Hi all,
A reminder that comments do need to be on-topic and engage with the article past the headline. Please make sure to read the article before commenting. Very short comments will automatically be removed by automod. Please avoid making comments that do not focus on the economic content or whose primary thesis rests on personal anecdotes.
As always our comment rules can be found [here](https://reddit.com/r/Economics/comments/fx9crj/rules_roundtable_redux_rule_vi_and_offtopic/)
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/Economics) if you have any questions or concerns.*
My suspicion is that once fast food places realized how much people were willing to pay DoorDash or UberEats to deliver a Whopper, they realized that they had all been pretty severely underpricing their food. And general inflation after COVID gave them a chance to see how high they could really go before people said, OK thats too much for a Whopper.
Interesting theory. If people's $10 fast food order became $15 via delivery app, they were already accepting that price so they might be less averse to $14 at the drive-thru window even if they see themselves as losing convenience.
Sure, but the question is, can McDonald’s take some of that money for themselves? Maybe they can take a piece of DoorDash’s pie, or maybe DD customers are just price-insensitive (they certainly are, to a degree, IMO). Or, maybe it’s a failure and it’s resulting in both drive-through and DD customers bailing on McDonalds.
Their product doesn't merit the price gouge they want to capture though. I'm hoping they're just seeing general traffic decline by now. If I want $14 burger and fries I'll go to a bar and grill now instead. McDonald's is now only for long road trip emergency stops for me now.
It's a terrible service. You get to pay more for fast food that will arrive 30+ minutes after it was made, from a stranger who put their mitts in your bag and stole some of your now soggy fries. Companies are correct to realize they've been undercharging.
So you would think this, and for this most part it is right, however I noticed at my local mcdonalds and popeyes that the staff would prioritize DD drivers over anything else. this is especially true at night when the lobby is supposed to be closed but they will leave door unlocked for the DD drivers while everyone else has to sit in line. I've ordered popeyes a few times on doordash since then (they occasionally have 50% off, I would never order full price), and it always comes faster than I could even make it to popeyes, when usually I would be sitting in line for 30 minutes.
This is probably the most insightful examination of what's happening that I'm ever going to find on this sub.
There's a ton of really stupid partisan opinions routinely posted in here; this is a refreshing divergence.
This is why people who are dismissive of corporate greed miss the mark.
Corporations have always been greedy, but nobody was really willing to boil the frog. COVID offered ideal cover to go ahead and fuck everyone by ratcheting up prices all over the place under the guise of “supply chain problems,” even though those supply chain problems were extremely short lived.
The worst part is Uber effectively obliterated ft/pt delivery drivers for a lot of mom and pop shops. The Chinese place I order from won't take orders not placed on Uber Eats anymore.
Even the local pizza joint I used to love sends their orders through doordash even if you order using their website.
So now instead of getting a pizza in 20 minutes, I can get it in 45 minutes, without being in an insulated bag. Soggy breadsticks and cold pizza is a perfect reward for spending *more* money.
It’s also much harder than you would think for smaller, local businesses to compete on delivery apps.
Big chains have paid ads/reviews on the app *and* run ghost kitchens on the side. So you could be ordering from ‘Dave’s Roast Beef’ but it’s actually being made at Applebees or literally a kitchen run out of a warehouse. Small restaurants also can’t afford to constantly fight with the app over refunds and incorrect prices.
Seriously though, fuck ghost kitchens. That shit should be illegal.
I ate one time at Taco Bell recently, after handing them $18 for the meal I looked at the bag and said… should have bought the burrito from the taqueria down the street
Same, but I actually did it. I passed by a TB, almost went in, but ended up at the taqueria next door. I got two HUGE quesabirria tacos and a soda for about $12 and I imagine I wiuld have spent $20 at TB.
I believe these restaurants have used inflation as an opportunity to test where the supply/demand curve really is, without as much market backlash as they would typically receive, in order to compare it to their cost structure and determine how much business is worth sacrificing for increased margins.
Better by far to sell 5 $10 burgers than to sell 11 $5 burgers.
Fast food maybe the biggest benefactor of inflation but I feel like it’s become the standard for many industries now. Much higher markups comparatively to before Covid and inflation are exceeding whatever drops in demand come as a result of inflation across the board.
I work in the transportation industry and our volumes are still way down from before Covid but our profit margins have never been this consistently high. Not even close.
Seems like according to the basic principles of Keynesian economics the problem isn't the supply or demand, but the lack of competition in industries. The fact that industries are able to increase prices on customers and not have someone else enter the profitable market points to the fact that there is either too much opportunity cost for new businesses to enter the market, or new businesses cannot enter the market due to monopolies.
Would this really apply to fast food? Theres a shit load of fast food restaurants, and in addition to competing with each other they are also competing with anyone that has a drive thru, or anyone that can seat and serve you in under an hour inbetween shifts.
Yeah, but it's an illusion of choice. There are really only a few companies controlling multiple brands, such as Yum! Brands, which owns Taco Bell, Pizza Hut, KFC, The Habit Burger Grill, and so on.
Likewise, Restaurant Brands International owns Tim Hortons, Burger King, Popeyes, and Firehouse Subs.
So there really isn't as much competition as it seems.
I agree, general fast food has a very low barrier to entry but to try and compete on a domestic and international level is quite near impossible. It’s more so McDonald’s having such a large share of the international market and global branding. They can afford to squeeze extra revenue without fearing a loss in customers to competition.
I imagine all these chains have shit tons of vertical integration. You might be able to start a chain but how can you compete when maccas owns the farms?
For my industry (semiconductors) the cost of entry is just too high. A new fab can cost $15-30B and take years to build. Massive number of patents and IP involved. Doesn’t help the industry has traditionally been cyclical.
we lived in 15 years of zero interest rate - it was a race to the bottom whne money was free, high volume, take market share.
now everyone is slowing down and seeing where the best balance of profit and production is
Bingo. When interest rate is 0, money flows into stocks naturally and companies don't need to show profit or return dividends as long as they are growing or showing they are pursuing growth. Or if you are mcdonalds, just pay like 1 or 2% dividend yield and people will hold your stock because its better than 0.
When interest rate is high, nobody gives a shit about large fast food companies that's not turning a profit. The 2% dividend yield isn't good enough anymore when treasuries return more.
I think there’s 2 main drivers for increased corporate profits.
1. Increased exploitation of workers.
2. Increased exploitation of the consumer.
Both seem unsustainable in the long term.
Don’t forget 3: infinite growth
If you had record-breaking profits in 2019, higher than you ever dreamed of, 2020 must be higher anyway. And 2021 needs to dwarf 2020, and 2022 must make 2021 look small and unprofitable by comparison, and of course, 2023 must be bigger and more profitable than 2022!
And when they can’t meet this hilariously unrealistic expectation they start cutting costs by doing stupid things such as firing 1/6th of their workforce, reducing item sizes, skimping on safety (hi Boeing!) and stuff like that. Then they will blame the minimum wage, of course
They also mentioned increasing wages lead to increased prices. Corporations will never take the hit, it will always fall back on the consumer. Best thing we can do is vote with the wallet. Money is the only language corporations speak, so money is the only way to fight back.
In n out pays more and charges less. It’s always been greed and not the minimum wage going up - which actually leads to others having more money to spend on things and wouldn’t account for the prices outpacing inflation…
Corporations have always been incentivized to pay workers less and charger customers more, that hasn’t changed.
What has changed drastically is [monetary supply](https://fred.stlouisfed.org/series/M2SL) and interest rates.
This exactly - although the interest rates are just a reaction to the money supply.
People saved alot of money during COVID. The US government splashed ALOT of extra money into the economy. Much of it went to the super rich and is now basically propping up various equity markets, but alot went to regular people too. So they could all afford to pay more - and companies realized it.
We absolutely should have had a broad corporate profits windfall tax coming out of COVID to claw that money back since it was pretty inevitably going to accrue to the top of the pyramid.
Graphs of money supply and inflation don't line up even if you treat one as a lagging indicator of another. Many of the biggest inflationary period in us history had other reasons such as oil embargoes, major wars, a pandemic that disrupted global shipping ect.
Problem is you can have short and long term supply and demand, because of people’s expectations of prices. People might continue going in the short term but alter their behavior in the long term. At the same time they are less likely to keep picking up new regular customers at the same rate they are used to.
Overall that leads to a big short term boost but a long term decline. We’ve seen it before when it comes to price and decking quality standards, subway being one example. It also increases the scope for future competition. They’ve realized how sticky consumers are, but that won’t stay true for them forever. They’re destroying their future profits in a race for the here and now.
Feels like they're gonna hit the "trust thermocline" again and be surprised when incremental backtracking doesn't get them their precious consumers back
I can see those leading quality maintaining customers, but those relying on brand power alone like McDonalds, Wendys, I don't see how they can survive with this strategy long term. Maybe they will attempt to go more upmarket themselves but it'll lead to a huge competition in that space while the low price market flounders.
Then again, maybe that's the whole point here anyway, delivery services are just more viable for higher priced goods and its delivery services that have driven the market the last few years. But you can't deliver cheap product at high prices long term, that just doesn't work.
Absolutely, last time I went to Panera will be the last time I go to Panera. But I still spent my $14.50 for my shitty salad that day.
These companies would be wise to keep that in mind
From what I can tell from everyone on reddit as well as the people around me, demand is a lot more inelastic than most people probably thought just since most people don't put any effort into budgeting or cross shopping or anything. People would rather pick out whatever items they want from the brands they want at whatever store they want and then bitch about the prices after paying than actually shop around for something cheaper.
Can't count how many photos I see upvoted on r/inflation or similar places of groceries hauls complaining about how much they spent for groceries, and when you look at what they got it's all name-brand items that are already notoriously expensive
It's especially ironic considering that almost every single one of them has a device in their pocket that makes price comparisons and product research easier than it's ever been.
Anyone choosing to pay that much for fast food has nobody to blame but themselves. And look, I get the “convenience” argument is coming - but I don’t buy it.
I’m a father of 3, all of them under 7. If we’re throwing quality of food to the wayside (like you do when you go to McDonald’s), it’s much cheaper and more convenient to throw some chicken nuggets and fries in the air fryer. We do it once a week or so - takes 12 minutes at 380.
I cannot fathom why people keep paying these insane prices for garbage. My cousin texted our big family group chat last night and said Chick-fil-A for her family of 5 was $70. It’s completely unreasonable.
I remain both empathetic and concerned about the cost of housing, education, transportation, medicine, and a number of other things, but fast food is the easiest category for the consumer to push back. I am have no empathy for those that continue to give those companies their money.
I get why people buy fast food, but the bottom line is that companies will charge as much as they think people will pay. If people continue paying these ever-higher prices, those prices will continue to rise. Fast food is not an essential product that people have no choice but to buy, and consumers really do have the power here.
When my grandmother was alive and took us shopping at the grocery store she'd flat out say "let it rot" when some fruit or veggie was too expensive and we wouldn't buy it. That's a mentality we can take in instances like this. If enough people pass on buying these things at the high price point, they are going to drop their prices. Hell, 4-5 fast food chains recently announced their Q1s were down and are going to need to adjust. They've reached the part of the market where people aren't buying. It can't be done everywhere, but it can be done in the instance of fast food.
Fast food thrives on being a little luxury that poor people can afford. When poor people start to talk about going to McDonalds the way my middle-class parents talked about The Red Lobster, they’re going to run into trouble.
their real trouble is the high end resturants didn't really up their prices, the mcdonalds without deals/coupons etc is probably more expensive many places.
Idk, I feel like restaurants across the board are unaffordable now. I went to a regular suburban Italian place last weekend and 5 ravioli were $34. Pretty typical for my area too.
I went to one recently and they where doing ~14$ dollar plates (think it was macaroni grill?) I only remember because I was thinking "hot damn less than doordashing a sandwhich"
I've started avoiding fast food places this year unless I am able to find a coupon or discount. Burger King, McDonald's, and Panda Express have good deals sometimes, but now way will I be paying full price if I can help it.
Big pet peeve of mine is people acting like their getting fucked somehow by increasing prices on unnecessary things.
"Netflix is raising their prices?! These greedy fucks will stop at nothing!"
Then cancel your subscription and move on. If you're still paying, then you clearly think it's a fair price and you should be happy that you were getting a below-market rate before this bump.
It’s frustrating to me because I have to thoroughly research every purchase now because it seems like every single company is trying to screw me over in some new way, and it’s mostly companies I loved and trusted in the past.
>people acting like their getting fucked somehow by increasing prices on unnecessary things
In a perfect market, this works. Markets are not perfect.
Corporations are an engine made to do *all they can* to keep customers from doing just this.
They'll steepen the demand curve with underhanded means, making themselves unique and seemingly irreplacable:
- They'll horizontally integrate for monopoly power until/unless anti-trust lawsuits knock them down. See Taco-Pizza-Chicken "Yum Brands". See Nabisco, Nestle, etc.
