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Grocery sales rise as fast food prices increase

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Getty Images (L) | Reuters (R)

Forget the drive-thru. Walmart wants diners to find a value meal in its grocery aisles.

As fast food gets pricier, the nation’s largest grocer sees a sales opportunity.

On a call with CNBC on Thursday, Walmart Chief Financial Officer John David Rainey said some of the discounter’s sales growth in the recent quarter came from customers who turned to its grocery aisles for cheaper meals than they can get at quick-service restaurants.

“It’s roughly 4.3 times more expensive to eat out than it is to eat at home,” he said. “And that’s benefiting our business.”

As customers see some grocery items stay the same price or even become cheaper, the gap between buying menu items and cooking food at home has grown even wider, he said.

Walmart’s stock soared to an all-time high Thursday, after it beat Wall Street’s quarterly sales and revenue expectations and said it expected its full-year results to be on the high end of, or better than, its previous forecast. Transactions in the U.S. rose 3.8%, as more customers visited its stores and website.

Walmart’s strong store traffic and quarterly results are at odds with those of restaurant companies, including McDonald’s, Starbucks and Yum Brands. Foot traffic to limited-service chains, which includes fast-food and fast-casual restaurants, fell 3.5% in the first quarter, according to Revenue Management Solutions. Restaurant executives blamed bad weather in January and February — and a consumer slowdown, particularly among lower-income diners.

Like many restaurants, McDonald’s has faced backlash to its prices. An $18 Big Mac combo sold at one of its franchised restaurants in Connecticut went viral on social media, prompting executives to defend the chain’s pricing on its conference call. The burger giant reported disappointing U.S. same-store sales growth of 2.5%, suggesting that its foot traffic fell during the quarter.

Still, McDonald’s CEO Chris Kempczinski said consumers, particularly those earning lower incomes, are hunting for deals. The chain will offer a $5 value meal starting June 25 for roughly a month.

Not all restaurants have had trouble getting diners to pay higher prices: fast-casual chains such as Chipotle, Wingstop and Sweetgreen all reported strong sales in their most recent quarters.

Inflation data from the U.S. Labor Department reflects the difference between the price that customers pay for food they cook at home or pack for lunch, compared with what they pay at a coffee shop or restaurant. As of April, the price of food at home, a category that measures the total cost of food purchased at grocers or other food stores, was up 1.1% year over year. The price of food away from home rose significantly more: 4.1% year over year.

On the company’s earnings call Thursday, Walmart U.S. CEO John Furner pointed to a newer tool in Walmart’s arsenal that it can use to compete more aggressively with restaurants: its new grocery brand, Bettergoods.

The premium line includes unique flavors and merchandise tailored for more health-conscious customers or ones with a special diet, such as gluten-free or plant-based items. For example, it includes strawberries and cream-flavored Greek yogurt, curry chicken empanadas, restaurant-style chicken wings and salted caramel oat milk ice cream.

Seventy percent of the brand’s items are under $5, Furner said — a price point that may catch the eye of shoppers “trying to feed a family of four, five, [or] six.”

— CNBC’s Amelia Lucas contributed to this report.





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