McDonald's and Uber Show a Consumer Who's Spending Carefully, Not Stopping

Two of the most widely used consumer businesses in the world reported results before Wednesday’s open. Neither was dramatic, which in a sense is the story. Together they describe a consumer under pressure from high prices and expensive fuel, adjusting how they spend rather than pulling back sharply.

McDonald’s: fewer visits, bigger orders

According to the company’s release, McDonald’s US same-store sales fell 0.2% in the third quarter. That was better than many analysts had feared. Globally, same-store sales rose 1.5%, and systemwide sales rose about 4% to more than $38 billion. Adjusted earnings per share of $3.57 beat expectations, and the board raised the quarterly dividend by 4% to $1.93, its 50th consecutive annual increase.

The number underneath matters more. Visits to McDonald’s US restaurants were down about 4.6% from a year earlier, according to foot-traffic data from Placer.ai cited by Reuters. Sales held up because customers who did come in spent more per order.

That pattern, fewer transactions but larger tickets, often appears when lower-income customers cut back while others keep spending. McDonald’s has been fighting it with value meals and promotions, and management said US results improved as the quarter went on. But a company that depends on frequent, inexpensive visits can’t rely on higher prices forever.

The stock rose about 3% before the open. Investors seemed relieved the US number wasn’t worse, and the dividend increase was a reminder of why many income investors own the stock.

Uber: growing, but feeling fuel costs

Uber’s results, in its release, were solid on the surface:

• Gross bookings, the total value of rides and deliveries, rose 20% to $59.8 billion.
• Trips rose 16% to 4.1 billion.
• Adjusted earnings per share rose 35% to $0.88.

Demand isn’t the problem. Supply is. Uber said it faced driver shortages in some international markets, partly because of higher fuel costs. When gasoline is expensive, driving for Uber pays less after expenses, and fewer drivers sign on. That means longer waits and higher prices for riders, which can hold back growth.

The shares swung between small gains and losses before the open. Some reports said Uber’s profit forecast fell short of expectations, citing driver shortages, higher fuel costs and the Middle East conflict. It’s a good example of how the oil shock reaches businesses that don’t buy oil directly: through the costs of the people who work for them.

What the two reports say together

Neither company suggests consumers have stopped spending. Uber’s trips are growing at double-digit rates, and McDonald’s global sales are rising. But both show strain at the edges:

• Price sensitivity is high. Customers are visiting less often, trading down, and responding to deals.
• Energy costs are spreading. Fuel prices affect gig workers, delivery costs and, eventually, menu prices.
• Averages hide the split. Households with savings and rising asset values are still spending. Those living paycheque to paycheque are cutting back. Company averages blend the two.

This matters for the bigger economic picture. Consumer spending drives most of the US economy, and the Federal Reserve is weighing another rate increase to cool inflation. A consumer who’s slowing gradually, rather than collapsing, is what the Fed hopes to see. Friday’s jobs report will show whether the labour market, which ultimately pays for all this spending, is holding up too. ADP’s private payroll estimate this morning showed a modest gain of 86,000 jobs in October.

For Canadian readers, the same pattern is visible north of the border, where high grocery and fuel prices have pushed many households toward discount stores and value menus. It’s a reminder that “the consumer” is really many consumers, and that their experiences are diverging.