Noam Chomsky used to say something along the lines of “if you want to know the truth, read the business press because their readers need to know what’s going on.”
He would certainly be interested to hear what the McDonald’s CEO said last week on CNBC. It was a remarkably candid conversation from a company that surely has deep insights into consumer behaviour in the US and around the world.
CEO Chris Kempczinski talked about tghe
“Particularly, with middle- and lower-income consumers, they’re
feeling under a lot of pressure right now. I think there is a lot of
commentary about what’s the state of the economy, how is it doing and
what we see is it’s really kind of a two-tier economy,” Kempczinski
said.
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“If you are upper-income, earning over $100,000, things
are good. Stock markets are near all-time highs, you are feeling quite
confident about things, you are seeing international travel – all those
barometers of upper-income consumers are doing quite well. What we see
with middle and lower-income consumers is actually a different story,”
Traffic for lower-income customers are down double digits he said, noting that people are skipping breakfast.
“It’s that consumer is under a lot of pressure in our industry,
traffic for lower-income consumers is down double digits, and it’s
because people are either choosing to skip a meal – we are seeing
breakfast, people are actually skipping breakfast – or they are choosing
to just eat at home,” Kempczinski said.
He added that the wealthy consumer isn’t feeling it at all and that they’re not trading down.
In terms of the revenue side, he said that franchisees were probably 10% off all-time cashflow highs.
That’s some remarkably good insight that is certainly actionable as an investor. You want to stay away from businesses that are sensitive to the low-and-middle income cohort right now and gravitate to the high end. That starts with luxury brands but extends to travel, premium travel, business flying and companies with pricing power.
You can try to bar-bell that with dollar stores but I think that’s risky given the potential cuts to entitlements and food stamps.
