New York (CNN) — Conventional wisdom says that American consumers are struggling and they’re hunting for the lowest prices to save money.
But the K-shaped economy is narrowing, and a growing number of Americans have moved up the income ladder. They actually have more money to spend and are being choosy about where they spend it.
With fatter paychecks, customers are rebelling against the chains that serve up shrinkflation and replace workers with broken self-checkout machines and touchscreen kiosks. They want bigger, better burgers at fast food chains, a fun time when they go out to eat and modern stores when they shop.
“People are willing to pay a premium if they feel like they’re getting their money’s worth,” said R.J. Hottovy, head of analytical research at Placer.ai, a company that tracks foot traffic at stores and restaurants. “They don’t want to show they’re trading down.”
Customers’ standards have gone up, and chains have to raise the bar to hold on to them. They constantly have to roll out new products and improved experiences.
Take Target, for example.
The company was a mess for several years. It was missing key products on shelves and had long lines at checkout. Customers were leaving, switching to Walmart’s spruced up stores and improved online delivery.
Target invested roughly $5 billion this year to tidy up stores and add new, buzzy brands to shelves. Those efforts seem to be bringing back customers: Target’s comparable sales, which include both those at stores and online, grew 3.8% during its latest quarter. The company also raised its sales guidance for the year.
“We knew stepping into the year we had real work to do to make sure our experience was consistently elevated,” Target CEO Michael Fiddelke said on a call with reporters Tuesday.
Similar trends are playing out at fast food chains and sit-down restaurants. People are trading up to chains that invest in bigger portions and speedy service. Low prices alone are not enough to get customers through the door.
Lower-income consumers are also becoming choosier. They are less interested in McDonald’s endless value meals for $1 and $2. The company said the deals were not landing, especially as wait times grew. Sales were nearly flat last quarter.
Now, McDonald’s is betting on fancier chicken and airer restaurants to draw back diners. “We’ve got to elevate the taste and quality of the food,” McDonald’s CEO Chris Kempczinski said earlier this month.
Customers are instead craving Burger King. Burger King upped the bun quality on its Whopper and is using creamier mayonnaise, and it’s hiring 60,000 employees to increase staff at restaurants. Sales rose by 8.5% last quarter.
Diners are also trading up to fast-casual chains like Cava and Chipotle, which both called out strong growth among lower-end consumers during the latest quarter.
But Chili’s perhaps offers the best clue into what Americans want.
The company has bucked the trend of failing casual dining restaurants. It has advertised not just its low prices, but the better service and bigger chicken sandwiches and burgers that diners get for a similar cost to fast food. Chili’s has posted five consecutive years of sales gains, including 5.6% growth last quarter.
“The American consumer demands experience and great value,” Chili’s CEO Kevin Hochman said last week on an earnings call. “They are showing up for those brands who consistently deliver that.”
The-CNN-Wire
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