Big Food, small appetites

You know something is wrong when Americans are passing up their beloved Big Macs and late-night Taco Bell runs.

Earnings from three of America’s biggest food companies this week suggest that even the country’s most familiar comfort foods are losing some of their appeal:

• McDonald’s: The fast-food giant missed revenue expectations but beat earnings estimates. US same-store sales fell 0.2% last quarter, slightly worse than the 0.1% decline analysts expected, as fewer customers visited its restaurants. Shares jumped 6.52%.
• Yum! Brands: The parent company of Taco Bell and KFC also missed revenue expectations but beat earnings estimates. Taco Bell’s US same-store sales fell 4%, far worse than the 0.9% decline analysts expected, largely due to the cyclosporiasis outbreak. KFC’s global same-store sales rose 1%, but also missed expectations of 2.1% growth. Shares gained 5.94% today.
• Kraft Heinz: The packaged-food giant beat both revenue and earnings expectations, although North American organic sales fell 3.2% and total revenue declined 2%. Shares rose 3.75%.

Cooking up a comeback

“The consumer’s in a fragile state,” Kraft Heinz CEO Steve Cahillane said on an earnings call. But Wall Street appears more optimistic, as investors reward signs of a turnaround despite sluggish sales. Food giants are pulling out all the stops to win back price-conscious customers, and cheaper prices are just the beginning.

Taco Bell is recruiting celebrities like Olivia Rodrigo and Paris Hilton to drum up excitement in ad spots, while Kraft Heinz is betting on a five-year NFL partnership to keep its brands in shoppers’ carts. McDonald’s, meanwhile, is bringing back app deals and offering free fries and $2 breakfast sandwiches to get customers through the door.

Some of those efforts appear to be paying off. Yum said Taco Bell’s newly acquired customers are spending 5% more and visiting 6% more frequently than the customers it lost, while McDonald’s reported improving US sales in September and October as its value promotions gained traction.

But discounts aren’t always a winning recipe. Kraft Heinz cut prices on Philadelphia cream cheese, prompting competitors to follow suit, only to discover that consumers weren’t buying much more of it. “We’re losing to cottage cheese and other more protein-forward [options],” Cahillane said, as Americans increasingly gravitate toward healthier foods.

Between shrinking budgets and shifting appetites, food giants have a lot on their plates. And for investors, the race is on to see which companies can adapt fastest to an increasingly fickle American palate.—SY