Here’s a chart of pricing at Fast Food joints compared to the overall rate of inflation.
Other than the “greed” word, anybody got an explanation for this?
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I’m going with avarice.
Beats me. I wouldn’t eat it for free.
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Das Kapital (OK, 2 words)
It is the job of every marketing manager to maximize profit.
The word I would use is “elasticity.”
At some point, the combination of elasticity (the tendency of customers to buy less when the price rises) and competition will cause profits to maximize at a specific price point. At that point the rise in prices will stabilize.
All the similar fast food outlets are affected by similar specific inflationary forces, such as the cost of ingredients and labor. Barring illegal collusion, it’s reasonable that they are all rising at similar rates. The overall “actual inflation” rate is irrelevant since it contains many factors (the price of car insurance, owner’s equivalent rent, etc.) that don’t apply to fast food outlets.
If the stable price is lower than the cost of inputs the companies will lose profitability. There’s no guarantee that rising prices will lead to rising profits if costs and sales volume decline.
Wendy
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We had Subway sandwiches for dinner last night. We usually buy their sandwiches once a month. This is the first time we noticed that the bread was significantly narrower. I’m not sure if this is going to be the new size or if this was a one-time batch of narrow bread.
The smaller size is probably good for my waistline though.
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Interesting that Mickey D’s has the highest price increase. A couple years ago, I looked at Mickey D’s, because the stores always seem far busier than Wendy’s, Arby’s, Tim’s, or BK. What I found was MCD has the worst quality food, and the worst customer service, across 4 stores, in three different cities, that I experienced on multiple occasions.
Then I looked at Mickey D’s balance sheet. Over the last three years, they have bought back nearly 20M shares of stock, and equity, at the end of 2023, was a negative $4.7B
Mix high prices, low quality, poor customer service, and financial gimmicks, and the picture of their business model comes into focus.
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I remember that Forbes Jack Welch cover with a shiver because, to this Los Angeles boy, his eyes and weird smile together were soooooooo like those of the typical flash in the pan fast rising Hollywood producer newly on boutique drugs. AND because, a couple months before, I had just leased, on very back-loaded terms, two expensive copying machines through GE Finance at an absurdly low cost to the company I was managing towards a planned liquidating bankruptcy, and an extreme high risk to GE Finance…
d fb
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Demand?
The Captain
9
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making wall cabinets for garage, want them to look decent so using baltic birch. $85 per 4x8 sheet, I’d say they’re grade C quality, 1 side definitely better than the other. Every sheet I’ve looked at has some type of filler added to small holes or dings in the face. Will get 2 sides, a bottom, a shelf, and maybe a top ( may glue up hardwood for the top, as that will be more readily seen , and have some free hardwood available to mill to spec). If I don’t screw up any cuts, and don’t have to trim off much to get it square ( don’t trust that they’re square out of the store ), hope to get 4 cabinets per 4x8 sheet.
Here’s a Fed graph of lumber prices, not as bad as your graph of FF prices, but still steep. And they’ve come down considerably since pandemic-peak.
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Perhaps comparing the overall inflation rate with these price increases is not the proper comparison: what are the key inflation factors for the businesses?
Relatively unskilled labor, food ingredients: probably about 60%?
I don’t know what these inflation rates are nationwide; may make things look better or perhaps even worse.
Cheers!
Murph
BL Home Fool
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When I saw the stand alone chart in the OP, it triggered in my mind there’s gotta be a lot of back up research data and, more importantly, there’s gotta be economic conclusions and opinions about what all this data means. Sure enough there were at the Finance Buzz website.
Is Fast Food Affordable Anymore? Here’s How Menu Prices Have Changed Over the Years [2024] updated 5/1/2024
Hear from our experts
While our study gave good insight on fast food price inflation, we also had our own questions about what the future holds for affordable meal options. To find out, we asked a panel of experts to weigh in on three questions:
• Do you think fast-food menu prices will continue to outpace inflation rates, or is there a potential stopping point?
• What are some factors that can contribute to the rising costs of what’s typically considered an affordable food option?
• In addition to a considerable increase in menu prices, would you say there’s been a drop-off in fast-food value deals, coupons, and promotions?
Panel of experts:
Shubhranshu Singh, Ph.D., Associate Professor of Marketing, Johnns Hopkins Carey Business School
Daniel Roccato, MBA, CPM, Clinical Professor of Finance, University of San Diego - Knauss School of Business
Michael Bognanno, Ph.D., Chair and Professor of Economics, Temple University
While I recommend reading all the experts’ comments, here are comments by Shubhranshu Singh that I found noteworthy.
