and lifts profits when earnings from abroad are brought home. 

But it has also pushed up costs of raw materials, food and fuel, battering sectors from farmers who import fertilizers to small manufacturers which rely on parts from China. 

The biggest squeeze has been for households, which for years have seen little wage growth. Their plight — and that of Japan’s legions of struggling small businesses — may say more about the state of the country’s still-limping economy than the windfall for exporters such as Toyota Motor or the stock market’s climb to a record high. 

Smaller firms employ seven out of 10 workers in Japan, and have less ability to pass on rising costs by raising their selling prices in a competitive market. 

“The yen is a little too weak,” the chairman of the powerful Keidanren business lobby, Masakazu Tokura, told a regular press conference last week, days before Monday’s sell-off briefly pushed the currency past 160 to the dollar. 

Current currency levels beyond 150 to the dollar did not represent the “true strength of Japan’s economy” he said. 

Japanese authorities likely intervened in the market to put a floor under the yen on Monday, traders said, a supposition borne out by Bank of Japan data a day later, but it is expected to remain weak as long as the U.S. Federal Reserve keeps interest rates high. 

The yen was around 157.91 to the dollar on Wednesday. 

A more “comfortable” level would be 125 to the dollar, Koji Shibata, the head of ANA Holdings, which runs Japan’s top airline, recently told reporters. 

While airlines enjoy a surge of inbound tourists drawn by the weak yen, more Japanese now baulk at going abroad. 

“The currency is handicap for those who want to travel overseas. The higher costs abroad are a big turn-off,” Shibata said. 

Rival Japan Airlines may need to raise prices, mainly on international routes, if surcharges and currency hedging aren’t enough to offset escalating fuel costs that stem from a weaker yen, President Mitsuko Tottori recently told a media roundtable. 

An exchange rate of around 130 to the dollar would be better for the airline, she said.  

‘NO MERIT’
If seen as a proxy for the strength of the broader economy, then the yen presents a worrying view, a point that’s repeatedly made by Tadashi Yanai, Japan’s richest man and the founder of Fast Retailing, the parent company of the Uniqlo clothing chain. 

Yanai has said the weak yen has “no merit” for a country that imports raw materials from all over the world, and processes and adds value to them before selling. 

He has stuck to that stance even as the currency has boosted Uniqlo’s overseas earnings. The retailer has a substantial overseas business, with China its biggest foreign market. 

Excessive weakening in the yen could have an impact on the Japanese economy, Tokyo Gas Chief Financial Officer Taku Minami told a press conference last week. 

That in turn could have an effect on the utility’s business, he said. 

Managers also say that regardless of the boost to profits, the currency’s volatility makes it more difficult to plans for the future. 

“Depreciation does provide some benefit for us to be candid, but longer term it does increase the instability in our supply chain, in the business environment itself,” Eric Johnson, the chief executive of chip materials maker JSR told a press conference on Tuesday. 

“As most business leaders, I think what’s most important is we look for stability and predictability.” 

CONSERVATIVE FORECASTS
Japanese automakers have long been known for sticking to conservative currency forecasts.  

“Given the unpredictability of forex rates, there is a natural tendency to want to avoid being overly bullish in forecasts, and be embarrassed later,” said Christopher Richter, senior Japan autos analyst at brokerage CLSA. 

“If you go back historically, this is almost always the way.” 

Toyota had estimated a rate of 143 yen to the dollar in the financial year just ended. It is due to release full-year earnings next week. 

Since a 1-yen change against the dollar means a difference of 50 billion yen ($317 million) in profit for Toyota, taking a conservative view is more prudent, said Koji Endo, head of equity research at SBI Securities, adding that most automakers have set their forecasts at around 140-145 yen to the dollar. 

For years Japanese manufacturers have been building up overseas operations, which has helped offset some of the yen’s impact. 

The weak yen is unlikely to dissuade automakers from investing more in overseas markets, Endo said. 

“It is not the currency rate, but changes in another country’s regulations, or political situation, that may cause a change” in investment, he said. 

“The exchange rate has little to do with it.” — Reuters