Consumers Pull Back Spending, From Luxury Goods to Convenience Stores

Summary

WSJ What’s News: Consumers Pull Back Spending, From Luxury Goods to Convenience Stores

Episode Release Date: March 13, 2025

Introduction

In this episode of WSJ What’s News, hosted by Alex Osila, The Wall Street Journal delves into the evolving landscape of consumer spending. Amid geopolitical tensions, economic uncertainties, and shifting market dynamics, American consumers across income levels are tightening their belts, impacting everything from luxury goods to everyday convenience store purchases. This comprehensive summary captures the key discussions, insights, and conclusions drawn during the episode.

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Geopolitical Tensions and Economic Policies

The episode opens with significant geopolitical updates that set the backdrop for current economic conditions:

• Ukraine Conflict: Russian President Vladimir Putin has declined a U.S.-backed proposal for an immediate ceasefire in Ukraine. Putin stated that "Russia wouldn't agree to an immediate end to the fighting in Ukraine" ([00:54]). This stance comes as Moscow's forces make rapid advancements in the Kursk region. Putin emphasized the need for a truce leading to "a lasting peace and the elimination of the root causes of the war" ([00:54]).

• U.S.-EU Trade War Escalation: President Trump announced a new tariff of 200% on U.S. imports of wine, champagne, and other alcoholic beverages from the European Union, retaliating against the EU’s 50% levy on American whiskey. This tit-for-tat escalation is part of a broader trade war, with existing 25% steel and aluminum tariffs already in place ([00:54]). Trump highlighted that these measures could target over $10 billion worth of European exports to the U.S., significantly affecting European drinks companies ([00:54]).

Labor Market and Inflation Indicators

Economic indicators further contribute to the climate of uncertainty:

• Wholesale Prices and Inflation: Recent data from the Labor Department revealed that wholesale prices remained steady last month. However, a revision showed that producer prices increased by 0.6% in January, higher than the initially estimated 0.4% ([00:48]). Notably, egg prices surged by over 53% in February, contributing to a 0.3% rise in overall goods prices, while service prices saw a 0.2% decline ([00:48]).

• Stock Market Reaction: In response to new tariff threats and mixed inflation signals, U.S. stocks declined, with the S&P 500 dropping approximately 1.4%, entering correction territory for the first time since October 2023 ([00:48]). The Dow and Nasdaq also closed lower by about 1.3% and 2%, respectively ([00:48]). This downturn reflects investor anxiety over a looming trade war, persistent inflation, and recession fears ([00:48]).

Consumer Spending Trends

The core focus of the episode revolves around the contraction in consumer spending across various sectors:

• Broad-Based Pullback: American consumers are scaling back expenditures irrespective of their income levels, affecting both essential and non-essential purchases. Executives from major retailers like Walmart, McDonald's, Dollar General, Kohl's, Macy's, and Costco have reported cautious spending behaviors among consumers ([00:48]).

  • Low-Income Consumers: As expressed by executives from Walmart, McDonald's, and Dollar General, there is a noticeable restraint in spending beyond essential items. These consumers are prioritizing necessities over discretionary purchases ([00:48]).

  • High-Income Consumers: Even affluent shoppers are reducing discretionary spending. Macy's CEO noted that affluent customers are "just as uncertain and confused by what's happening," leading to decreased patronage at higher-end retailers like Kohl's ([00:48]).

  • Shift in Product Demand: Costco has observed a shift towards lower-cost proteins such as ground beef and poultry, indicating a preference for more affordable food options ([00:48]).

Impact on Convenience Stores and Snack Companies

A significant area of concern highlighted in the episode is the decline in sales at convenience stores, which has a ripple effect on snack companies:

• Decline in Sales Volume: According to market research firm Circana, U.S. convenience store sales volume fell by over 4% in the year ending February 2023 ([00:48]). This decline is critical for snack companies that rely heavily on these outlets for distribution.

• Expert Insights:

  • Brian Gormley, WSJ Reporter: At [04:55], Gormley explains, "Consumers are definitely buying fewer snacks... Food prices have been going up for years now, and obviously we all know this is a lot of what convenience stores sell." He emphasizes that reduced spending in convenience stores poses a significant challenge for food companies.

  • Impact on Specific Brands: Hostess, maker of Twinkies, derives about 40% of its sales from convenience stores. Gormley notes, “When you're that heavily dependent on convenience stores for sales, any downturn in convenience stores is going to really hit you” ([05:57]).

