Two Major Fast Food Chains Losing Customers Amid Recession Fears

Amid financial uncertainty, two major fast food chains are losing customers, with Axios dubbing it the McRecession. On May 1, McDonald's posted its quarterly earnings report, followed by Wendy's on May 2. Both brands face rising costs and declining sales, which may signal something greater for the economy. Here's what you need to know about the major fast food chains' disappointing reports.

Same Store Sales Were Down

Same-store sales, or sales at locations open at least a year, reported a 3.6% slump. This signifies the most significant U.S. decline McDonald's has seen since 2020, during the pandemic. Globally, they fell 1%. First-quarter revenue fell 3% to $5.95 billion, short of analysts' forecast of $6.09 billion, and net income fell 3% to $1.86 billion.

Most Income Brackets Cut Back on Fast Food

According to McDonald's Chairman and CEO Chris Kempczinski, lower and middle-income consumers cut back on fast food during January and March, amidst worries about inflation and the economy. The only steady traffic was from those making $100,000 or more.

McDonald's Is Confident It Can "Weather" These Conditions

"We believe McDonald's can weather these difficult conditions better than most," Kempczinski said Thursday in a conference call with investors. "However, we're not immune to the volatility in the industry or the pressures that our consumers are facing."

Wendy's Also Reported a Big Drop

Shares of Wendy's Co. fell toward a five-year low, reporting a drop in a key quarterly sales metric, including a decline in same-restaurant sales. They also reported higher costs for commodity products and worker pay. The stock dropped 1.2% in morning trading, toward the lowest closing price seen since March 23, 2020.

They Believe Adverse Weather and "Weaker-Than-Expected" Consumer Environment Are to Blame

Overall, same-store sales were down 2.1% from last year, the first decline since they were down 5.8% during the second quarter of 2020. In the U.S., same-restaurant sales were down 2.8%, the first drop since Q2 2020. That missed expectations for a 1.3% decline. "This was driven by adverse weather in January and February, coupled with a weaker-than-expected consumer environment throughout the month of March," Chief Executive Kirk Tanner said.

Tariffs Shouldn't Have Much Impact

Tanner doesn't believe tariffs will have much effect on earnings, as Wendy's sources most ingredients where they are sold, including 100% of the beef. "We apply the same sourcing principle in many of our largest international markets. For example, in Canada, we use 100% Canadian beef," Tanner said, according to a FactSet transcript. "This is particularly advantageous in the current environment as tariffs have minimal impact on our supply chain."