‘People are running out of money’: Corporate America sounds alarm on Iran war spending fatigue

Corporate America is sending increasingly mixed signals about the health of the US consumer economy after the Iran conflict triggered a global energy shock, sending fuel prices sharply higher and forcing companies across sectors to rethink pricing, promotions and investment plans.

From packaged food giant Kraft Heinz to appliance maker Whirlpool, airline group Lufthansa and fast-food chain McDonald's, executives this week described an American consumer that is becoming increasingly cautious after months of inflation and surging petrol prices linked to the Iran war.

“Consumers are literally running out of money toward the end of the month,” Kraft Heinz chief executive Carlos Abrams-Rivera Cahillane told The Wall Street Journal, warning that affordability has become critical as households struggle to absorb higher living costs.

The comments reflect a broader concern spreading through boardrooms and earnings calls: while spending on essentials, travel and entertainment remains surprisingly resilient in some corners of the economy, many companies are now seeing clear signs of “spending fatigue” as consumers trade down, delay purchases and prioritise value over premium offerings.

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Companies pivot to cheaper products and discounts

Kraft Heinz said it was cutting prices on some products, increasing promotions and introducing smaller package sizes to keep shoppers buying amid worsening economic pressure.

The company, which had previously explored a breakup strategy, is now instead trying to revive growth internally with a $600 million investment plan approved by its board.

Executives said years of inflation had already damaged sales volumes before the Iran conflict added another layer of uncertainty through higher energy and transportation costs.

“We had four years of volume degradation because consumers had to absorb too much price,” Cahillane said. “Seeing another wave of inflation is not what anybody wants to see.”

The company is also revamping product packaging and investing more aggressively in marketing to defend market share against cheaper private-label rivals.

Whirlpool warns of ‘recession-level decline’

The warning signs were even starker at Whirlpool, which described conditions in the appliance market as resembling a recession.

The US manufacturer suspended its dividend, slashed its earnings outlook and warned that consumers were pulling back sharply on big-ticket purchases such as refrigerators and washing machines.

Chief financial officer Roxanne Warner said consumer confidence had “nosedived to historically low levels” after the Iran war began in late February.

“We believe that’s absolutely driven by the fact that consumers are being a bit more cautious in terms of what they’re spending,” Warner said.

The company said shoppers were still replacing broken appliances but were increasingly choosing cheaper models instead of premium products with higher profit margins.

Whirlpool also announced price increases of roughly 4 per cent from July as it attempts to offset years of accumulated inflationary pressures and higher import costs.

Its shares fell nearly 20 per cent after the earnings update.

Airlines face fuel cost shock

In Europe, Lufthansa warned that rising jet fuel prices linked to disruption around the Strait of Hormuz could add €1.7 billion to costs this year.

The airline said it may offset some of the burden through higher ticket prices, flight reductions and accelerated restructuring efforts.

Several airlines, including EasyJet and Virgin Atlantic, have also warned that sustained fuel inflation could severely hurt profitability, with analysts cautioning that prolonged disruption may even trigger bankruptcies across parts of the aviation industry.

Lufthansa said it had already cut 20,000 flights from its summer schedule to reduce fuel consumption and manage operational pressures caused by the conflict.

Fast-food chains lean harder into value meals

Restaurant chains, meanwhile, are attempting to strike a delicate balance between attracting budget-conscious consumers and protecting margins against higher food and fuel costs.

McDonald’s reported stronger-than-expected quarterly revenue of $6.5 billion, helped by aggressive value offerings and larger customer orders.

The company has expanded menus featuring items priced below $3 and introduced cheaper breakfast combinations to appeal to customers squeezed by inflation and rising petrol prices.

Chief executive Chris Kempczinski warned, however, that consumer sentiment was deteriorating.

“That’s certainly not improving and may be getting a little bit worse,” he said during an earnings call.

Despite fears of a slowdown, same-store sales at McDonald’s US restaurants rose 3.9 per cent in the latest quarter.

Still, executives acknowledged that higher fuel prices and soaring beef costs could eventually hurt spending among lower-income households later this year.

Smaller restaurant chains are already feeling the strain more acutely. Shake Shack reported weaker-than-expected earnings as rising beef costs and softer consumer demand weighed on profits, sending its shares sharply lower.

Not all sectors are seeing weakness

Yet some consumer-facing companies insist spending remains remarkably resilient despite the geopolitical turmoil.

Ride-hailing giant Uber and entertainment company Walt Disney both reported robust demand this week, suggesting higher fuel prices have not yet significantly altered spending habits for travel, entertainment and local services.

Uber chief executive Dara Khosrowshahi said the company continued to see strong demand for rides, food delivery and restaurant spending.

“We don’t see any signs of that weakening at this point,” Khosrowshahi said.

Disney also reported healthy bookings at its domestic parks and resorts, even as executives acknowledged the risk that persistently higher energy costs could eventually pressure household budgets.