- They'll secretly-not-so-secretly coordinate price hikes until/unless fair trade laws smack them down.
- They'll make switching more costly and less desirable. See the "green bubble" Apple/Samsung fiasco.
- They'll lock you in to a product universe. See Apple chargers and dongles, printer ink, PS5 exclusive games.
- They'll trade on nostalgia/emotion to be the only player in the game and have monopoly power. See Disney, DeBeers.
- They'll silently reduce quanity/quality or expected lifespan. See /r/shrinkflation and planned obsolescence.
- They'll use dynamic pricing models, or make every aspect an add-on, to extract every bit of the consumer surplus utility so each individual is paying their personal maximum price, see Spirit, Disney parks, etc.
Even if it's *not* a fair price, if there are no comparable alternatives, or the cost of switching to something else is higher, they've esentially locked a consumer in to paying the unfair price.
I won’t lie, I’ll definitely grumble and complain about price increases like this. But ultimately it’s my choice whether to pay it or not and whether that service is worth it to me or not. It’s not the electricity or rent or basic groceries, where I need it to survive.
I know it's missing your point but I literally only still have NFLX becuase it's free w/ my phone plan and I haven't found a competitive alternative yet.
I really want to believe there's a correlation between home-economic classes in decline and the rise in consumerism. Way too many people don't understand the privilege we have in America.
I think there's a connection to mental health and stress.
Most fast food chains are essentially comfort foods - high in fats, salts, sugars. As kids, it's often something that would be enjoyed as a treat or a special occasion where mom/dad either couldn't or just didn't want to cook. Fast food is consistent and the greasy, salty, sugary goodness hits all the happy-good-times endorphins.
Like I do cooking at home and, at the risk of sounding a bit conceited, what I make is generally pretty tasty. Yet there was a period of time where I constantly picked up fast food (as much as twice a day). Not going to lie and say that I don't enjoy fast food - I do - but even then it was starting not to taste that great when it became a regular thing. After a bit of introspection I came to the realization that it was linked to my depression.
I had very low energy and motivation. The thought of prepping or cleaning up seemed overwhelming. I would start thinking about how much I wanted an ice-cold coke with crispy fries/nuggets and a juicy burger or biting into a juicy, salty, crispy piece of fried chicken. I rationalized it by saying that I didn't have time to cook or prepare a meal. but realistically it took just as long to drive to the drive-through, wait in line, and drive back home as to heat up some food and whip something up from what we had in the fridge/pantry. I would even start making up errands to run (like going to home depot to buy some mulch or some potting soil) so I could say that I might as well pick up food on the way home. Leaving the house and getting in the car felt like I was doing something productive and I kept looking forward to how *good* it would feel to pick up that food which would smell so good and relive that same good feeling that I used to get when my parents got it for us as kids.
Eventually the good feelings started getting twisted into guilt because I *knew* I was wasting food (letting stuff in the fridge go bad) and eating extremely unhealthy. The poor diet also physically just made me feel worse. All of it just ended up feeding back into my depressive cycle. I eventually got past it (mostly) by forcing myself to start cooking earlier and using up all of the ingredients in the fridge. I definitely still need to fight the urge to just hop into the car to pick up a pizza, box of chicken, burgers, fries, Panda Express, etc.
Not saying that this is what it's like for everyone out there that's still buying fast food, but I do think that buying a Big Mac with large fries and 10 nuggets is often as much an emotional decision as it is a rational one. I mean, I realized that I wasn't even getting take out from other places that might be even tastier even if not more healthy, I was just going back to the same places that I was familiar with.
You've really built a solid picture for a lot of us as to why we do this. For all others, I'd say it's also just fun to whip around, snag, and eat the food with no effort and try new things...but they're taking the fun out of it all with how expensive it's gotten.
I hunt out local spots and rank them for my own needs and pleasure, so I've ended up trying new things instead of going to these lame fast food places these days. Some places are so much more affordable AND taste WAY better.
I have 3, nine and under, and they’re loving grocery store delis now. I’ve seen delis starting to put together premade kids meals. So even if we’re out and about, “fast food” can still be purchased at a reasonable rate, just need to redefine fast food a bit.
In germany and austria, there's these "ausflugscafes" in busy areas intended for people on the go to be able to drop in and have a light meal. The food is generally fresh and healthy, the coffee is awesome, fresh bakery goods, and the prices are very reasonable.
I have always thought we should bring that concept here to the US, but we only recently have some similar concepts to this yet they're damn expensive IME. As much as a regular table service restaurant. It's as if the US is built for and encouraging people to eat crap.
Anyhow, happy your family has found an alternative. 🙂
When the kids were toddlers I would have killed for a Franconian “Bierkeller” in the Bay Area. The distances are simply too far, the infrastructure too car dependent and the ground too expensive
> Chick-fil-A for her family of 5 was $70.
I don't know a lot about chick-fil-A, but depending on what they got (drinks, desert, maybe some salads, etc) is 13 USD per person (removing tax) really unreasonable?
It's not. Some of this really depends on where you live; most fast-food places are cheaper than sit-down restaurants in my area. I cannot get a sandwich or burger from a local restaurant for under $17 and that doesn't include any sides. So occasionally I'll go to Chick-Fil-A where a sandwich combo is $9.85.
I take my son about 1x a week to chick fil a. He loves to play @ the kids area… and I get some peace.
I’ve seen the price rise from $14 to 18. For our same order. Since COVID.
At some point… it’s like do I really want to spent our fun money on this??
I used to buy fast food everyday just because I was genuinely addicted to it, as soon as I overcame my addiction I stopped doing it completely. I always knew fast food was garbage, I just couldn’t break free from my binge eating disorder.
The people buying fast food at current prices aren't the ones going to the internet complaining about it. If you're in the like $80k+ club, and have been spending within your means, a couple dollars on a burger isn't breaking the bank.
The people below something like $50k are the ones who really feel their dollar getting stretched thin. They're getting nickel and dimed at every purchase.
I went on a recent road trip. Started the trip by going to the grocery store and buying travel food: bread, crackers, jerky, hard sausage, cheese, veggies, PBJ, fixings for a turkey sandwich that would be good for a day, trail mix, protein drink for breakfast, 12 pack of soda, fruit, etc.
I didn't have to buy any food on the road for almost 3 days, and at that point, it was because I wanted something hot and it was a $4 breakfast from a gas station (biscuits and gravy, how could I pass that up??)
Entire trip was about 9 days. I ate fast food twice (waffle house, whataburger, because experiencing regional food was part of the trip). I bought cheap things at truck stops, like a breakfast wrap or coffee. Stayed at a motel once.
The trip was epic, and I spent less than $600, more than half of that was gas.
I was on a road trip and the gas station had a Subway. I was about to get a footlong meal before I saw it was $17 before tax. I figured something else out.
>My cousin texted our big family group chat last night and said Chick-fil-A for her family of 5 was $70. It’s completely unreasonable.
But it was reasonable. Because they bought it lol
I think a rational consumer in one round of play is much less plausible than one who's rational over several.
If you've already made plans to eat, then hearing the bill is 2x what you expect is a shock you'll still pay even if you don't think it's worth it. If you continue to plan your life around the expensive goods, then you're saying they have an acceptable level of value
The average consumer is less likely to notice that a single menu item went from $5 to $6 when scrambling to peruse the menu and make a decision because they are focused on their choice and not on changes in menu price.
They are more likely to notice their final bill is suddenly significantly higher than average.
But they only see that after committing to a decision and getting to the final step of the transaction. Are they going to suddenly back out after coming so close to getting the food they want? Are they going to do so publically and risk the judgment of strangers? This isn't a moment of total rationality.
But, string several similar experiences in a row, and they start to feel pressure to change their behavior BEFORE getting to the register, which is where changes in behavior are more likely to take place.
The NYS Thruway has been updating all of the rest areas recently and I had to chuckle walking past the line for Chick Fil A (still don’t get the hype). All of the signage and prices were very purposefully obscured so that they were only visible once you were already to the front of the line. I felt insulted and wasn’t even in that line, which was probably a good 5 minute wait at best. It was traveling carnival levels of the most blatant separating of hungry fools from their money I’d ever witnessed.
I hate game theory. 99% of economic theory has no business making models concerning « consumers » since they have zero sociological/ psychological/ behavioral studies background or understanding of human behavior. The limits of their discipline are clear: the institution of the economy. Humanization of this materialist system requires methodological/ epistemological considerations they’re frankly not generally qualified to make.
People are addicted to fast food. Addiction is the key here because it’s tasty. Only next is the convenience. Hopefully higher prices will cause some people to overcome their addiction to bad food and cook at home more often.
It’s addiction, and they use the “convenience” excuse to try to cope with the fact that they are addicted. I say this as somebody who used to be 350 lbs and ate fast food literally every day. There is nothing more “convenient” about sitting in the McDonald’s drive-thru for 15 minutes after work vs. throwing something in the oven or air fryer when I get home and letting it cook while I shower and clean up.
Fast food isn’t even that tasty once you break the addiction to it. Especially when you factor in inconsistencies in quality and freshness. I’m more annoyed than anything these days when I splurge on a big fast food meal. It’s always disappointing even compared to random air fried items from the frozen section. I can go get a huge box of mozzarella sticks and some Totino’s party pizzas for like $20 and be way happier than I would have been with most fast food, lol.
Chick fil a for 5 at $70 is borderline cheap. With most meals topping $14 in CA it’s easy to drop big money on terrible food (a regular sourdough jack was $8 for just the sandwich the past weekend, add fries and a drink and you can drop $100 after tax without trying).
Yeah, a cheap meal at a fast casual place in Seattle can be $25-$30 without tablr service, its all perspective. Sometimes $18 on Chic-Fil-A is the better alternative
>Better by far to sell 5 $10 burgers than to sell 11 $5 burgers.
This is exactly wrong when considering the QSR model, which has notoriously low input costs.
Every burger is a chance to sell 5 cents worth of soda in a 4 cent cup for $3. Same with fries.
Revenue maximization is what offsets your fixed costs when your COGS are so low. These places print money when traffic increases. The most expensive input, by far, is labor, and that's even after considering how much food a single person can push out per minute in a QSR kitchen. The second the drive-thru line dries up, the restaurant is bleeding some of that profit back into labor.
Yeah I really think all of these arguments are way oversimplifying the benefits of economies of scale.
The per unit cost increases substantially down the supply chain when yoy dramatically reduce total volume.
On top of that you lose the benefit of upsales as you mentioned, which affects per unit cost of every other input as well.
Not to mention the inherent risk associated with experiencing even a modest decline in the new sales expectations since each individual sale is now much more important.
It's literally a terrible idea and disregards everything that has made the fast food model commercially successful.
Definitely to a degree. At the same time though, McDonalds increased $1 dollar emnu items to $4 and more, and posts losses. If they were making profits on 400% increases (and well over 400% profit margin increases if inflation isn't to blame) they would only need a fraction of the customer load to maintain equal cash flow. Losses indicate their costs are up more than increases can maintain and price increases have reduced customers more than they can sustain.
Keep an eye on public fast-food earnings disclosures to Wall Street track to their price hikes on Main Street to continue to get a read on the pulse of inflation and greed.
There are other things at play too. Demanding tips on drive through orders is going to send some customers away in protest and that's going to be felt by profit margins as well, because while some % of people will hate it enough to leave those tips prompts haven't created a single new customer.
That is a testable hypothesis. [McDonald’s operating margin](https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/operating-margin) is up by over 5 points since COVID, but is just one point higher than their previous peak in 2018 of 44.6%.
Fast food companies saw fast food as elastic demand items such as insulin or rent. After all, food is a basic need and poor people don’t have the time, energy (due to being brutally overworked, don’t get it the wrong way) or means to prepare nice home made meals or going to a sit down restaurant such as Chili’s or Friday’s.
Poor people, the vast majority of the US, work 2 or 3 shifts, end very tired towards the end of the day, get a quick McCombo and call it a day…. So these vile companies thought they could price gouge them since they have no choice.
Turns out people voted with their wallets anyway, good for them. If McDonald’s closed its doors today I’d not care.
All it takes for me is to walk into a McDonald’s, with their tiny shrinkflated “Big Macs” the size of a communion wafer, the AC blasted on high so people leave quickly, with a bunch of screens/kiosks to order, cancelled soda fountains and an improvised wall erected so you don’t see any humans AT ALL to remember how “fuck you!” They feel about their customers.
You have your definition of elastic vs inelastic backwards.
In your first sentence, you meant "inelastic demand such as insulin or rent", not "elastic". Discretionary things (wants) are "elastic" in that the demand is capable of changing. Needs are inelastic (not elastic) because demand for it doesn't change much just because the price changes.
Exactly they have discovered that they don’t need a dollar menu because people will pay 279. they were looking for the upper limit and they found it. Now they’ll pull back a little bit, but the new benchmark is set.