Do you think fast-food menu prices will continue to outpace inflation rates, or is there a potential stopping point?
The worst is behind because consumers have reached a tipping point. Fast-food operators have increased prices faster than the overall rate of inflation and that is especially hard on their core consumers. We won’t see prices drop but we can expect a pause.
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What are some factors that can contribute to the rising costs of what’s typically considered an affordable food option?
A number of factors have contributed to the rising costs of fast food. First, food prices are outpacing inflation. Wage rate is also rising faster than inflation. In other words, the cost of preparing and serving fast food is rising faster than the inflation rate. Second, due to increasing pressure to spend less, some consumers have also downgraded from full-service restaurants to fast food restaurants, thus increasing the overall demand for fast food. Third, because of the increasing need to take multiple jobs and less time to prepare or enjoy food, consumers’ preferences for fast food have become stickier, that is, they are willing to accept higher prices. To make matters worse for fast food restaurants, consumers are tipping less at low- and no-service restaurants. Fast food restaurants are responding by raising prices.
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In addition to a considerable increase in menu prices, would you say there’s been a drop-off in fast-food value deals, coupons, and promotions?
Yes, there has been a decrease in the frequency and depth of deals, coupons, and promotions offered by fast food restaurants. My casual observation suggests many fast-food chains such as McDonalds, KFC, and Domino’s Pizza have cut online deals. When deals, coupons, and promotions are offered, they don’t appear to be as attractive as they used to be prior to the pandemic. It appears the low-price items and deals that are currently offered are mostly to mitigate the recent backlash related to skyrocketing fast-food prices and not so much to make fast food more affordable for an average consumer.
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Also noteworthy are comments by Michael Bognanno.
Do you think fast-food menu prices will continue to outpace inflation rates, or is there a potential stopping point?
In the words of Yogi Berra - ‘It’s tough to make predictions, especially about the future.’ Yogi Berra’s wisdom aside, fast-food prices have been driven up by increasing costs for food, labor, and energy. Additionally, the labor costs for low-wage workers, like those employed in fast food, rose the fastest after the pandemic, outpacing inflation. This last trend is abating, and this will help to push the growth in fast-food prices towards the general rate of inflation. The rise in food prices is also slowing.
What are some factors that can contribute to the rising costs of what’s typically considered an affordable food option?
The fast-food industry is highly competitive, and prices rise as the result of two forces: higher demand or higher costs. In this case, it is due largely to higher costs. The competition for low-wage workers in the aftermath of the pandemic caused their wages to rise the fastest. This directly affects the cost of running a fast-food restaurant. At the same time, the war in Ukraine and other factors contributed to higher food costs. Energy prices, notably for the cost of electricity, rose more than 10% in 2022 and are still increasing at a rate that exceeds the rate of inflation. On top of these cost factors that have added to the challenges of the fast-food industry, the pandemic stimulus funds held by consumers are largely gone, and credit card delinquencies are rising as high interest rates squeeze the poor. Restaurants catering to low-income consumers are adversely being affected by this as well as higher costs.
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Of the 12 fast-foods in the Finance Buzz study, I have never gone to Popeye’s, Taco Bell, Jimmy John’s, Arby’s and Chick-fil-A and have stopped going to the remaining seven (McDonald’s, Chipotle, Wendy’s, Burger King, Panera Bread, Starbucks and Subway) a long long time ago. In-N-out is my longtime favorite, and I’ll tag along with my wife who also likes The Habit Burger Grill where I cheat ordering the 820 calorie Portabella Charburger.
Regards,
Ray
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I think it’s fascinating. Cover from 94, quoting “people” that GE has “big problems”, but Welch grinning ear to ear. Why? Because Welch had a plan to hollow out the company, to enrich himself, knowing he will have made his pile and be gone, by the time the facade he built collapses.
Steve
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According to something I read recently, mcd’s diluted earnings per share were $11.56 per share in 2023 which was a 38.78% increase over 2022. I am not that great at arithmetic but it sounds to me like they profitably jacked up prices above and beyond their commodity and labor increases - greedflation.
They lost some of their profits about 12 years ago when I stopped eating mass produced meat. I still made an exception on long car trips for a year or two, but now I pack nuts, fruit and hot tea for all day trips and find grocery stores along the way. The food is much healthier and cheaper but I sometimes envy the smell of my grandchildren’s fries.
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Greed is correct, but don’t just assign it to only corporations, spread it around. When you raise the minimum wage to $25, it drives price.
In Seattle they raised the minimum wage, now the hair cut is $25 ~$30. Yeap surge pricing.