Is there a two-tiered American economy? The CEO of McDonald’s thinks so. | Photo courtesy of McDonald’s.
There are two economies right now, or so says the CEO of McDonald’s. In one, consumers with higher incomes are spending plenty. In the other, lower- and middle-income consumers are not.
That has created headaches for the fast-food business. And it has led McDonald’s, the world’s biggest restaurant chain, to escalate a year-long value war.
“It’s really kind-of a two-tier economy,” McDonald’s CEO Chris Kempczinski said this week on CNBC’s “Squawk Box.” “If you’re upper-income, earning over $100,000, things are good. Stock markets are near all-time highs. You’re feeling quite confident about things.
“What we see with middle- and lower-income consumers is actually a different story. It’s that consumer under a lot of pressure in our industry. Traffic for lower-income people is down double digits.”
There certainly is something to that. To wit: Sales are booming at the luxury cruise company Viking Cruises. International travel is up, both compared with last year and compared with 2019.
Meanwhile, we have chains like much of the fast-food sector struggling to get customers in the door.
And Kempczinski isn’t the only one that notes this. Chad Moutray, chief economist for the National Restaurant Association, used the term “two Americas” on my podcast this week.
“There are a lot of Americans who are doing quite well,” he said, referring to many of the same issues. “I go to restaurants where it’s still busy. You still see people who have money are spending it.
“The challenge for restaurants is that lower- and middle-income Americans are largely feeling the pain of having a lot of inflation over the last couple of years.”
At the same time, there traditionally are “two Americas.” Lower- and middle-income Americans have long been among the first to feel the impact of economic weakness, and they are the ones who spend when things suddenly get more flush. Higher-income consumers only feel it if the economy gets really bad, which is what happened in 2008 and then in 2020.
Lower-income consumers cut back on their dining in 2023 and 2024. But now it appears that higher-income consumers may be joining them, at least when it comes to spending at restaurants.
According to Technomic, the percentage of higher-income consumers who say they are visiting restaurants at least once a week is down so far this year compared with 2023—78%, compared with 82%.
By contrast, the percentage of consumers who make under $50,000 per year and who visit restaurants once a week has remained stable, at 58%.
Fast-casual chains with higher price points and higher-income consumers have also felt a slowdown this year. Chains like Chipotle and Wingstop, along with Cava and Sweetgreen, have all seen sales slow or fall outright. Many of those brands don’t necessarily court lower-income consumers.
Neither does Starbucks, which has had sales challenges for the past 18 months.
There is some data to suggest the economy is beginning to falter. Earlier this year, consumer confidence—currently the most important measure of restaurant traffic—fell off a cliff amid White House tariff talk. While it has improved since then, the measure remains well below where it was back in 2023.
Meanwhile, layoffs are coming. So far this year, companies have announced 892,262 job cuts, which is the highest rate year to date since 2020, according to the human resources firm Challenger, Gray & Christmas. That is also up 66% compared with the same time a year ago—it’s also 17% higher than the number of announced layoffs all last year.
There were 75,891 job cuts last month alone. That’s the highest August total since 2020. Outside of that month, you have to go all the way back to 2008 to find an August with more job cuts.
It’s not just traditionally lower-paid jobs such as retail that are laying people off—though plenty of retailers are doing so—but pharmaceutical and financial firms.
Meanwhile, the number of job openings hit a four-year low last month. And there are now more unemployed people than there are job openings—the first time that has happened since 2021. Jobs remain the most important factor in whether consumers spend money at restaurants or not.
There are other, non-economic factors influencing sales right now, too, such as the impact of immigration enforcement on Latino-heavy communities.
Yet the data suggests that the economic malaise that hit lower-income consumers in 2024 may be spreading to higher-income consumers in 2025. McDonald’s may be getting some trade-down from those higher-priced concepts. It’s just not getting enough of it to make up for the loss of lower-income occasions.