Consumer costs outlook: Budget-friendly consumers select rooster

To cut back on spending, some consumers are increasingly buying chicken over beef. Retail sales volumes for chicken products were up 3% for the 52 weeks ending April 21, the Wall Street Journal reported, citing data from market research firm Circana. Donnie King, the CEO of one of the world’s largest food companies, Tyson Foods, said in the company’s second quarter earnings call that sales of its chicken products offset weakening sales in the beef category. Despite a decrease in year-over-year sales for the second quarter, Tyson’s chicken business brought in $158 million for the quarter. In the same quarter last year the company recorded a $258 million loss. 

While King said better operational efficiency and lower grain prices increased chicken profitability, he added in an interview with the Wall Street Journal that changes in consumer preferences have helped. 

“The consumer, they’re just being more discerning today than they’ve been in some time,” King told the Wall Street Journal in an interview. “Demand there for chicken is very strong, some of that perhaps coming from beef consumers.”

People aren’t only choosing poultry at home. Chicken-based fast food restaurants, including WingStop, have seen increased sales as consumer preferences change. The restaurant chain, which specializes in chicken wings, saw a 21.6% jump in same-store sales for the first quarter. It also added 65 new restaurants.

Conversely, in the last quarter of 2023, McDonald’s missed earnings expectations for the first time in four years. CEO Chris Kempczinski said on the company’s earnings call in February that it was focusing more on affordability. “The battleground is certainly with that low-income consumer,” he said on the call.

Persistent inflation has increased the cost of pretty much everything and going out to eat is one of the extras people are opting out of to save. In 2023, eating at a fine dining restaurant set customers back $47.73 on average compared to $41.18 in 2019, a 16% increase. At fast- food restaurants, the average meal cost $7.63 in 2023, up from $5.93 in 2019, a whopping 29% jump for those already seeking out value meals and combos. MarketWatch reported the data, citing figures from Circana.

The increase in prices for “food away from home,” or restaurant food, has also outpaced grocery prices by about 3 percentage points compared to a year ago as of March, according to the Bureau of Labor Statistics. The elevated prices have already weighed on restaurants, marking a shift in their customer demographics.

Rick Cardenas, the CEO of Olive Garden and Longhorn Steakhouse owner Darden Restaurants, said on a March earnings call that transactions from people in households making more than $150,000 increased year-over-year, while lower-income customers pulled back. The trend was most pronounced at its fine-dining brands, he added.

“We’re clearly seeing consumer behavior shifts,” Cardenas said on the call.

Darden Restaurants’ findings are consistent with Circana’s national data. In the first quarter of the year, visits to restaurants increased 1% compared to a year prior, the company reported, but shifted from full service, sit-down restaurants to less expensive options like quick-service restaurants.

“Consumers need to eat no matter what and will adapt to higher food costs by finding lower cost options or cutting back on discretionary spending, and that’s what we’re seeing play out now,” said Darren Seifer, a food & beverage industry analyst at Circana in a statement.