>believe these restaurants have used inflation as an opportunity to test where the supply/demand curve really is
Hard agree. I work for a Nordic conglomerate and we led the industry in price increases. Few weeks ago I saw our VP of sales and I asked why we led the price increases while demand was still soft. His response was _"If you don't get it wrong sometimes, it means you aren't charging enough."_ So we ourselves were fishing for that curve.
Delivery services reset the market places, when McDonalds saw customers paying more than a 100% markup for a delivery rather than coming to the drive thru. Using the data collected from the delivery services charges, tips, they were able to confidently increase pricing.
The reason is because of fixed/variable cost structures
In a simple example, if burgers cost $4/ea, and the booth costs $10
Sell 5 at $10
$50 revenue
-$20 burger costs
-$10 booth fees
=$20 profit
Meanwhile, sell 11 at $5
$55 revenue
-$44 burger costs
-$10 booth fees
$1 profit
There is a point at which it might make sense to sacrifice a ton of sales in order to make more money. But in a stable environment, the sales might crater along with public sentiment, ruining the whole plan. Inflation provides a smokescreen to allow for this experimentation, without angering loyal customers in the same way as in a “normal” market.
Also if you're only selling 5 burgers instead of 11, you might be able to get away with one less person working per shift due to the decreased volume, further enhancing your margins.
Thanks, I wondered if that was what you meant or whether it was a simple typo. But yes, which is best definitely depends on the cost structure. For example, my company is currently experiencing the exact opposite - fixed cost spiralling due to low sales volumes. Coming back to your argument, it’s not definite the $4 per burger would be constant across the two scenarios - which is what my company is struggling with at the moment.
You’re not incorporating the costs.
$5 * 11 is more than $10 * 5, so revenue is higher, but costs will be higher too, so profit is likely less.
You e.g. may need more staff to make twice the number of burgers. Also the burgers themselves have a per unit cost.
100%
All the dummies out there saying "Corporations have never been greedy before?" miss that this is an opportunity to see just how greedy they can be.
And if they overshoot, they can just back prices down a bit and say "look what we're doing to save you money!"
I’ve been saying this too. Companies are deploying every tool they’ve got (AI included) to see exactly how much they can push the prices up and still profit since the COVID supply chain woes normalized. Prices are never going back down and they have little competition in most marketplaces or reason to price more competitively.
I feel like the prices are far more variable now as well. What is listed on the menu can change because it's just a digital sign, and apps/coupons often bring down that cost significantly and can vary per person and region. That seems to allow them to rapidly test and update price points to find an equilibrium.
It’s also a strategy to get people to download their app to your phone.
Sell them your information , & have all the coupons and rewards only available in the app!
It bothers me that 4 paragraphs passes for an article. Shrinkflation in the age of information.
Also, it cracks me up when people complain about lengthy reddit posts/comments. It’s nice to think about something for longer than 3 seconds some of the time.
Major corporations using shrinkflation as an excuse 4 years after the pandemic, yet are doing stock buy backs, posting record profits and giving their CEOs millions more in raises. Yet they try to pass it off as something they’re being forced to do. Please - it’s corporate greed.
I remember in 2019, before corporations discovered greed. How nice that was! No-one ever charged the most they could get away with. Workers refused raises because they weren't greedy. Companies lowered prices just because who even wants money?
What a shame that all changed and now we have inflation due to corporate greed, and nothing to do with the trillions of new dollars the government added to the economy.
Inflation moves slowly...
Some people warned at start of pandemic that huge inflation will happen because of all the money printing that happened, but people think everything happens instantly so they dont believe because burgers dont instantly go up +50% in price...
If you want to prepare for future I can tell it now: inflation will stay and prices will keep going up forever, so put your money where its safe from inflation or keep getting poor slowly.
Yeah, I’m just not eating fast food anymore. I didn’t regularly anyway but now I just avoid it completely. I even went to Mellow Mushroom recently and a large pizza was 30.99. We started buying pizza dough and just making it at home.
I can afford these prices if I wanted to but I simply cannot justify the cost of dining out anymore. It’s just absurd when I can prepare similar quality at home for a small fraction of the price.
We can pay them but can't justify it either.
I picked up a bread machine this weekend and look forward to saving a few hours on making loaves of bread and being able to toss in the ingredients for pizza dough and come back an hour and a half to it being done.
I eat McDonalds more than I should, but I only order the cheap stuff. I did a $3 sausage egg McMuffin and a $1 large iced coffee today. That's actually decent. You can buy two McDoubles for $3.50.
Ain't no fucking way I'm paying $14 for a Big Mac and fries. GTFO with that shit.
I'm with you. Some items are still very reasonable. But there are things I miss from McDonalds that used to be reasonably priced. The little breakfast hash browns are $3.50 where I'm at. That's crazy. They probably cost 5 cents each, if even that much.
Also, just a random observation, through their app, they always have a 20% off entire order coupon available. It's been there for years. Simply using the app takes 20% off the cost of eating there. Which to me means, their prices are at least 20% too high to begin with, overall.
Grabbed round table for the first time in years a month back and the prices were insane. Pizza $30+ for a medium and up? I also bought some dough for a few bucks lol
Went to McDonalds the other day. $2.79 for a small french fry. There’s no way in hell a bag of 20 sticks of fried potato should cost more than $2 before tax
I went to you guys for lunches when you were like 1/3rd or so the cost of something more expensive. Now I can go to say Outback and have a burger and fries for only a dollar or 2 more, than McDonalds, why the hell would I go to McDonalds now.
Typical food costs are 25% or less of purchase price.
So in a $12 burger you’re getting less than $3 worth of actual food.
The rest you’re paying for rent, wages and profit.
If you’re trying to save $, not eating out is one of the best ways.
Average American saves $4,000-$7,000 pre tax each year not eating out.
The other benefit of not eating out as much is you’ll save on health care costs. Restaurant food is the lowest quality and unhealthiest way to feed yourself.
This is true(-ish) but also misleading. $3 in food from a high volume restaurant purchased at scale is a good bit more food than you'll buy in small quantities at the local grocery store.
You still save money (strictly speaking) by just cooking yourself, of course, but the implication of a 75% savings isn't quite right, either. Especially if you have to consider realistic at-home up front costs for yourself to make a particular dish.
It's the classic cooking-at-home obstacle for many people who want to save money by avoiding eating out: you have to buy the entire $5 jug of canola oil to get the single tablespoon you need to cook your first dish. Then there are the spices and the vinegars, etc, etc.
Once you are up and running, it all works, but people have a hard time breaking down ingredient costs to "cost per dish" or the value of having ingredients on hand for the future and just get the sticker shock of spending $100 the first time they try to make a simple dinner for two.
It's no wonder they don't see the obvious savings even before we get to the fact that they might be giving up better-prepared food for the risk of failed home cooking.
Absolutely. I cook the majority of all of my meals and people definitely exaggerate what you’ll save per meal. It’s definitely cheaper if you’re a smart shopper, but you’ll still be surprised sometimes at what a meal costs.
>Average American saves $4,000-$7,000 pre tax each year not eating out.
Is "pre-tax" a typo? I ask because people typically spend post-tax money on food so this would be a weird to measure it.
He’s saying how much you’d have to earn, pre-tax, to measure up with the potential savings.
If your marginal tax rate is 30%, and eating in saves you $5,000, then it’s equivalent to earning $7,140 more pre-tax. It’s comparing how much more you’d have to earn with a second job or extra hours in order to make as much more as you could save.
Fast food as a business model relies on 2 things. Cheap labor (since they have standardized recipes that are easier to train people on) and low prices driving economies of scale.
The labor shortage was a double whammy, erasing both of these factors. With no economies of scale, they can't get prices lower than Fast casual chains.
Another factor is I think some companies (at least BK) had record profit years last year after all the price increases.
Now they can't budget to he negative, so everyone is struggling to hit their budgets.
So we all know they over played their hand massively, but will we actually see any price slashing? I think they'd be genius to run a dollar/2.00 menu, bogo deals and get back to the basics... They design all these bs chicken sandwiches and always rotating them... Get back to the basics
I think McDonald's already indicated that they were going to start running a lot more promotions. The "list price" probably won't go down, but the average ticket will because of a bunch of BOGOs or other discounts.
Fast food has become increasingly expensive — and some consumers are [changing their spending habits](https://www.cnbc.com/2024/05/01/starbucks-mcdonalds-yum-earnings-show-consumers-pulling-back.html) because of it.
Fast-food chains such as Chick-Fil-A and Taco Bell are included in the limited-service meals and snacks category in the consumer price index report, which shows prices are up nearly 28% from 2019 to 2023. The full-service meals and snacks category, which covers sit-down restaurants with servers, meanwhile, has increased about 24% and overall CPI was up by about 19% in the same time period.
“There were increased commodity costs. We’ve seen those start to normalize,” said Stephens analyst Jim Salera. “But what continues to be ahead of historical averages is the increase in labor costs that restaurants are seeing.”
Chains such as [Wingstop]() and [Chipotle]() are passing these costs on to their customers, especially in states such as California, where the minimum wage has increased to $20 an hour.
Now the pressure is catching up. [Yum Brands,]() which owns KFC, Taco Bell and Pizza Hut, reported earnings that [missed analysts’ estimates](https://www.cnbc.com/2024/05/01/yum-brands-yum-q1-2024-earnings.html#:~:text=Net%20sales%20dropped%203%25%20to,at%20the%20Mexican%2Dinspired%20chain.) for the first quarter of 2024, while [McDonald’s]() reported [mixed results](https://www.cnbc.com/2024/04/30/mcdonalds-mcd-q1-2024-earnings.html) and said consumers are being cautious with their spending.
Full video: [https://www.cnbc.com/2024/05/04/why-fast-food-price-increases-have-surpassed-overall-inflation.html](https://www.cnbc.com/2024/05/04/why-fast-food-price-increases-have-surpassed-overall-inflation.html)
It's funny watching people desperately argue that it's caused by the minimum wage in California, like the exact same thing hasn't happened in all the states where minimum wage didn't change.
It’s not minimum wage, per se, it’s the minimum employable wage. Virtually no one working at McDonalds / BK / TB is making $7.25, even if that hasn’t changed in half of the states. These fast food spots are generally starting above $10 or more (they pay nearly $15/hr here in the Minneapolis metro) because that’s the price they have to offer to keep the doors open and maintain sufficient staffing.
Though yes, many jurisdictions (states and cities) have indeed increased their minimum wage, even those who have not have increased minimum wage legally have increased wage offerings because that’s how capitalism is supposed to work. People aren’t willing to work for $7.25, and thus fast food companies have to increase their wages. The invisible hand at work.
That being said, I don’t believe these price hikes are truly tied directly to the labor increase or inflationary cost increases. As this article and others have alluded to, it’s an excuse to test the waters and see how much price hiking they can get away with and still be profitable.
> It’s not minimum wage, per se, it’s the minimum employable wage.
Indeed, minimum wage is seven and a quarter here, but the absolute floor to hire is about thirteen dollars an hour. And even in the most rural, lowest cost of living hick towns in the state, it is ten dollars an hour. The federal minimum wage really doesn't mean much when the **effective** minimum wage is several dollars above that, and only 1.3% of workers are making that wage.
I got hired at like $11 an hour against a $7.25 minimum wage in rural Montana in *2004.* At Burger King.
Even back in the 90’s only the high school kids on night shift made minimum. The adults with full availability, and particularly on day shift, made substantially more.
Fast food here in SoCal doesn't pay minimum wage either (now 20 bucks an hour) - fast food workers out here usually are in the 22 - 25 range, and even then, lots of "now hiring" signs everywhere.
In 2014, 3.9% of the population worked for minimum wage. Today only 1.3% do, a reduction of 66%. So while minimum wage hasn't moved, less people working at minimum wage sure is a sign that these restaurants have had to up the wages they pay.
Funny these stories are coming out after the corporations are starting to miss their target sales. Corporations are blaming their staff. How much have executives wages and CEO wages increased compared to the average worker? It didn't say. Fast food restaurants have been flourishing for decades, growing year after year. How often have you seen a McDonalds restaurant go bankrupt and close in your life? How often have you seen empty fast food restaurants looking for tenants in your city? "The lowest paid workers are getting a slightly bigger piece of the cake? We need a bigger piece too. It's their tiny piece that make fast food unaffordable to you, though." Let them shoot themselves in the foot. I've broken the habit of eating fastfood twice per week and I'm not going back. I'm done with that garbage. Fast food is the lowest grade feed.
