Power Returning to the Consumer: A Happy Turn of Events
It’s somewhat of a tradition in our family to grab fast food as we leave for a family road trip. This last month, as we embarked on a trip to Northern Wisconsin, we stopped at McDonald’s so the kids could get a fill of their favorite delicacy, chicken nuggets. If you have been to a McDonald’s, or really any fast food restaurant since 2021, you’ve likely noticed the “value meals” have hardly provided much value as inflation took its toll on just about every aspect of our economy.
It was much to my surprise, then, that when I went to order McDonald’s for my family, not only did I find a coupon for 30% off our entire order, but there was also a $5 value meal that included a cheeseburger, chicken nuggets, fries, and a drink! It was as if we were teleported into the past to a time when a family of five could easily get out of McDonalds for $20 or less. I was happy, the kids were happy, and my wallet was happy. What a great way to start a family vacation.
I share this story as an anecdote to broader trends we’re seeing across the consumer landscape. We’ve all heard stories of value meals increasing in price or being removed completely as restaurants were easily able to pass along the higher costs of food and employment to consumers who, at the time, were flush with cash. No longer is this the case. The return of the value meal is real, and with it comes a sigh of relief from the consumer.
The Shift in Power: From Businesses to Consumers
When it comes to pricing power, especially in an area as commoditized as fast food, consumers have historically held the upper hand. Unless you’re able to differentiate your product, as a business, you’ll struggle to command a premium price from your consumers. Since 2021, this narrative has flipped. Consumers, flush with stimulus cash and easy access to jobs, spent freely and absorbed higher costs with little diligence beyond perhaps paying down their credit cards at a faster clip. This meant businesses no longer needed to entice consumers with deals to get them in through the doors to buy their products.
Throughout 2024, the power has started to shift back to the consumers. One of the easiest ways to visualize this is through the performance of these company’s stocks. Take some of the most well-known consumer brands and compare their performance to the S&P 500’s and you’ll see how their ability to pass along higher costs to the consumer is coming to an end.
To be fair, the S&P 500 is being turbocharged by high-flying technology stocks buoyed by artificial intelligence enthusiasm, making the comparison less applicable. However, the absolute performance of each of these stocks still has a story to tell. Consumers are exhausted by higher prices and their bank accounts no longer feel as full as they once had, causing them to be more cautious with their discretionary purchases. If businesses want to entice consumers back through their doors, they’ll have to do so by adding value through discounts or other means.
Inflation is still higher than we’d like it, though we continue to see it move in the right direction. Pricing power returning to the consumer is one step in the right direction to lower prices, and thus lower inflation. We see this trend continuing throughout the year.
Next time you’re out shopping and need a quick bite to eat or a coffee, don’t forget to check and see if there are any deals available. You may be surprised to see what you find!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted. All investing involves risk including loss of principal. No strategy assures success or protects against loss.
