September 29, 2010

Wealthy Take Bigger Helping of Fast Food

I came across this article and I was shocked at what I read. Consumers are changing the way they eat because of the recession. The behavior of consumers, especially wealthy consumers is changing to meet their needs of a budget constraint during the recession. How? They are eating out at more fast food restaurants. American Express conducted a study and found that “ultra-affluent” consumers (consumers who charge more than $7,000 on their credit cards) increased their fast food purchases by 24% in the second quarter of 2010 compared to the first quarter, and the remaining consumers in the United States increased spending on fast food by 8%. This was shocking to me because I personally do not eat any fast food as a low income college student, and to see these results seemed surreal that wealthy people are increasing their consumption of fast food. The author suggests that, ‘although the economy has shown slow signs of improvement, the wealthy are trying to hold down costs in certain areas.’ Wealthy consumers have a budget constraint in which they are trying to maximize utility. Since the price of fast food is significantly cheaper than fine dining restaurants, the cheap unhealthy food may allow the consumer to eat a higher quantity of food at a lower price; hence more is preferred to less.

Do wealthy consumers think they are actually getting a better value at the drive through with the dollar menu? This is a personal choice by wealthy consumers based on tastes and preferences and from the numbers provided we can assume the answer is yes. Ed Jay, the senior vice president of American Express Business Insights who conducted the study also found that even though wealthy consumers are cutting back in areas such as food, other areas have increased in spending such as air travel, cruises, and other luxury goods. This implies that consumers are faced with a tradeoff and must make a choice on what to spend their income on. For the wealthy, it may be that travel and luxury items are more important than simply eating healthy. Therefore consumers must consider their budget constraint and what purchases they will make in their affordable bundle.

One of the main issues in this article is that the author attributes the reason for spending more on fast food is due to the economy. However, there is no empirical evidence or proof that the economy is determining how people change their eating habits. This is most prevalent in the wealthy sector of consumers because affluent consumers are not spending less at all, as the article shows, in fact most are spending the same amount on their credit cards. They are spending less in some areas such as food and spending more in other areas such as luxury items and vacations. This is simply a tradeoff and a choice made by the consumer, and is not directly explained by the economy. If the reason was indeed the economy, then we would most likely see a decrease in the overall spending of affluent consumers, not just an increase or a decrease in the mentioned areas. Although the state of the economy may influence buyer behavior, there are several other possibilities on why wealthy consumers are eating more fast food, such as having minimal time to cook, shorter lunch hours, and tastes and preferences just to name a few. The author was inconsistent in attributing the changes in affluent consumer spending directly to the economy because there are several other variables to consider, which are most likely more prevalent to explaining those changes in consumer behavior.

1 comment:

Larry Eubanks said...

My economic intuition is that your reference to time is a key factor that was excluded from the analysis offered in the article. Time is not merely something people "spend" on consumption, it is also something they devote to producing for others. I would guess that many "wealthy" find conditions/incentives in a recession to have changed with the result that many choose to see time as more scarce and choose therefore to devote less time every day to lengthy meals. And, this may go with the travel choices, especially since travel prices may offer bargains during a recession, i.e., work more each day but take one or two more vacations a year.

What do you think?