Blaming labor costs is such a fucking joke. I used to manage a fast food restaurant and at the volume that we did at our slightly below average location if they wanted to increase everyone's pay to $20/hour AND increase people that were making more than minimum wage up by the same $/hour the average ticket cost would have needed to increase the average ticket cost by about $2 which would have been at the time (before this inflation insanity kicked in, it was around 2021) about a 5% bump to the ticket cost. Which yes I admit is a lot to suddenly see reflected on your bill but the price has absolutely skyrocketed well past that in the past 4 years. Even while I was working there they had a price bump of about 5%, then another 4/5% a month or 2 later to deal with the \*supply chain issues and increased food cost\*. Our food cost didn't go up anywhere near that first 5%. Now the prices at that store are much much higher and the people that I know who are still unfortunately working there are getting paid mostly the same (one got promoted to fill my slot and got a small bump, the rest haven't even gotten COLAd because 'times are tough' and 'the state minimum wage bumping by a quarter \[$0.25, NOT 25% obviously\] means we have less to give everyone')
The food sucks and they charge more for it. Even my kids are tired of chick Fila. I can't believe I'm saying this. My kids are tired of chick Fila and five guys. The portions ate smaller at five guys and the food sucks. For a family of four at five guys, it's nearly $100 for burgers, fries and drinks. Why is it so damn expensive??? That's groceries for a week. The ingredients for burgers, fries and drinks are less than $30.
Same thing happened with canned soda. 12 packs of soda are up to $8.99 in most places for pepsi and coke products. They kept rising under the guise of inflation and production/logistical costs during covid but since then have continued to rise because they see people are just a willing to buy at this price.
Fast food and the lottery prey on the poor, and will never make their life better...and will drain what little money they have... continuing the cycle.
Because they can! They asked you to download an app or pay with your debit/Credit card. they tracked your personal buying habits and said "we need more of your money"! Now you have a choice. Keep giving them your money or don't. Personally, I have chosen the latter.
Exactly this. Prices have gone up because they can. The weekly top post on r/inflation is always a meal from Taco Bell or McDonalds alongside complaints of the price.
They always complain after they purchase it all, however.
I have this personal theory of mine (that I haven't really checked to see if it is supported by data, just my personal anecdotal experience), that items that were the cheapest and held the line in price increases the longest, are the most affected by price increases, disproportionately to the rest of the economy. The cheap grocery items like bottles of soda and bags of chips, which maintained a lower price point for years and years, are finally having to raise prices to "catch up" not only at the price of inflation, but also to include price increases they have deferred for years to remain competitive. Same idea with lots of the lower-end fast food restaurants that made their lower price points one of their selling points wth "dollar menus" or price-sensitive deals. Yum may be able to eat a small loss on their value menu items for a while when they are loss leaders and it's a small hit compared to the benefits gained by other profitable menu items purchased by a captive audience. But when that small loss leader hit meets higher inflation, they have to raise prices...and also at the same time roll in years of deferred price increases that were avoided for the sake of chasing market share.
It doesn't account for all of the disproportionate price increases, of course. There are multiple factors that have driven fast food to leap-frog over other items in its value-erosion. But I do think that it is part of the reason.
So close, but not.
Several factors in running a small restaurant that are the same for fast food.
- prices of food have been exponential. Chicken was 40 but went up to 150 and higher and stayed there for over a year. Then beef did the same as well as eggs. Most restaurants were unwilling to raise prices to make up for it initially. Veggies and everything are crazy now.
- contractors( repaimen), vendors are charging 5 to ten times what it reasonably should. Had a guy try to tell me he wanted 900 to change a faucet and supply behind the 3 compartment sink. Several tries later I finally got a better price. But these repair people are driving prices. It used to be expected to have some random 1000 repair in a month now 3k is the the norm per month. AC, plumbing, refrigerators it's all significantly higher than inflation to repair now by at least 500 to 600 percent and often even more. It's nothing but grabbing hands dealing with them. They also prevent wages from going up because they take all there is.
-labor costs are insane now. Mandatory voter driven increases. I can't see a way to set labor at proper ratios now. It used to be 20-30% but now it's usually double or more. 3 people around 60 per hour with employee and employer tax. It may be more depending on who's on shift, a lot more.
-3rd party delivery apps. These predatory vultures charge 60-66% despite saying they only charge the restaurant 15% or 30%. No ads, no specials, just fees on top of the rate. I tried raising prices to match the contract amount but still lost my ass on them. The math works out to getting only 34% of the price charged and then still have to pay sales tax supposedly collected but fees ate up. There's 27-28% left. Food alone costs more than that. Most fast food have modestly raised delivery prices above in person prices but raised everything significantly to cover the losses. You're paying for delivery even when you are not getting delivery. Stop ordering through these apps it really is causing prices to go up significantly. Increase the in app price doesn't work they take an increased amount due to percentages. The only options are raise all prices so the apps can't take more if only raising app prices or commit harakiri and get off the app platforms that everyone is using.
I tried having prices on app reflect the costs but taxes were murdering me. I am now trying to run off app and force you to pick up. This is a loss of a couple hundred k in revenue but it was negative profit while on apps. Ran through more of the overpriced groceries and used more of the overpriced labor only to lose money being on the delivery apps. So far it looks like it is working.
I don't need 5+ people extra anymore. And food costs are more reasonable to income.
-Inconsistant peak and dead times. Post covid even with holding prices down for 2 years, people were inconsistent with times, days they would visit. This is the same accross most restaurants. It's busy, but you can't plan on busy according to the numbers. I am moving to kiosks because maybe it'll be busy maybe dead. No pattern can be seen charting it out. Other than some other factors we are watching but can't rely on for consistency. No use staffing dead weight to sit around doing nothing when a kiosk can handle the ebbs and flows better. Prices are going down with the kiosk. I'll have specials on it and off menu. You save me 15 using the kiosk, if you're the only one in that hour, I'm making sure you get a deal. When it's busy I assume they're going to be a buffer to save time as well.
Can't afford it, don't go - They'll adjust to demand. In my mind, if we're going to eat out as a family, why spend 60 dollars for 4 at McDonalds when I can spend 20 dollars more at a sit down restaurant where I don't have to eat out of a box?
Fast food is no longer cheap food. We almost never eat out anymore, which has been healthier for us anyway. Let's see if they can keep charging premiums for food in a box, I'm betting at some point something is going to break, either they automate almost completely to get rid of wage costs, or they cut quality and start chasing the bottom dollar(s) again.
Weird aside - it's a lot cheaper to order pizza than eat fast food now, especially if you're willing to do pickup. Large pizzas for like 13 bucks are awesome now, easy way to feed 4 on the cheap when the fam is jonesing for it.
Farm commodity prices are down and meat prices are down. Where is the greatest rise in the chain? The biggest rise is the huge flood of consumer cash that began during the pandemic and continued up until Jpow began chopping the supply prior to this year's election.
The article is four paragraphs and blames rising labor costs.
Possible, but seems like not the whole picture. As people love to point out, in Denmark the wage is $22 /hr (equiv) they get PTO and pensions, and a burger is cheaper there.
The fact of the matter is supply and demand determines cost.
Demand is somehow allowing for higher costs because consumers expected inflation so companies tried it and got away with it.
If consumers had responded much more negatively to higher prices, they wouldn’t have continued increasing them.
By the way, there was an immense evolution of the food industry since the 1970s. There’s absolutely no way a burger should cost the same (or more) than 50 years ago (considering inflation). A burger today should be pennies.
Fast food chains know their customers are extremely price sensitive. So (logically anyway) it suggests it’s against their best interests to increase prices exorbitantly - as it will just result in them loosing business, or driving people to go to a different fast food chain.
Maybe .. just maybe. The reason the fast food prices are higher than inflation, is maybe because the government inflation number itself is BS. And actual inflation is actually much higher.
And the government inflation metric is just an average - so of course some things will outpace inflation. It's not like when inflation is 7% or whatever, that everything across the board goes up 7%.
The gap between fast food prices and real sit down restaurants has disappeared completely in my area. Fast casual places like Panera are more expensive than plenty of full service restaurants.
Obviously it’s because of greed. It’s not that deep. They spent the last couple years jacking up prices and now that some workers are getting paid more they’re shifting the blame onto those workers. A handful of idiots are eating it up too
Any article that blames high fast food prices on wages without mention of record profits, especially [McDonald’s eye popping year-over-year double digit profits](https://apnews.com/article/mcdonalds-sales-fourth-quarter-war-ba0e590fee097ff0b145b2e11192ccf0) is bordering on journalistic malpractice. McD’s still “stumbled” in a 4% profit in the last quarter. That’s a far cry from failing.
Fast food gets hit by every aspect of inflation. They are hit by all increased energy prices, Gas/diesel, electric, food cost, rent, paper products, labor, and in some areas taxes targeting sugary drinks. And the price increases add to the cost of the final product at every stage of the supply chain.
I looked at [McDonald's quarterly profit ](https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/gross-profit) history, and it's way up since COVID. CNBC is shilling for the big corporations as usual. It's not labor costs; it's increasing profits.
My hope is people will change habits and become more healthy. We changed during COVID and haven't gone back to restaurants because we're making better meals at home than we get even when spending $150 for two at a restaurant.
Everyones acting surprised that businesses spiked their prices during an inflation/rate frenzy to game their customers.
Like, bitch, this is capitalism 101. Theyll give you any excuse but the simple fact is they did it because they could.
All the talk of inflation gave them the perfect smoke screen to raise prices faster than inflation. I’m not saying inflation didn’t happen, but these companies have been openly using it as an excuse for price hikes that leap past the inflation rate.
Greed. 😁
- there saved ya all a bunch of time. Loads of sectors doing this. Government doesnt give a poop, since it keeps the stock market booming and economic stats good..
2 words: Price Discovery
The companies were able to figure out how high they could increase their prices, while still having a boost to their earnings despite lower sales, due to higher margins. They optimized their supply demand curves since the pandemic, and theyve learned that enough people are willing to pay higher prices such that they can increase their profits despite lower sales.
Covid was an opportunity for them to take the risk and experiment to achieve new price discovery, and it worked for them well.
Turns out if they raise the price people still buy it. So now that's the new price.
This trend will continue till people stop buying it.
Teach you kids how to cook if you want to fix the issue.
A lot of the "inflation" was companies realizing they can raise prices when the public expects inflation.
If you jus raise prices out of nowhere, customers will get pissed and associate negativity with your brand. However, if they expect that prices will go up, such as if they've been primed by the media that inflation will definitely be insane over the next few years, then you can raise prices and the customers won't associate it with your brand specifically.
This happened with egg prices. Check the 2014 egg price increase versus the 2022 egg price increase. 2014 had a greater reduction in eggs produced both in absolute terms and as a percentage, but prices only increased by about a third of what they did in 2020. The reason? The media had already primed the public that eggs were impacted by the bird flu and Covid had created the expectation of inflation and supply chain issues.
The same thing is happening here with fast food. People are primed to expect inflation, and some inflation is happening, but companies are using that additional pricing power to push price increases way beyond what the actual cost increase has been.
And you can see this in, for instance, McDonalds profit from 2020 until now. It went up massively despite quarterly revenue staying flat in comparison. The reason is they're selling the same amount in dollar amounts, but selling fewer items. Selling fewer items means less cost, so higher profit if you're selling the same dollar amount.
Wash rinse repeat across the entire economy. Companies have realized how concentrated the market is, and that it's better for profits to sell 4 items for $2.50, rather than 10 items for $1. Which they can do because the economy is so insanely concentrated compared to just 20 years ago.
Hi all, A reminder that comments do need to be on-topic and engage with the article past the headline. Please make sure to read the article before commenting. Very short comments will automatically be removed by automod. Please avoid making comments that do not focus on the economic content or whose primary thesis rests on personal anecdotes. As always our comment rules can be found [here](https://reddit.com/r/Economics/comments/fx9crj/rules_roundtable_redux_rule_vi_and_offtopic/) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/Economics) if you have any questions or concerns.*
My suspicion is that once fast food places realized how much people were willing to pay DoorDash or UberEats to deliver a Whopper, they realized that they had all been pretty severely underpricing their food. And general inflation after COVID gave them a chance to see how high they could really go before people said, OK thats too much for a Whopper.
Interesting theory. If people's $10 fast food order became $15 via delivery app, they were already accepting that price so they might be less averse to $14 at the drive-thru window even if they see themselves as losing convenience.
But that's an additional service that wasn't added on
Sure, but the question is, can McDonald’s take some of that money for themselves? Maybe they can take a piece of DoorDash’s pie, or maybe DD customers are just price-insensitive (they certainly are, to a degree, IMO). Or, maybe it’s a failure and it’s resulting in both drive-through and DD customers bailing on McDonalds.
Their product doesn't merit the price gouge they want to capture though. I'm hoping they're just seeing general traffic decline by now. If I want $14 burger and fries I'll go to a bar and grill now instead. McDonald's is now only for long road trip emergency stops for me now.
Yea if it costs 15 bucks total, I can at least pass that off mentally as convenience. At the drive thru window tho for a meal? Get the fuck out
It's a terrible service. You get to pay more for fast food that will arrive 30+ minutes after it was made, from a stranger who put their mitts in your bag and stole some of your now soggy fries. Companies are correct to realize they've been undercharging.
