Restaurant sales growth has stalled in America.
McDonald’s, which had previously executed a huge turnaround, saw a slowdown in the most recent quarter. Other chains ranging from Chipotle to Buffalo Wild Wings also reported sales declines.
Sales growth in the American quick-service industry as a whole has almost stalled completely, with sequential growth of just 0.5%.
A recession in the restaurant industry can reflect bigger economic problems ahead, as Business Insider’s Myles Udland previously reported.
Here are four reasons Morgan Stanley analysts say McDonald’s and other restaurants are struggling to revive sales.
1. Economic and political uncertainty.
In a controversial election year, many Americans feel uncertain about what the future holds. Fear over what will happen to the economy under a new president is making them more conservative with their dollars. When people are trying to save money, extras like restaurants are one of the first things they give up.
2. Gap between grocery-store and restaurant prices.
With the advent of private-label products, it’s becoming increasingly cheaper to shop at the grocery store.
McDonald’s CEO Steve Easterbrook says this has led to people eating at home instead of hitting up the drive-thru.
“There is a widening gap between food away from home and food at home, where the commodity decreases are being passed through by the grocers,” Easterbrook said on Tuesday on a call with analysts.”So the food at home, there’s value to be had for families there, whereas eating out, there is a price-inflation environment.”
3. “Deal fatigue.”
The major fast-food chains have all announced tantalising deals this year.
McDonald’s McPick 2 promotion lets customers get two items for $5.
Wendy’s has been offering a “4 for $4” meal that includes a junior bacon cheeseburger, four chicken nuggets, small fries, and a drink, and KFC has a similar offering called the “$5 Fill Up” meal.
Burger King also launched another bundled promotion earlier this year, a “5 for $4” deal.
But while these deals initially got consumers in the door, they are now losing their lustre.
McDonald’s franchisees predicted that once the “gimmick” was around long enough, customers would get bored.
They appear to have been right.
4. Gas prices are going up.
When gas prices plummeted this winter, consumers spent the extra money on fast food.
But now, prices are going back up, and there’s less money to go around.
It appears that this troubling trend in the restaurant industry could be a indicate a greater trend of economic weakness in the future.
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