• Strategic Responses:

  • New Product Launches: To attract consumers, companies are introducing innovative products. PepsiCo is developing mini meals like Doritos loaded with warm nacho cheese sauce, and Smucker, owner of Hostess, launched a limited edition cherry-flavored Twinkie with Slurpee ([05:59]).

  • Pricing Strategies: Tobacco companies are releasing more affordable cigarettes to appeal to budget-conscious consumers ([05:59]).

Potential Medicaid Cuts and Implications for Startups

Shifting focus to healthcare, the episode discusses the potential ramifications of Medicaid cuts:

• Legislative Threats: Congress is deliberating budget cuts to Medicaid, a program primarily serving low-income Americans. Such cuts could strain state budgets and the broader healthcare system ([07:58]).

• Impact on Startups:

  • Opportunities: Startups offering technologies that help healthcare providers and insurers reduce costs could see increased demand. For instance, companies utilizing artificial intelligence to automate administrative tasks might thrive as Medicaid seeks cost-saving measures ([08:49]).

  • Challenges: Conversely, startups with services that require longer returns on investment may struggle in an environment of reduced funding. These companies might need to adapt creatively to sustain operations ([09:27]).

  • Investment Climate: Venture capitalists remain interested in Medicaid-serving companies but are exercising more caution. They are conducting deeper evaluations to ensure that investments can withstand tighter Medicaid funding ([09:55]).

Political Developments and Federal Workforce Changes

The episode also touches on notable political shifts and their implications:

• CDC Nominee Withdrawal: The White House has withdrawn President Trump’s nominee to lead the Centers for Disease Control and Prevention. Senate feedback indicated that Dr. Dave Weldon lacked sufficient support for confirmation ([10:33]).

• Federal Workforce Reinstatements: A federal judge in California has ordered six federal agencies to reinstate thousands of probationary employees who were unlawfully terminated. This ruling impacts the Departments of Agriculture, Energy, Interior, Treasury, Defense, and Veterans Affairs ([10:33]).

• Elon Musk’s NSA Visit: Elon Musk's first known visit to the National Security Agency focused on staff reductions and operational matters. Officials described the conversation as "positive" ([10:33]).

  • Tim Higgins, WSJ Columnist: Higgins reflects on Musk's relationship with Trump, noting their ongoing public support for each other. He points out the irony of Trump promoting Tesla vehicles on the White House lawn despite previously opposing electric vehicles during the campaign ([11:59]).

Cultural Insights: Makeup as a Political Statement

In a lighter yet socially relevant segment, the discussion shifts to the intersection of personal appearance and politics:

• Social Media Criticism: Both Republican Representative Nancy Mace and Democratic Representative Rosa DeLauro faced online criticism for their makeup choices. Republicans criticized heavy foundation and overfilled eyebrows, while conservatives accused liberals of using "clumsy, clownish makeup" with bright hair dyes and neon lipstick ([12:27]).

• Expert Opinion: Professional makeup artists argue that makeup styles among liberal and conservative women are not as polarized as online discourse suggests, indicating that personal appearance should not be a political battleground ([12:27]).

Conclusion

This episode of WSJ What’s News provides a multifaceted analysis of the current economic and political climate influencing consumer behavior. From declining convenience store sales affecting snack companies to potential Medicaid cuts reshaping the healthcare startup ecosystem, the discussions underscore the interconnectedness of global events, economic policies, and everyday consumer decisions. Additionally, the episode highlights the nuanced ways personal and political identities intersect in social spheres. As consumers navigate these turbulent times, businesses and policymakers alike must adapt to the shifting landscape to foster resilience and growth.

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Produced by Pierre Bienname and Anthony Banci, with supervising producer Michael Kosmides. For more updates, tune in to WSJ What’s News daily.

Transcript

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[Alex Osila]

Vladimir Putin rejects a proposal for immediate ceasefire in Ukraine Plus a federal judge says the Trump administration must reinstate thousands of federal workers and possible cuts to Medicaid put startups and their backers at a crossroads.

[Jesse Newman]

Investors will continue to show interest, but will be a little bit more circumspect about making new investments in this area.