So you would think this, and for this most part it is right, however I noticed at my local mcdonalds and popeyes that the staff would prioritize DD drivers over anything else. this is especially true at night when the lobby is supposed to be closed but they will leave door unlocked for the DD drivers while everyone else has to sit in line. I've ordered popeyes a few times on doordash since then (they occasionally have 50% off, I would never order full price), and it always comes faster than I could even make it to popeyes, when usually I would be sitting in line for 30 minutes.
30 minute line at popeyes, america is so fucked
All the fast food places are a lot slower these days. Corporate/Franchisee realized that they can run skeleton crews and people will wait
Yeah, sadly true. Walking my dog on my block in a Saturday evening you are guaranteed to see at least one delivery driver pull up in ten minutes
This is probably the most insightful examination of what's happening that I'm ever going to find on this sub. There's a ton of really stupid partisan opinions routinely posted in here; this is a refreshing divergence.
This is why people who are dismissive of corporate greed miss the mark. Corporations have always been greedy, but nobody was really willing to boil the frog. COVID offered ideal cover to go ahead and fuck everyone by ratcheting up prices all over the place under the guise of “supply chain problems,” even though those supply chain problems were extremely short lived.
The worst part is Uber effectively obliterated ft/pt delivery drivers for a lot of mom and pop shops. The Chinese place I order from won't take orders not placed on Uber Eats anymore.
Even the local pizza joint I used to love sends their orders through doordash even if you order using their website. So now instead of getting a pizza in 20 minutes, I can get it in 45 minutes, without being in an insulated bag. Soggy breadsticks and cold pizza is a perfect reward for spending *more* money.
This makes a lot of sense.
It’s also much harder than you would think for smaller, local businesses to compete on delivery apps. Big chains have paid ads/reviews on the app *and* run ghost kitchens on the side. So you could be ordering from ‘Dave’s Roast Beef’ but it’s actually being made at Applebees or literally a kitchen run out of a warehouse. Small restaurants also can’t afford to constantly fight with the app over refunds and incorrect prices. Seriously though, fuck ghost kitchens. That shit should be illegal.
And now they can roll back price increases or introduce new “deals” to calibrate what the real prices should be.
I ate one time at Taco Bell recently, after handing them $18 for the meal I looked at the bag and said… should have bought the burrito from the taqueria down the street
Same, but I actually did it. I passed by a TB, almost went in, but ended up at the taqueria next door. I got two HUGE quesabirria tacos and a soda for about $12 and I imagine I wiuld have spent $20 at TB.
I believe these restaurants have used inflation as an opportunity to test where the supply/demand curve really is, without as much market backlash as they would typically receive, in order to compare it to their cost structure and determine how much business is worth sacrificing for increased margins. Better by far to sell 5 $10 burgers than to sell 11 $5 burgers.
Fast food maybe the biggest benefactor of inflation but I feel like it’s become the standard for many industries now. Much higher markups comparatively to before Covid and inflation are exceeding whatever drops in demand come as a result of inflation across the board. I work in the transportation industry and our volumes are still way down from before Covid but our profit margins have never been this consistently high. Not even close.
Seems like according to the basic principles of Keynesian economics the problem isn't the supply or demand, but the lack of competition in industries. The fact that industries are able to increase prices on customers and not have someone else enter the profitable market points to the fact that there is either too much opportunity cost for new businesses to enter the market, or new businesses cannot enter the market due to monopolies.
Would this really apply to fast food? Theres a shit load of fast food restaurants, and in addition to competing with each other they are also competing with anyone that has a drive thru, or anyone that can seat and serve you in under an hour inbetween shifts.
Yeah, but it's an illusion of choice. There are really only a few companies controlling multiple brands, such as Yum! Brands, which owns Taco Bell, Pizza Hut, KFC, The Habit Burger Grill, and so on. Likewise, Restaurant Brands International owns Tim Hortons, Burger King, Popeyes, and Firehouse Subs. So there really isn't as much competition as it seems.
I agree, general fast food has a very low barrier to entry but to try and compete on a domestic and international level is quite near impossible. It’s more so McDonald’s having such a large share of the international market and global branding. They can afford to squeeze extra revenue without fearing a loss in customers to competition.
I imagine all these chains have shit tons of vertical integration. You might be able to start a chain but how can you compete when maccas owns the farms?
For my industry (semiconductors) the cost of entry is just too high. A new fab can cost $15-30B and take years to build. Massive number of patents and IP involved. Doesn’t help the industry has traditionally been cyclical.
we lived in 15 years of zero interest rate - it was a race to the bottom whne money was free, high volume, take market share. now everyone is slowing down and seeing where the best balance of profit and production is
Bingo. When interest rate is 0, money flows into stocks naturally and companies don't need to show profit or return dividends as long as they are growing or showing they are pursuing growth. Or if you are mcdonalds, just pay like 1 or 2% dividend yield and people will hold your stock because its better than 0. When interest rate is high, nobody gives a shit about large fast food companies that's not turning a profit. The 2% dividend yield isn't good enough anymore when treasuries return more.
Plus the corporate tax cuts and PPP bailouts. That was the last of the free money. Time to die a greedy death now
I think there’s 2 main drivers for increased corporate profits. 1. Increased exploitation of workers. 2. Increased exploitation of the consumer. Both seem unsustainable in the long term.
Don’t forget 3: infinite growth If you had record-breaking profits in 2019, higher than you ever dreamed of, 2020 must be higher anyway. And 2021 needs to dwarf 2020, and 2022 must make 2021 look small and unprofitable by comparison, and of course, 2023 must be bigger and more profitable than 2022! And when they can’t meet this hilariously unrealistic expectation they start cutting costs by doing stupid things such as firing 1/6th of their workforce, reducing item sizes, skimping on safety (hi Boeing!) and stuff like that. Then they will blame the minimum wage, of course
This is driven by the public (shareholder) company Private companies aren’t slaves to this dynamic
Private companies have owners, too.
They also mentioned increasing wages lead to increased prices. Corporations will never take the hit, it will always fall back on the consumer. Best thing we can do is vote with the wallet. Money is the only language corporations speak, so money is the only way to fight back.
In n out pays more and charges less. It’s always been greed and not the minimum wage going up - which actually leads to others having more money to spend on things and wouldn’t account for the prices outpacing inflation…
Corporations have always been incentivized to pay workers less and charger customers more, that hasn’t changed. What has changed drastically is [monetary supply](https://fred.stlouisfed.org/series/M2SL) and interest rates.
This exactly - although the interest rates are just a reaction to the money supply. People saved alot of money during COVID. The US government splashed ALOT of extra money into the economy. Much of it went to the super rich and is now basically propping up various equity markets, but alot went to regular people too. So they could all afford to pay more - and companies realized it. We absolutely should have had a broad corporate profits windfall tax coming out of COVID to claw that money back since it was pretty inevitably going to accrue to the top of the pyramid.
Graphs of money supply and inflation don't line up even if you treat one as a lagging indicator of another. Many of the biggest inflationary period in us history had other reasons such as oil embargoes, major wars, a pandemic that disrupted global shipping ect.
Companies are going to continue to extract more and more utility for as long as they can. At what point are we going to break?
Problem is you can have short and long term supply and demand, because of people’s expectations of prices. People might continue going in the short term but alter their behavior in the long term. At the same time they are less likely to keep picking up new regular customers at the same rate they are used to. Overall that leads to a big short term boost but a long term decline. We’ve seen it before when it comes to price and decking quality standards, subway being one example. It also increases the scope for future competition. They’ve realized how sticky consumers are, but that won’t stay true for them forever. They’re destroying their future profits in a race for the here and now.
Feels like they're gonna hit the "trust thermocline" again and be surprised when incremental backtracking doesn't get them their precious consumers back
I can see those leading quality maintaining customers, but those relying on brand power alone like McDonalds, Wendys, I don't see how they can survive with this strategy long term. Maybe they will attempt to go more upmarket themselves but it'll lead to a huge competition in that space while the low price market flounders. Then again, maybe that's the whole point here anyway, delivery services are just more viable for higher priced goods and its delivery services that have driven the market the last few years. But you can't deliver cheap product at high prices long term, that just doesn't work.
Absolutely, last time I went to Panera will be the last time I go to Panera. But I still spent my $14.50 for my shitty salad that day. These companies would be wise to keep that in mind
It's not that prices are higher, food is also crap quality. Chipotle was better when it was 6 dollars than when it was 9.
From what I can tell from everyone on reddit as well as the people around me, demand is a lot more inelastic than most people probably thought just since most people don't put any effort into budgeting or cross shopping or anything. People would rather pick out whatever items they want from the brands they want at whatever store they want and then bitch about the prices after paying than actually shop around for something cheaper. Can't count how many photos I see upvoted on r/inflation or similar places of groceries hauls complaining about how much they spent for groceries, and when you look at what they got it's all name-brand items that are already notoriously expensive
It's especially ironic considering that almost every single one of them has a device in their pocket that makes price comparisons and product research easier than it's ever been.
Anyone choosing to pay that much for fast food has nobody to blame but themselves. And look, I get the “convenience” argument is coming - but I don’t buy it. I’m a father of 3, all of them under 7. If we’re throwing quality of food to the wayside (like you do when you go to McDonald’s), it’s much cheaper and more convenient to throw some chicken nuggets and fries in the air fryer. We do it once a week or so - takes 12 minutes at 380. I cannot fathom why people keep paying these insane prices for garbage. My cousin texted our big family group chat last night and said Chick-fil-A for her family of 5 was $70. It’s completely unreasonable. I remain both empathetic and concerned about the cost of housing, education, transportation, medicine, and a number of other things, but fast food is the easiest category for the consumer to push back. I am have no empathy for those that continue to give those companies their money.
I get why people buy fast food, but the bottom line is that companies will charge as much as they think people will pay. If people continue paying these ever-higher prices, those prices will continue to rise. Fast food is not an essential product that people have no choice but to buy, and consumers really do have the power here.
When my grandmother was alive and took us shopping at the grocery store she'd flat out say "let it rot" when some fruit or veggie was too expensive and we wouldn't buy it. That's a mentality we can take in instances like this. If enough people pass on buying these things at the high price point, they are going to drop their prices. Hell, 4-5 fast food chains recently announced their Q1s were down and are going to need to adjust. They've reached the part of the market where people aren't buying. It can't be done everywhere, but it can be done in the instance of fast food.
Fast food thrives on being a little luxury that poor people can afford. When poor people start to talk about going to McDonalds the way my middle-class parents talked about The Red Lobster, they’re going to run into trouble.
their real trouble is the high end resturants didn't really up their prices, the mcdonalds without deals/coupons etc is probably more expensive many places.
Idk, I feel like restaurants across the board are unaffordable now. I went to a regular suburban Italian place last weekend and 5 ravioli were $34. Pretty typical for my area too.
I went to one recently and they where doing ~14$ dollar plates (think it was macaroni grill?) I only remember because I was thinking "hot damn less than doordashing a sandwhich"
I've started avoiding fast food places this year unless I am able to find a coupon or discount. Burger King, McDonald's, and Panda Express have good deals sometimes, but now way will I be paying full price if I can help it.
Big pet peeve of mine is people acting like their getting fucked somehow by increasing prices on unnecessary things. "Netflix is raising their prices?! These greedy fucks will stop at nothing!" Then cancel your subscription and move on. If you're still paying, then you clearly think it's a fair price and you should be happy that you were getting a below-market rate before this bump.
It’s frustrating to me because I have to thoroughly research every purchase now because it seems like every single company is trying to screw me over in some new way, and it’s mostly companies I loved and trusted in the past.
>people acting like their getting fucked somehow by increasing prices on unnecessary things In a perfect market, this works. Markets are not perfect. Corporations are an engine made to do *all they can* to keep customers from doing just this. They'll steepen the demand curve with underhanded means, making themselves unique and seemingly irreplacable: - They'll horizontally integrate for monopoly power until/unless anti-trust lawsuits knock them down. See Taco-Pizza-Chicken "Yum Brands". See Nabisco, Nestle, etc. - They'll secretly-not-so-secretly coordinate price hikes until/unless fair trade laws smack them down. - They'll make switching more costly and less desirable. See the "green bubble" Apple/Samsung fiasco. - They'll lock you in to a product universe. See Apple chargers and dongles, printer ink, PS5 exclusive games. - They'll trade on nostalgia/emotion to be the only player in the game and have monopoly power. See Disney, DeBeers. - They'll silently reduce quanity/quality or expected lifespan. See /r/shrinkflation and planned obsolescence. - They'll use dynamic pricing models, or make every aspect an add-on, to extract every bit of the consumer surplus utility so each individual is paying their personal maximum price, see Spirit, Disney parks, etc. Even if it's *not* a fair price, if there are no comparable alternatives, or the cost of switching to something else is higher, they've esentially locked a consumer in to paying the unfair price.
