Consumer spending becoming more selective with rising prices and interest rates

From CNBC: 2024-05-20 07:30:01

Consumers are becoming more selective with their spending as elevated prices and interest rates persist. Companies like McDonald’s, Starbucks, and Home Depot have seen weaker results due to customers pulling back on spending, while Sweetgreen and Delta Air Lines reported growth. Stabilizing commodity prices may lead to a return to pre-pandemic pricing strategies, but consumers are feeling the pinch with rising costs and high inflation.

Cautious consumers are changing their spending habits, avoiding restaurants and non-essential travel due to high prices. Lower-income consumers are particularly stretched, facing challenges with rising rent prices and higher costs for essentials. Companies like Walmart are focusing on grocery sales, as customers prioritize food and health-related items over general merchandise. Walmart’s grocery business has benefitted from the cost difference between eating out and cooking at home.

Despite shifts in consumer spending habits, some companies are seeing strong demand. Airlines like Delta and United have experienced growth, benefitting from a rebound in international travel post-pandemic. Similarly, fast-casual restaurant chains like Chipotle have attracted customers with deeper pockets and maintained sales growth. High-income consumers have continued to spend on experiences, contributing to record travel demand for airlines and higher-priced seating options.

Exceptions to the trend include companies like Lululemon and Starbucks, which have seen disappointing sales despite catering to higher-income customers. Factors like product shortages and evolving consumer preferences have impacted sales for some companies. Peloton also reported disappointing results, leading to executive changes and staff layoffs due to declining sales.



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