[Alex Osila]

It's Thursday, March 13th. I'm Alex Osila for the Wall Street Journal. This is the PM edition of what's News, the top headline and business stories that move the world today. Russian President Vladimir Putin said today that Russia wouldn't agree to an immediate end to the fighting in Ukraine as Moscow's army made rapid gains towards expelling Ukraine's forces from its Kursk region. He said that any pause in fighting at this point would be in Ukraine's interest and added that Russia wanted a truce that led, quote, to a lasting peace and the elimination of the root causes of the war, which he described as a crisis. Putin's comments were Moscow's first official response to a U S backed proposal, which Ukraine agreed to this week, that would pause the war for 30 days. The comments came as, according to U.S. officials, President Trump's special envoy, Steve Witkoff, was headed to Moscow to discuss the ceasefire proposal. President Trump announced another salvo in a fast escalating trade war with the European Union, saying he would impose a 200% tariff on US imports of wine, champagne and other alcoholic beverages from the 27 nation bloc. In a post on his Truth Social platform today, Trump said the tariff threat came in response to the EU's decision to impose a 50% levy on American whiskey, itself a response to 25% steel and aluminum tariffs that Trump imposed this week. The tit for tat over alcoholic beverages, which pushed down shares in European drinks companies, could target more than $10 billion worth of European exports to the US depending how broadly Trump imposes tariffs. Meanwhile, Labor Department data out today showed that wholesale prices held steady last month, but the department said that a data revision meant that prices charged by producers rose by more than initially estimated in January. The January increase was 0.6%, not the 0.4% previously estimated. The prices charged for eggs, however, jumped by more than 53% in February, fueling a 0.3% increase in prices charged for goods overall, balanced by a point 2% decline in prices charged for services. To investors, the producer price figures are most important as data that feed into the Federal Reserve's preferred gauge of inflation, the Personal Consumption expenditures price index. U.S. stocks slid today as investors remained on edge over new tariff threats and mixed signals on inflation. The S&P 500 fell about 1.4%, entering correction territory as it fell more than 10% from its record high on February 19. It's the index's first correction since October 2023. The Dow and the Nasdaq also closed lower, falling about 1.3% and 2% respectively. Between a looming trade war, stubborn inflation and recession fears, American consumers have had a lot to worry about this year and it's affecting their spending no matter their income level and across necessities and luxuries all at once. Take low income consumers. Recent comments from executives at Walmart, McDonald's and Dollar General indicate that they're being careful about what they're spending, especially on things beyond essentials. Meanwhile, higher income shoppers have less discretionary spending to use at retailers like Kohl's. Macy's CEO said that affluent customers are just as uncertain and confused by what's happening. And Costco, where customers pay a membership fee, said last week that demand has shifted towards lower cost proteins such as ground beef and poultry. Another place where budget tightening is playing out? Convenience stores, where consumers often pick up snack foods and cigarettes. According to market research firm Circana US convenience store sales volume fell by more than 4% in the year ended February 23, and that could have an impact on snack companies bottom line. Jesse Newman covers food and agriculture for the Journal. So Jesse, spell it out for us. Why exactly are consumers spending less on snacks?

[Brian Gormley]

Consumers are definitely buying fewer snacks. That's a trend that we've been seeing for a little while and some people will tell you it's the economy. Stupid folks are just really guarding their purse strings very carefully. Food prices have been going up for years now, and obviously we all know this is a lot of what convenience stores sell. And so when shoppers start pulling back at convenience stores, that can be a big challenge for food companies.

[Alex Osila]

How important are these convenience store purchases for the snack companies?

[Brian Gormley]

In some cases, it's really important. You think about Hostess, which makes Twinkies, and convenience stores are really, really important for them. Convenience stores make up about 40% of hostess sales. And when you've got people passing up the snack aisle and passing up the Twinkie aisle, that's a really big deal for your brand. Now, I will say that for Hostess in particular, convenience stores really aren't their only problem. But when you're that heavily dependent on convenience stores for sales, any downturn in convenience stores is going to really hit you.

[Alex Osila]

So what are they doing about this?

[Brian Gormley]

They're all trying to figure out how to appeal to convenience store customers. One of the big things that we see a number of companies doing is new product launches. So PepsiCo, they're developing these sort of mini meals which are Doritos loaded with a warm nacho cheese sauce. Smucker, which owns Hostess, last summer they launched a limited edition cherry flavored Twinkie with Slurpee. And you've even got the tobacco companies who are rolling out new, more affordable cigarettes. So they're really trying to appeal to consumers with new products and better prices.

[Alex Osila]

That was WSJ reporter Jesse Newman. Thank you, Jesse.

[Brian Gormley]

Thanks so much.

[Alex Osila]

Coming up, what could possible cuts to Medicaid mean for startups? That's after the break.