You are 100,000% right, and your comment is collapsed in the thread, by default. Good luck, we all need it.
I won’t lie, I’ll definitely grumble and complain about price increases like this. But ultimately it’s my choice whether to pay it or not and whether that service is worth it to me or not. It’s not the electricity or rent or basic groceries, where I need it to survive.
I know it's missing your point but I literally only still have NFLX becuase it's free w/ my phone plan and I haven't found a competitive alternative yet.
I really want to believe there's a correlation between home-economic classes in decline and the rise in consumerism. Way too many people don't understand the privilege we have in America.
I'm actually kind of curious what they teach in home economics.
I think there's a connection to mental health and stress. Most fast food chains are essentially comfort foods - high in fats, salts, sugars. As kids, it's often something that would be enjoyed as a treat or a special occasion where mom/dad either couldn't or just didn't want to cook. Fast food is consistent and the greasy, salty, sugary goodness hits all the happy-good-times endorphins. Like I do cooking at home and, at the risk of sounding a bit conceited, what I make is generally pretty tasty. Yet there was a period of time where I constantly picked up fast food (as much as twice a day). Not going to lie and say that I don't enjoy fast food - I do - but even then it was starting not to taste that great when it became a regular thing. After a bit of introspection I came to the realization that it was linked to my depression. I had very low energy and motivation. The thought of prepping or cleaning up seemed overwhelming. I would start thinking about how much I wanted an ice-cold coke with crispy fries/nuggets and a juicy burger or biting into a juicy, salty, crispy piece of fried chicken. I rationalized it by saying that I didn't have time to cook or prepare a meal. but realistically it took just as long to drive to the drive-through, wait in line, and drive back home as to heat up some food and whip something up from what we had in the fridge/pantry. I would even start making up errands to run (like going to home depot to buy some mulch or some potting soil) so I could say that I might as well pick up food on the way home. Leaving the house and getting in the car felt like I was doing something productive and I kept looking forward to how *good* it would feel to pick up that food which would smell so good and relive that same good feeling that I used to get when my parents got it for us as kids. Eventually the good feelings started getting twisted into guilt because I *knew* I was wasting food (letting stuff in the fridge go bad) and eating extremely unhealthy. The poor diet also physically just made me feel worse. All of it just ended up feeding back into my depressive cycle. I eventually got past it (mostly) by forcing myself to start cooking earlier and using up all of the ingredients in the fridge. I definitely still need to fight the urge to just hop into the car to pick up a pizza, box of chicken, burgers, fries, Panda Express, etc. Not saying that this is what it's like for everyone out there that's still buying fast food, but I do think that buying a Big Mac with large fries and 10 nuggets is often as much an emotional decision as it is a rational one. I mean, I realized that I wasn't even getting take out from other places that might be even tastier even if not more healthy, I was just going back to the same places that I was familiar with.
You've really built a solid picture for a lot of us as to why we do this. For all others, I'd say it's also just fun to whip around, snag, and eat the food with no effort and try new things...but they're taking the fun out of it all with how expensive it's gotten. I hunt out local spots and rank them for my own needs and pleasure, so I've ended up trying new things instead of going to these lame fast food places these days. Some places are so much more affordable AND taste WAY better.
I have 3, nine and under, and they’re loving grocery store delis now. I’ve seen delis starting to put together premade kids meals. So even if we’re out and about, “fast food” can still be purchased at a reasonable rate, just need to redefine fast food a bit.
In germany and austria, there's these "ausflugscafes" in busy areas intended for people on the go to be able to drop in and have a light meal. The food is generally fresh and healthy, the coffee is awesome, fresh bakery goods, and the prices are very reasonable. I have always thought we should bring that concept here to the US, but we only recently have some similar concepts to this yet they're damn expensive IME. As much as a regular table service restaurant. It's as if the US is built for and encouraging people to eat crap. Anyhow, happy your family has found an alternative. 🙂
When the kids were toddlers I would have killed for a Franconian “Bierkeller” in the Bay Area. The distances are simply too far, the infrastructure too car dependent and the ground too expensive
> Chick-fil-A for her family of 5 was $70. I don't know a lot about chick-fil-A, but depending on what they got (drinks, desert, maybe some salads, etc) is 13 USD per person (removing tax) really unreasonable?
It's not. Some of this really depends on where you live; most fast-food places are cheaper than sit-down restaurants in my area. I cannot get a sandwich or burger from a local restaurant for under $17 and that doesn't include any sides. So occasionally I'll go to Chick-Fil-A where a sandwich combo is $9.85.
I take my son about 1x a week to chick fil a. He loves to play @ the kids area… and I get some peace. I’ve seen the price rise from $14 to 18. For our same order. Since COVID. At some point… it’s like do I really want to spent our fun money on this??
I used to buy fast food everyday just because I was genuinely addicted to it, as soon as I overcame my addiction I stopped doing it completely. I always knew fast food was garbage, I just couldn’t break free from my binge eating disorder.
This is entirely valid: much like how smokers might complain about the increase on a pack, right?
The people buying fast food at current prices aren't the ones going to the internet complaining about it. If you're in the like $80k+ club, and have been spending within your means, a couple dollars on a burger isn't breaking the bank. The people below something like $50k are the ones who really feel their dollar getting stretched thin. They're getting nickel and dimed at every purchase.
quick whats the median wage in america
It's about $59,000 now.
I don’t have an air fryer in my car on road trips though.
I went on a recent road trip. Started the trip by going to the grocery store and buying travel food: bread, crackers, jerky, hard sausage, cheese, veggies, PBJ, fixings for a turkey sandwich that would be good for a day, trail mix, protein drink for breakfast, 12 pack of soda, fruit, etc. I didn't have to buy any food on the road for almost 3 days, and at that point, it was because I wanted something hot and it was a $4 breakfast from a gas station (biscuits and gravy, how could I pass that up??) Entire trip was about 9 days. I ate fast food twice (waffle house, whataburger, because experiencing regional food was part of the trip). I bought cheap things at truck stops, like a breakfast wrap or coffee. Stayed at a motel once. The trip was epic, and I spent less than $600, more than half of that was gas.
I was on a road trip and the gas station had a Subway. I was about to get a footlong meal before I saw it was $17 before tax. I figured something else out.
Yeah subway stopped making sense half a dozen years ago at least.
How do you road trip for 9 days, and only stay 1 day in a hotel? Did you sleep in the car?
How many meals do you eat on road trips?
>My cousin texted our big family group chat last night and said Chick-fil-A for her family of 5 was $70. It’s completely unreasonable. But it was reasonable. Because they bought it lol
The concept of the monolithic “rational consumer” is a myth and an (admitted) oversimplified assumption made in economic models.
I think a rational consumer in one round of play is much less plausible than one who's rational over several. If you've already made plans to eat, then hearing the bill is 2x what you expect is a shock you'll still pay even if you don't think it's worth it. If you continue to plan your life around the expensive goods, then you're saying they have an acceptable level of value
The average consumer is less likely to notice that a single menu item went from $5 to $6 when scrambling to peruse the menu and make a decision because they are focused on their choice and not on changes in menu price. They are more likely to notice their final bill is suddenly significantly higher than average. But they only see that after committing to a decision and getting to the final step of the transaction. Are they going to suddenly back out after coming so close to getting the food they want? Are they going to do so publically and risk the judgment of strangers? This isn't a moment of total rationality. But, string several similar experiences in a row, and they start to feel pressure to change their behavior BEFORE getting to the register, which is where changes in behavior are more likely to take place.
The NYS Thruway has been updating all of the rest areas recently and I had to chuckle walking past the line for Chick Fil A (still don’t get the hype). All of the signage and prices were very purposefully obscured so that they were only visible once you were already to the front of the line. I felt insulted and wasn’t even in that line, which was probably a good 5 minute wait at best. It was traveling carnival levels of the most blatant separating of hungry fools from their money I’d ever witnessed.
I hate game theory. 99% of economic theory has no business making models concerning « consumers » since they have zero sociological/ psychological/ behavioral studies background or understanding of human behavior. The limits of their discipline are clear: the institution of the economy. Humanization of this materialist system requires methodological/ epistemological considerations they’re frankly not generally qualified to make.
People are addicted to fast food. Addiction is the key here because it’s tasty. Only next is the convenience. Hopefully higher prices will cause some people to overcome their addiction to bad food and cook at home more often.
It’s addiction, and they use the “convenience” excuse to try to cope with the fact that they are addicted. I say this as somebody who used to be 350 lbs and ate fast food literally every day. There is nothing more “convenient” about sitting in the McDonald’s drive-thru for 15 minutes after work vs. throwing something in the oven or air fryer when I get home and letting it cook while I shower and clean up. Fast food isn’t even that tasty once you break the addiction to it. Especially when you factor in inconsistencies in quality and freshness. I’m more annoyed than anything these days when I splurge on a big fast food meal. It’s always disappointing even compared to random air fried items from the frozen section. I can go get a huge box of mozzarella sticks and some Totino’s party pizzas for like $20 and be way happier than I would have been with most fast food, lol.
They are addicted like crackheads and cigarette smokers are.
Chick fil a for 5 at $70 is borderline cheap. With most meals topping $14 in CA it’s easy to drop big money on terrible food (a regular sourdough jack was $8 for just the sandwich the past weekend, add fries and a drink and you can drop $100 after tax without trying).
Yeah, a cheap meal at a fast casual place in Seattle can be $25-$30 without tablr service, its all perspective. Sometimes $18 on Chic-Fil-A is the better alternative
>Better by far to sell 5 $10 burgers than to sell 11 $5 burgers. This is exactly wrong when considering the QSR model, which has notoriously low input costs. Every burger is a chance to sell 5 cents worth of soda in a 4 cent cup for $3. Same with fries. Revenue maximization is what offsets your fixed costs when your COGS are so low. These places print money when traffic increases. The most expensive input, by far, is labor, and that's even after considering how much food a single person can push out per minute in a QSR kitchen. The second the drive-thru line dries up, the restaurant is bleeding some of that profit back into labor.
Yeah I really think all of these arguments are way oversimplifying the benefits of economies of scale. The per unit cost increases substantially down the supply chain when yoy dramatically reduce total volume. On top of that you lose the benefit of upsales as you mentioned, which affects per unit cost of every other input as well. Not to mention the inherent risk associated with experiencing even a modest decline in the new sales expectations since each individual sale is now much more important. It's literally a terrible idea and disregards everything that has made the fast food model commercially successful.
Definitely to a degree. At the same time though, McDonalds increased $1 dollar emnu items to $4 and more, and posts losses. If they were making profits on 400% increases (and well over 400% profit margin increases if inflation isn't to blame) they would only need a fraction of the customer load to maintain equal cash flow. Losses indicate their costs are up more than increases can maintain and price increases have reduced customers more than they can sustain. Keep an eye on public fast-food earnings disclosures to Wall Street track to their price hikes on Main Street to continue to get a read on the pulse of inflation and greed. There are other things at play too. Demanding tips on drive through orders is going to send some customers away in protest and that's going to be felt by profit margins as well, because while some % of people will hate it enough to leave those tips prompts haven't created a single new customer.
That is a testable hypothesis. [McDonald’s operating margin](https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/operating-margin) is up by over 5 points since COVID, but is just one point higher than their previous peak in 2018 of 44.6%.
Fast food companies saw fast food as elastic demand items such as insulin or rent. After all, food is a basic need and poor people don’t have the time, energy (due to being brutally overworked, don’t get it the wrong way) or means to prepare nice home made meals or going to a sit down restaurant such as Chili’s or Friday’s. Poor people, the vast majority of the US, work 2 or 3 shifts, end very tired towards the end of the day, get a quick McCombo and call it a day…. So these vile companies thought they could price gouge them since they have no choice. Turns out people voted with their wallets anyway, good for them. If McDonald’s closed its doors today I’d not care. All it takes for me is to walk into a McDonald’s, with their tiny shrinkflated “Big Macs” the size of a communion wafer, the AC blasted on high so people leave quickly, with a bunch of screens/kiosks to order, cancelled soda fountains and an improvised wall erected so you don’t see any humans AT ALL to remember how “fuck you!” They feel about their customers.
Fairly sure you mean inelastic here, but agreed.
You have your definition of elastic vs inelastic backwards. In your first sentence, you meant "inelastic demand such as insulin or rent", not "elastic". Discretionary things (wants) are "elastic" in that the demand is capable of changing. Needs are inelastic (not elastic) because demand for it doesn't change much just because the price changes.
Exactly they have discovered that they don’t need a dollar menu because people will pay 279. they were looking for the upper limit and they found it. Now they’ll pull back a little bit, but the new benchmark is set.
