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Economic Pressure Mounts for Low-Income Consumers, Corporate Giants Warn

Economic Pressure Mounts for Low-Income Consumers, Corporate Giants Warn

Apr 30, 2024

Economic Pressure Mounts for Low-Income Consumers, Corporate Giants Warn

Recent statements from executives at some of America's largest corporations, including McDonald's, Coca-Cola, and 3M, indicate that inflation continues to exert significant pressure on consumers, particularly those in lower-income brackets. Despite a decrease in the rate of inflation from the 40-year high of 9.1% in mid-2022, the consumer price index's annual growth rate of 3.5% in March remains above the Federal Reserve's 2% target. This has led to increased economic strain for consumers as they face higher prices for everyday goods and services.

McDonald's CEO Chris Kempczinski expressed concerns about the global consumer pressures, noting that consumers are becoming more discriminating with their spending. The company's same-store sales growth fell short of expectations, prompting a strategic focus on affordability. Similarly, 3M acknowledged a "continued softness in consumer discretionary spend," and Newell Brands CEO Chris Peterson cited inflation as a major challenge, with the company preparing for a potential decline in revenue.

The food and beverage industry has signaled that poorer consumers are being disproportionately affected by price hikes. McDonald's CFO Ian Borden pointed out that lower-income consumers are cutting back on fast food, and Coca-Cola CFO John Murphy highlighted a shift in consumer behavior as they look for value.

The impact of inflation is also evident in banking, with Citigroup observing a divergence in spending habits between higher and lower-income consumers, a phenomenon CEO Jane Fraser referred to as the "K-shaped economy." Fraser mentioned rising delinquency rates and cautious behavior among lower-income clients.

Nestlé reported a significant sales decline in the U.S., attributed to low-income consumers reducing their spend on frozen goods. Nestlé CFO Anna Manz suggested that the reduction of benefits from the Supplemental Nutrition Assistance Program (SNAP), combined with sustained price increases, has led to a considerable drop in purchasing power.

PepsiCo's experience mirrored these sentiments, with CEO Ramon Laguarta observing that lower-income consumers were "stretched" and adapting their budgets to make ends meet. The company's North American beverages division experienced a 5% fall in sales volumes in the first quarter.

CNBC Article

Financial Times Article


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