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[Alex Osila]

Congress is working on a budget and cuts to Medicaid are on the table. The program is mainly for low income Americans, but deep cuts could affect state budgets and healthcare more broadly. What questions do you have? Send a voice memo to wnpodsj.com or leave a voicemail with your name and location at 212 416-4328. We might use it on the show. Those potential cuts to Medicaid could have an impact on the millions of Americans that rely on it, but also on the dozens of venture backed startups created to improve care for those patients. Now those startups are at a crossroads, putting them in a position to benefit or potentially suffer from the shift in funding. Brian Gormley covers venture capital and health care for the Wall Street Journal. Brian, you write that this could be a big moment for these health care startups. How could they potentially benefit?

[Jesse Newman]

Companies that have technology that enable healthcare providers or health insurers to quickly reduce costs could benefit because their services or technology could be even more in demand. In an environment in which funding is being taken out of the Medicaid program, especially on the administrative side, where artificial intelligence could be used to automate tasks that humans have had to do by and large companies are working with health insurers, healthcare providers who are in turn serving patients.

[Alex Osila]

So those are the companies that could stand to benefit from this shift. What about the companies that could potentially suffer?

[Jesse Newman]

Companies that have a service or technology that takes a while to deliver a return on investment might have a harder time in an environment where less funding is available to Medicaid. And that's where you might see companies have to be creative about how to adapt to a new situation in which funding is tighter in Medicaid, would you.

[Alex Osila]

Expect a lot more capital to be poured into certain kinds of companies?

[Jesse Newman]

Venture capitalists will continue to be interested in companies that serve Medicaid, but they might take more time to make decisions about where to invest. They might take a deeper look into whether a company's model would thrive in an environment where there is less funding and whether their services would be something that would be more or less in demand. Investors will continue to show interest, but will be a little bit more circumspect about making new investments in this area.

[Alex Osila]

That was WSJ reporter Brian Gormley. Thank you, Brian.

[Jesse Newman]

Thank you.

[Alex Osila]

The White House has withdrawn President Trump's nominee to lead the Centers for Disease Control and Prevention. A Republican familiar with the discussions said that senators told the Trump administration that Dr. Dave Weldon didn't have the votes to be confirmed. It was a rare change in the president's plans to fill top roles with candidates who have mostly won approval. And in another blow to the Trump administration's efforts to rapidly scale back the size of the federal workforce, a federal judge has ordered six federal agencies to reinstate thousands of probationary employees who were fired last month. A US District judge in California said today that probationary workers from the Departments of Agriculture, Energy, Interior, Treasury, Defense and Veterans affairs had been unlawfully fired. The order didn't extend to other agencies affected by the firings, though the judge didn't rule out potentially expanding that in the future. The Justice Department said that the decision to terminate the workers had been lawfully made by each agency's leadership. Current and former U.S. officials said that Elon Musk visited the National Security Agency yesterday. The discussion with the nsa, Musk's first known visit to an intelligence agency centered on staff reductions and operations, officials said, with one describing it as a, quote, positive conversation. WSJ columnist Tim Higgins is looking at Musk's first 100 days in the Trump White House and spoke to our Tech News Briefing podcast about how Musk and Trump are getting along.

[Tim Higgins]

The biggest question since the election was how long would Trump and Musk kind of stay close? And time and time again, we continue to see them making these public displays of affection. And this past week was no different, Trump hosting Musk on the White House lawn to essentially hawk Tesla vehicles. Which was odd, if you will, because the campaign season Trump was very much against electric vehicles.

[Alex Osila]

To hear more from Tim, listen to tomorrow's episode of our Tech News Briefing podcast. And finally, can your eyeshadow or foundation signal your personal values on social media? Apparently, the answer is yes, and even Congress isn't immune. Both Republican Representative Nancy Mace and Democratic Representative Rosa DeLauro recently came under fire for their physical appearance. On the one side, there's, quote, Republican makeup characterized by heavy foundation and overfilled eyebrows, and on the other, conservatives say liberals are applying clumsy, clownish makeup and are mocking bright hair dye piercings and neon lipstick. Honestly, to me, a woman being criticized online for her appearance? That's nothing new. But really, are eyeliner and contouring a new political battleground online? Maybe. But several professional makeup artists say they think liberal and conservative women did their makeup pretty much the same way. And that's what's news for this Thursday afternoon. Today's show is produced by Pierre Bienname and Anthony Banci, with supervising producer Michael Kosmides. I'm Alex Osola for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.