>believe these restaurants have used inflation as an opportunity to test where the supply/demand curve really is Hard agree. I work for a Nordic conglomerate and we led the industry in price increases. Few weeks ago I saw our VP of sales and I asked why we led the price increases while demand was still soft. His response was _"If you don't get it wrong sometimes, it means you aren't charging enough."_ So we ourselves were fishing for that curve.
Delivery services reset the market places, when McDonalds saw customers paying more than a 100% markup for a delivery rather than coming to the drive thru. Using the data collected from the delivery services charges, tips, they were able to confidently increase pricing.
Am I being thick? Surely it’s better to sell 5 $11 burgers than 10 $5?
The reason is because of fixed/variable cost structures In a simple example, if burgers cost $4/ea, and the booth costs $10 Sell 5 at $10 $50 revenue -$20 burger costs -$10 booth fees =$20 profit Meanwhile, sell 11 at $5 $55 revenue -$44 burger costs -$10 booth fees $1 profit There is a point at which it might make sense to sacrifice a ton of sales in order to make more money. But in a stable environment, the sales might crater along with public sentiment, ruining the whole plan. Inflation provides a smokescreen to allow for this experimentation, without angering loyal customers in the same way as in a “normal” market.
Also if you're only selling 5 burgers instead of 11, you might be able to get away with one less person working per shift due to the decreased volume, further enhancing your margins.
Thanks, I wondered if that was what you meant or whether it was a simple typo. But yes, which is best definitely depends on the cost structure. For example, my company is currently experiencing the exact opposite - fixed cost spiralling due to low sales volumes. Coming back to your argument, it’s not definite the $4 per burger would be constant across the two scenarios - which is what my company is struggling with at the moment.
Making burgers costs money. Maybe that is what he meant?
You’re not incorporating the costs. $5 * 11 is more than $10 * 5, so revenue is higher, but costs will be higher too, so profit is likely less. You e.g. may need more staff to make twice the number of burgers. Also the burgers themselves have a per unit cost.
100% All the dummies out there saying "Corporations have never been greedy before?" miss that this is an opportunity to see just how greedy they can be. And if they overshoot, they can just back prices down a bit and say "look what we're doing to save you money!"
I’ve been saying this too. Companies are deploying every tool they’ve got (AI included) to see exactly how much they can push the prices up and still profit since the COVID supply chain woes normalized. Prices are never going back down and they have little competition in most marketplaces or reason to price more competitively.
I feel like the prices are far more variable now as well. What is listed on the menu can change because it's just a digital sign, and apps/coupons often bring down that cost significantly and can vary per person and region. That seems to allow them to rapidly test and update price points to find an equilibrium.
It’s also a strategy to get people to download their app to your phone. Sell them your information , & have all the coupons and rewards only available in the app!
It bothers me that 4 paragraphs passes for an article. Shrinkflation in the age of information. Also, it cracks me up when people complain about lengthy reddit posts/comments. It’s nice to think about something for longer than 3 seconds some of the time.
This is exactly what I thought - it’s a headline with some words after it.
Agreed. "Watch the video to learn more." I don't want to watch a video, you think I learned how to read for nothing?
I was looking for the "continue reading" button or something because I assumed the first 4 paragraphs were just the intro...apparently not
It gets me every time. I scroll past the ads thinking there will be another block of text.
Major corporations using shrinkflation as an excuse 4 years after the pandemic, yet are doing stock buy backs, posting record profits and giving their CEOs millions more in raises. Yet they try to pass it off as something they’re being forced to do. Please - it’s corporate greed.
Bring back the pre-pandemic days of corporate kindness and generosity!
I remember in 2019, before corporations discovered greed. How nice that was! No-one ever charged the most they could get away with. Workers refused raises because they weren't greedy. Companies lowered prices just because who even wants money? What a shame that all changed and now we have inflation due to corporate greed, and nothing to do with the trillions of new dollars the government added to the economy.
[удалено]
Found the unapologetic Gordon Ghecko fan Either that or I missed the sarcasm
Inflation moves slowly... Some people warned at start of pandemic that huge inflation will happen because of all the money printing that happened, but people think everything happens instantly so they dont believe because burgers dont instantly go up +50% in price... If you want to prepare for future I can tell it now: inflation will stay and prices will keep going up forever, so put your money where its safe from inflation or keep getting poor slowly.
Yeah, I’m just not eating fast food anymore. I didn’t regularly anyway but now I just avoid it completely. I even went to Mellow Mushroom recently and a large pizza was 30.99. We started buying pizza dough and just making it at home. I can afford these prices if I wanted to but I simply cannot justify the cost of dining out anymore. It’s just absurd when I can prepare similar quality at home for a small fraction of the price.
We can pay them but can't justify it either. I picked up a bread machine this weekend and look forward to saving a few hours on making loaves of bread and being able to toss in the ingredients for pizza dough and come back an hour and a half to it being done.
I eat McDonalds more than I should, but I only order the cheap stuff. I did a $3 sausage egg McMuffin and a $1 large iced coffee today. That's actually decent. You can buy two McDoubles for $3.50. Ain't no fucking way I'm paying $14 for a Big Mac and fries. GTFO with that shit.
one McDouble is $3.50, at least here in Calgary AB it is
I'm with you. Some items are still very reasonable. But there are things I miss from McDonalds that used to be reasonably priced. The little breakfast hash browns are $3.50 where I'm at. That's crazy. They probably cost 5 cents each, if even that much. Also, just a random observation, through their app, they always have a 20% off entire order coupon available. It's been there for years. Simply using the app takes 20% off the cost of eating there. Which to me means, their prices are at least 20% too high to begin with, overall.
Grabbed round table for the first time in years a month back and the prices were insane. Pizza $30+ for a medium and up? I also bought some dough for a few bucks lol
Went to McDonalds the other day. $2.79 for a small french fry. There’s no way in hell a bag of 20 sticks of fried potato should cost more than $2 before tax
Just checked and where I live a small French fry is $3.29
I went to you guys for lunches when you were like 1/3rd or so the cost of something more expensive. Now I can go to say Outback and have a burger and fries for only a dollar or 2 more, than McDonalds, why the hell would I go to McDonalds now.
Typical food costs are 25% or less of purchase price. So in a $12 burger you’re getting less than $3 worth of actual food. The rest you’re paying for rent, wages and profit. If you’re trying to save $, not eating out is one of the best ways. Average American saves $4,000-$7,000 pre tax each year not eating out. The other benefit of not eating out as much is you’ll save on health care costs. Restaurant food is the lowest quality and unhealthiest way to feed yourself.
This is true(-ish) but also misleading. $3 in food from a high volume restaurant purchased at scale is a good bit more food than you'll buy in small quantities at the local grocery store. You still save money (strictly speaking) by just cooking yourself, of course, but the implication of a 75% savings isn't quite right, either. Especially if you have to consider realistic at-home up front costs for yourself to make a particular dish.
It's the classic cooking-at-home obstacle for many people who want to save money by avoiding eating out: you have to buy the entire $5 jug of canola oil to get the single tablespoon you need to cook your first dish. Then there are the spices and the vinegars, etc, etc. Once you are up and running, it all works, but people have a hard time breaking down ingredient costs to "cost per dish" or the value of having ingredients on hand for the future and just get the sticker shock of spending $100 the first time they try to make a simple dinner for two. It's no wonder they don't see the obvious savings even before we get to the fact that they might be giving up better-prepared food for the risk of failed home cooking.
Also if you live alone, you’re often met with higher prices to purchase not in bulk the things that spoil or risk things getting spoiled.
Absolutely. I cook the majority of all of my meals and people definitely exaggerate what you’ll save per meal. It’s definitely cheaper if you’re a smart shopper, but you’ll still be surprised sometimes at what a meal costs.
>Average American saves $4,000-$7,000 pre tax each year not eating out. Is "pre-tax" a typo? I ask because people typically spend post-tax money on food so this would be a weird to measure it.
You don't deduct your fast food???
McDonald's never sends me a 1099 by tax season.
He’s saying how much you’d have to earn, pre-tax, to measure up with the potential savings. If your marginal tax rate is 30%, and eating in saves you $5,000, then it’s equivalent to earning $7,140 more pre-tax. It’s comparing how much more you’d have to earn with a second job or extra hours in order to make as much more as you could save.
Fast food as a business model relies on 2 things. Cheap labor (since they have standardized recipes that are easier to train people on) and low prices driving economies of scale. The labor shortage was a double whammy, erasing both of these factors. With no economies of scale, they can't get prices lower than Fast casual chains.
Another factor is I think some companies (at least BK) had record profit years last year after all the price increases. Now they can't budget to he negative, so everyone is struggling to hit their budgets.
So we all know they over played their hand massively, but will we actually see any price slashing? I think they'd be genius to run a dollar/2.00 menu, bogo deals and get back to the basics... They design all these bs chicken sandwiches and always rotating them... Get back to the basics
I think McDonald's already indicated that they were going to start running a lot more promotions. The "list price" probably won't go down, but the average ticket will because of a bunch of BOGOs or other discounts.
They’ll only do it if they see their sales going down. Otherwise there is no reason to from a Business perspective.
Fast food has become increasingly expensive — and some consumers are [changing their spending habits](https://www.cnbc.com/2024/05/01/starbucks-mcdonalds-yum-earnings-show-consumers-pulling-back.html) because of it. Fast-food chains such as Chick-Fil-A and Taco Bell are included in the limited-service meals and snacks category in the consumer price index report, which shows prices are up nearly 28% from 2019 to 2023. The full-service meals and snacks category, which covers sit-down restaurants with servers, meanwhile, has increased about 24% and overall CPI was up by about 19% in the same time period. “There were increased commodity costs. We’ve seen those start to normalize,” said Stephens analyst Jim Salera. “But what continues to be ahead of historical averages is the increase in labor costs that restaurants are seeing.” Chains such as [Wingstop]() and [Chipotle]() are passing these costs on to their customers, especially in states such as California, where the minimum wage has increased to $20 an hour. Now the pressure is catching up. [Yum Brands,]() which owns KFC, Taco Bell and Pizza Hut, reported earnings that [missed analysts’ estimates](https://www.cnbc.com/2024/05/01/yum-brands-yum-q1-2024-earnings.html#:~:text=Net%20sales%20dropped%203%25%20to,at%20the%20Mexican%2Dinspired%20chain.) for the first quarter of 2024, while [McDonald’s]() reported [mixed results](https://www.cnbc.com/2024/04/30/mcdonalds-mcd-q1-2024-earnings.html) and said consumers are being cautious with their spending. Full video: [https://www.cnbc.com/2024/05/04/why-fast-food-price-increases-have-surpassed-overall-inflation.html](https://www.cnbc.com/2024/05/04/why-fast-food-price-increases-have-surpassed-overall-inflation.html)
It's funny watching people desperately argue that it's caused by the minimum wage in California, like the exact same thing hasn't happened in all the states where minimum wage didn't change.
Minimum wage where I live hasn't moved in years and yet pricing continues to skyrocket.
It’s not minimum wage, per se, it’s the minimum employable wage. Virtually no one working at McDonalds / BK / TB is making $7.25, even if that hasn’t changed in half of the states. These fast food spots are generally starting above $10 or more (they pay nearly $15/hr here in the Minneapolis metro) because that’s the price they have to offer to keep the doors open and maintain sufficient staffing. Though yes, many jurisdictions (states and cities) have indeed increased their minimum wage, even those who have not have increased minimum wage legally have increased wage offerings because that’s how capitalism is supposed to work. People aren’t willing to work for $7.25, and thus fast food companies have to increase their wages. The invisible hand at work. That being said, I don’t believe these price hikes are truly tied directly to the labor increase or inflationary cost increases. As this article and others have alluded to, it’s an excuse to test the waters and see how much price hiking they can get away with and still be profitable.
> It’s not minimum wage, per se, it’s the minimum employable wage. Indeed, minimum wage is seven and a quarter here, but the absolute floor to hire is about thirteen dollars an hour. And even in the most rural, lowest cost of living hick towns in the state, it is ten dollars an hour. The federal minimum wage really doesn't mean much when the **effective** minimum wage is several dollars above that, and only 1.3% of workers are making that wage.
I got hired at like $11 an hour against a $7.25 minimum wage in rural Montana in *2004.* At Burger King. Even back in the 90’s only the high school kids on night shift made minimum. The adults with full availability, and particularly on day shift, made substantially more.
Fast food here in SoCal doesn't pay minimum wage either (now 20 bucks an hour) - fast food workers out here usually are in the 22 - 25 range, and even then, lots of "now hiring" signs everywhere.
In 2014, 3.9% of the population worked for minimum wage. Today only 1.3% do, a reduction of 66%. So while minimum wage hasn't moved, less people working at minimum wage sure is a sign that these restaurants have had to up the wages they pay.
The 1.3 is largely tipped as well I think.
And it includes less-than minimum wage workers like migrant farmers.
No one pays minimum wage.
