Tracking The Trends In Troubled Economic Times
Wednesday, July 23, 2008PAUL KANGAS: With the sagging economy, fuel is not the only thing Americans are cutting back on. It looks like filet mignon is out and Big Macs are in. As a sign of that, McDonald's posted better-than-expected second-quarter results today on strength in its Value Menu. The combination of high gas prices and slumping home prices economy is forcing consumers to trade down on everything from food to transportation. As Diane Eastabrook reports, the trend is making winners of companies capitalizing on value.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: At Subway stores the $5 foot-long sub sandwich is a marketing masterpiece.
UNIDENTIFIED MALE: You want everything, sir?
EASTABROOK: Since the fast-food chain rolled out the promotion earlier this year, franchisee Tim Ryan says customers have been streaming into his stores. He estimates sales at his 10 Subway shops in the Chicago area are up 25 percent this year over last.
TIM RYAN, SUBWAY FRANCHISEE: We are getting people trading down from your Panera Bread, your Corner Bakery. I don't think people are willing to spend $10, $14 for lunch anymore. And people are just looking for a deal.
EASTABROOK: At a time when home values are falling and fuel prices are rising, cost is key with many American consumers. At this Harley-Davidson store, where motorcycles sport price tags as high as $25,000, the Sportster line is turning out to be the top seller. Sportsters are priced below $10,000. At Honda, the automaker's most economically priced cars enjoyed their strongest sales month ever in June. Sales of the Fit, priced at around $15,000, doubled last month from the same time last year. While sales of the Civic-- priced at just under $20,000 were up 23 percent. Some retailers say bargains are bolstering their businesses.
STEPHEN REDENBOUGH, WINE CONSULTANT, BINNY'S BEVERAGE DEPOT: Stuff up here from Spain. One of your best places now for wine bargains.
EASTABROOK: Stephen Redenbough, wine consultant for Binny's Beverage Depot in Chicago, says even persnickety wine lovers are turning up their noses at expensive wine. He sees many customers passing up $40 California cabernets for $15 varietals from Spain, South Africa, or whatever is on special.
REDENBOUGH: We're still getting the people through here and lots and lots of shopping carts full of wine, but it's the wines that are on sale. Anytime you put a sale sign up, now the stuff just flies off the shelf.
EASTABROOK: Mesirow Financial chief economist Diane Swonk thinks this trading down phenomenon is good for the U.S. economy because it could help moderate inflation.
DIANE SWONG, MESIROW FINANCIAL, CHIEF ECONOMIST: It is changing the behaviors of retailers, of producers and of consumers. And the reaction function is the most important thing because it is the only thing that ultimately will get some of these prices that are way out of whack to come back down again.
EASTABROOK: Swonk thinks once incomes and credit markets stabilize, consumers will return to freer spending ways. But she admits that may be a while. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
