Restaurants are competing for frugal diners’ dollars

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Dining out these days might seem like a luxury for Americans pinched by inflation. For some restaurants, it feels like a battle to get them to spend.

Starbucks reported a 3% decline in same-store sales during its latest quarter, marking its first decline since 2020 and a sharp contrast to a 12% gain the prior year. Same-store sales tumbled 11% in China, the coffee chain’s second-biggest market. Starbucks also lowered its full-year sales outlook.

The coffee giant said that customers are spending more cautiously and less frequently, weighing on the company’s top line.

“Many customers have been more exacting about where and how they choose to spend their money, particularly with (pandemic) stimulus savings mostly spent,” said Starbucks CEO Laxman Narasimhan on the company’s earnings call.

That’s in line with what companies have reported over the last several months: Consumers are tightening their purse strings as they grapple with sky-high interest rates, sticky inflation, depletion of pandemic-era savings and an uncertain economic outlook.

Now, companies say they’re stepping up to win customers’ dollars. Starbucks is rolling out sugar-free customization options for drinks, a zero-to-low-calorie energy beverage and new upgrades to its mobile app to both attract new customers and encourage “occasional customers” to order more frequently.

Americans have turned to eating at home to save money in light of rising menu prices. Prices of food consumed at home were unchanged on a monthly basis in the March Consumer Price Index report, while prices away from home gained 0.3% from the prior month.

This shift in consumer behavior to eat more home-cooked meals has shown up in McDonald’s balance sheet. The fast-food chain reported global same-store sales growth of just 1.9% during the first quarter, down from 12.6% growth the year before.

The fast-food chain, which has previously flexed its pricing power with its customer base, acknowledged earlier this year that diners are becoming fed up.

“Everybody’s fighting for fewer consumers or consumers that are certainly visiting less frequently, and we’ve got to make sure we’ve got that street fighting mentality to win irregardless of the context around us,” said Ian Borden, global chief financial officer at McDonald’s, during a call with analysts.

Lower-income customers are also continuing to tighten their budgets. Olive Garden-parent Darden Restaurants saw same-restaurant sales dip during its most recent quarter. The company said that it saw a decrease in sales from households with incomes below $75,000 compared to last year, and every brand in Darden’s portfolio saw a decrease in transactions from households with incomes below $50,000.

“The lower-income consumer does appear to be pulling back,” said Darden Chief Executive Ricardo Cardenas in the company’s earnings call.

Still, higher-income customers appear to continue spending, helping prop up the economy. Darden saw sales from households with incomes above $150,000 climb from the prior year.

American oil tycoon accused of trying to conspire with OPEC to inflate prices

Scott Sheffield, the founder and longtime CEO of a leading American oil producer, attempted to collude with OPEC and its allies to inflate prices, federal regulators alleged on Thursday.

The Federal Trade Commission said Sheffield exchanged hundreds of text messages discussing pricing, production and oil market dynamics with officials at the Organization of the Petroleum Exporting Countries, or OPEC, the cartel led by Saudi Arabia.

Regulators say Sheffield, then the CEO of Pioneer Natural Resources, used WhatsApp conversations, in-person meetings and public statements to try to “align oil production” in the Permian Basin in Texas with that of OPEC and OPEC+, the wider group that includes Russia.

“Mr. Sheffield’s communications were designed to pad Pioneer’s bottom line — as well as those of oil companies in OPEC and OPEC+ member states — at the expense of US households and businesses,” the FTC complaint said.

Unlike with OPEC nations, US oil production is supposed to be decided by the free market, not by coordination among the major players, reports my colleague Matt Egan.

Read more here.

What to expect in Friday’s jobs report

The US job market has been on a roll for the past three years. Some economists even say “it’s as good as it’s ever been,” reports my colleague Alicia Wallace.

That storyline isn’t expected to change Friday when April’s jobs report lands at 8.30 a.m. ET — but it’s possible there might be a slight softening to the strong gains seen in the first quarter.

“The longer interest rates are high, [the more] they put a slow squeeze on the economy,” Julia Pollak, chief economist at employment website ZipRecruiter, told CNN in an interview. “I think we will continue to see that gradual, fairly orderly slowdown in the labor market until [rates] start coming down.”

So far this year, the economy has added, on average, 276,000 jobs per month, Bureau of Labor Statistics data shows. That’s about 25,000 more jobs per month than last year and 111,000 more per month than in 2019.

For Friday’s report, economists are forecasting that employers added 232,500 jobs in April, which would be down from the estimated 303,000 net jobs added in March, according to FactSet consensus estimates. The unemployment rate is expected to stay at 3.8%.

If those expectations hold true, some already historic streaks would grow. It would be the 40th consecutive month of employment expansion (the fifth longest on record) and the 27th month in a row that the nation’s jobless rate held below 4% (matching a 27-month streak from 1967 to 1970).

Read more here.