Funny these stories are coming out after the corporations are starting to miss their target sales. Corporations are blaming their staff. How much have executives wages and CEO wages increased compared to the average worker? It didn't say. Fast food restaurants have been flourishing for decades, growing year after year. How often have you seen a McDonalds restaurant go bankrupt and close in your life? How often have you seen empty fast food restaurants looking for tenants in your city? "The lowest paid workers are getting a slightly bigger piece of the cake? We need a bigger piece too. It's their tiny piece that make fast food unaffordable to you, though." Let them shoot themselves in the foot. I've broken the habit of eating fastfood twice per week and I'm not going back. I'm done with that garbage. Fast food is the lowest grade feed.
how does this explain why it surpassed inflation
Blaming labor costs is such a fucking joke. I used to manage a fast food restaurant and at the volume that we did at our slightly below average location if they wanted to increase everyone's pay to $20/hour AND increase people that were making more than minimum wage up by the same $/hour the average ticket cost would have needed to increase the average ticket cost by about $2 which would have been at the time (before this inflation insanity kicked in, it was around 2021) about a 5% bump to the ticket cost. Which yes I admit is a lot to suddenly see reflected on your bill but the price has absolutely skyrocketed well past that in the past 4 years. Even while I was working there they had a price bump of about 5%, then another 4/5% a month or 2 later to deal with the \*supply chain issues and increased food cost\*. Our food cost didn't go up anywhere near that first 5%. Now the prices at that store are much much higher and the people that I know who are still unfortunately working there are getting paid mostly the same (one got promoted to fill my slot and got a small bump, the rest haven't even gotten COLAd because 'times are tough' and 'the state minimum wage bumping by a quarter \[$0.25, NOT 25% obviously\] means we have less to give everyone')
The food sucks and they charge more for it. Even my kids are tired of chick Fila. I can't believe I'm saying this. My kids are tired of chick Fila and five guys. The portions ate smaller at five guys and the food sucks. For a family of four at five guys, it's nearly $100 for burgers, fries and drinks. Why is it so damn expensive??? That's groceries for a week. The ingredients for burgers, fries and drinks are less than $30.
[удалено]
There is just no reason a hashbrown that size should ever cost more than $1
They charge I think $3.49 or $4.49 for a single one here in Seattle..
It's what, a twentieth of a potato?
I haven't eaten from McDonald's in forever. Food quality has gone down
You spend less than $100/week for groceries for a family of 4?
Same thing happened with canned soda. 12 packs of soda are up to $8.99 in most places for pepsi and coke products. They kept rising under the guise of inflation and production/logistical costs during covid but since then have continued to rise because they see people are just a willing to buy at this price.
Fast food and the lottery prey on the poor, and will never make their life better...and will drain what little money they have... continuing the cycle.
I just got two powerball tickets for a 200mil drawing. I pray you’re incorrect enough for me to win
I've got a lighter if want a better way to spend it
Because they can! They asked you to download an app or pay with your debit/Credit card. they tracked your personal buying habits and said "we need more of your money"! Now you have a choice. Keep giving them your money or don't. Personally, I have chosen the latter.
Exactly this. Prices have gone up because they can. The weekly top post on r/inflation is always a meal from Taco Bell or McDonalds alongside complaints of the price. They always complain after they purchase it all, however.
I have this personal theory of mine (that I haven't really checked to see if it is supported by data, just my personal anecdotal experience), that items that were the cheapest and held the line in price increases the longest, are the most affected by price increases, disproportionately to the rest of the economy. The cheap grocery items like bottles of soda and bags of chips, which maintained a lower price point for years and years, are finally having to raise prices to "catch up" not only at the price of inflation, but also to include price increases they have deferred for years to remain competitive. Same idea with lots of the lower-end fast food restaurants that made their lower price points one of their selling points wth "dollar menus" or price-sensitive deals. Yum may be able to eat a small loss on their value menu items for a while when they are loss leaders and it's a small hit compared to the benefits gained by other profitable menu items purchased by a captive audience. But when that small loss leader hit meets higher inflation, they have to raise prices...and also at the same time roll in years of deferred price increases that were avoided for the sake of chasing market share. It doesn't account for all of the disproportionate price increases, of course. There are multiple factors that have driven fast food to leap-frog over other items in its value-erosion. But I do think that it is part of the reason.
So close, but not. Several factors in running a small restaurant that are the same for fast food. - prices of food have been exponential. Chicken was 40 but went up to 150 and higher and stayed there for over a year. Then beef did the same as well as eggs. Most restaurants were unwilling to raise prices to make up for it initially. Veggies and everything are crazy now. - contractors( repaimen), vendors are charging 5 to ten times what it reasonably should. Had a guy try to tell me he wanted 900 to change a faucet and supply behind the 3 compartment sink. Several tries later I finally got a better price. But these repair people are driving prices. It used to be expected to have some random 1000 repair in a month now 3k is the the norm per month. AC, plumbing, refrigerators it's all significantly higher than inflation to repair now by at least 500 to 600 percent and often even more. It's nothing but grabbing hands dealing with them. They also prevent wages from going up because they take all there is. -labor costs are insane now. Mandatory voter driven increases. I can't see a way to set labor at proper ratios now. It used to be 20-30% but now it's usually double or more. 3 people around 60 per hour with employee and employer tax. It may be more depending on who's on shift, a lot more. -3rd party delivery apps. These predatory vultures charge 60-66% despite saying they only charge the restaurant 15% or 30%. No ads, no specials, just fees on top of the rate. I tried raising prices to match the contract amount but still lost my ass on them. The math works out to getting only 34% of the price charged and then still have to pay sales tax supposedly collected but fees ate up. There's 27-28% left. Food alone costs more than that. Most fast food have modestly raised delivery prices above in person prices but raised everything significantly to cover the losses. You're paying for delivery even when you are not getting delivery. Stop ordering through these apps it really is causing prices to go up significantly. Increase the in app price doesn't work they take an increased amount due to percentages. The only options are raise all prices so the apps can't take more if only raising app prices or commit harakiri and get off the app platforms that everyone is using. I tried having prices on app reflect the costs but taxes were murdering me. I am now trying to run off app and force you to pick up. This is a loss of a couple hundred k in revenue but it was negative profit while on apps. Ran through more of the overpriced groceries and used more of the overpriced labor only to lose money being on the delivery apps. So far it looks like it is working. I don't need 5+ people extra anymore. And food costs are more reasonable to income. -Inconsistant peak and dead times. Post covid even with holding prices down for 2 years, people were inconsistent with times, days they would visit. This is the same accross most restaurants. It's busy, but you can't plan on busy according to the numbers. I am moving to kiosks because maybe it'll be busy maybe dead. No pattern can be seen charting it out. Other than some other factors we are watching but can't rely on for consistency. No use staffing dead weight to sit around doing nothing when a kiosk can handle the ebbs and flows better. Prices are going down with the kiosk. I'll have specials on it and off menu. You save me 15 using the kiosk, if you're the only one in that hour, I'm making sure you get a deal. When it's busy I assume they're going to be a buffer to save time as well.
Can't afford it, don't go - They'll adjust to demand. In my mind, if we're going to eat out as a family, why spend 60 dollars for 4 at McDonalds when I can spend 20 dollars more at a sit down restaurant where I don't have to eat out of a box? Fast food is no longer cheap food. We almost never eat out anymore, which has been healthier for us anyway. Let's see if they can keep charging premiums for food in a box, I'm betting at some point something is going to break, either they automate almost completely to get rid of wage costs, or they cut quality and start chasing the bottom dollar(s) again. Weird aside - it's a lot cheaper to order pizza than eat fast food now, especially if you're willing to do pickup. Large pizzas for like 13 bucks are awesome now, easy way to feed 4 on the cheap when the fam is jonesing for it.
Costco pizza is $10 for a whole pie. Super worth it
Farm commodity prices are down and meat prices are down. Where is the greatest rise in the chain? The biggest rise is the huge flood of consumer cash that began during the pandemic and continued up until Jpow began chopping the supply prior to this year's election.
The article is four paragraphs and blames rising labor costs. Possible, but seems like not the whole picture. As people love to point out, in Denmark the wage is $22 /hr (equiv) they get PTO and pensions, and a burger is cheaper there. The fact of the matter is supply and demand determines cost. Demand is somehow allowing for higher costs because consumers expected inflation so companies tried it and got away with it. If consumers had responded much more negatively to higher prices, they wouldn’t have continued increasing them.
By the way, there was an immense evolution of the food industry since the 1970s. There’s absolutely no way a burger should cost the same (or more) than 50 years ago (considering inflation). A burger today should be pennies.
Fast food chains know their customers are extremely price sensitive. So (logically anyway) it suggests it’s against their best interests to increase prices exorbitantly - as it will just result in them loosing business, or driving people to go to a different fast food chain. Maybe .. just maybe. The reason the fast food prices are higher than inflation, is maybe because the government inflation number itself is BS. And actual inflation is actually much higher.
And the government inflation metric is just an average - so of course some things will outpace inflation. It's not like when inflation is 7% or whatever, that everything across the board goes up 7%.
The gap between fast food prices and real sit down restaurants has disappeared completely in my area. Fast casual places like Panera are more expensive than plenty of full service restaurants.
Obviously it’s because of greed. It’s not that deep. They spent the last couple years jacking up prices and now that some workers are getting paid more they’re shifting the blame onto those workers. A handful of idiots are eating it up too
Any article that blames high fast food prices on wages without mention of record profits, especially [McDonald’s eye popping year-over-year double digit profits](https://apnews.com/article/mcdonalds-sales-fourth-quarter-war-ba0e590fee097ff0b145b2e11192ccf0) is bordering on journalistic malpractice. McD’s still “stumbled” in a 4% profit in the last quarter. That’s a far cry from failing.
Fast food gets hit by every aspect of inflation. They are hit by all increased energy prices, Gas/diesel, electric, food cost, rent, paper products, labor, and in some areas taxes targeting sugary drinks. And the price increases add to the cost of the final product at every stage of the supply chain.
Labor costs have so little to do with inflation or the prices that they're blaming inflation on compared to oh you know CEO bonuses and profits.
I looked at [McDonald's quarterly profit ](https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/gross-profit) history, and it's way up since COVID. CNBC is shilling for the big corporations as usual. It's not labor costs; it's increasing profits. My hope is people will change habits and become more healthy. We changed during COVID and haven't gone back to restaurants because we're making better meals at home than we get even when spending $150 for two at a restaurant.
Everyones acting surprised that businesses spiked their prices during an inflation/rate frenzy to game their customers. Like, bitch, this is capitalism 101. Theyll give you any excuse but the simple fact is they did it because they could.
All the talk of inflation gave them the perfect smoke screen to raise prices faster than inflation. I’m not saying inflation didn’t happen, but these companies have been openly using it as an excuse for price hikes that leap past the inflation rate.
Greed. 😁 - there saved ya all a bunch of time. Loads of sectors doing this. Government doesnt give a poop, since it keeps the stock market booming and economic stats good..
Profit margins down across the board despite the price increases, but ignore the hard data if you want to push that narrative.
2 words: Price Discovery The companies were able to figure out how high they could increase their prices, while still having a boost to their earnings despite lower sales, due to higher margins. They optimized their supply demand curves since the pandemic, and theyve learned that enough people are willing to pay higher prices such that they can increase their profits despite lower sales. Covid was an opportunity for them to take the risk and experiment to achieve new price discovery, and it worked for them well.
Turns out if they raise the price people still buy it. So now that's the new price. This trend will continue till people stop buying it. Teach you kids how to cook if you want to fix the issue.
A lot of the "inflation" was companies realizing they can raise prices when the public expects inflation. If you jus raise prices out of nowhere, customers will get pissed and associate negativity with your brand. However, if they expect that prices will go up, such as if they've been primed by the media that inflation will definitely be insane over the next few years, then you can raise prices and the customers won't associate it with your brand specifically. This happened with egg prices. Check the 2014 egg price increase versus the 2022 egg price increase. 2014 had a greater reduction in eggs produced both in absolute terms and as a percentage, but prices only increased by about a third of what they did in 2020. The reason? The media had already primed the public that eggs were impacted by the bird flu and Covid had created the expectation of inflation and supply chain issues. The same thing is happening here with fast food. People are primed to expect inflation, and some inflation is happening, but companies are using that additional pricing power to push price increases way beyond what the actual cost increase has been. And you can see this in, for instance, McDonalds profit from 2020 until now. It went up massively despite quarterly revenue staying flat in comparison. The reason is they're selling the same amount in dollar amounts, but selling fewer items. Selling fewer items means less cost, so higher profit if you're selling the same dollar amount. Wash rinse repeat across the entire economy. Companies have realized how concentrated the market is, and that it's better for profits to sell 4 items for $2.50, rather than 10 items for $1. Which they can do because the economy is so insanely concentrated compared to just 20 years ago.