Most of the McDs around me are already paying $17-20 (in Minnesota, including rural areas) and the menu prices reflect it. We recently have begun to pay >$50 for a family of four. For context: the two cheeseburger meal is now just under $11. Subway is the same thing, with most sandwiches topping $10/ea and totals coming out around $50 for four of us.
What is interesting, however, is that we're not witnessing this with traditional restaurants and/or fast casual spots. I wonder if they will catch up or if this sort of wage inflation or shove McDs out of the fast food category.
> Most of the McDs around me are already paying $17-20 (in Minnesota, including rural areas) and the menu prices reflect it
McDonalds had $1.9B in profit in 2022. $1.6B in 2021.
Starbucks had $3.3B in profit in 2022. $3.6B in 2021.
Subway announced they had beaten sales plans by $1.4B in 2021.
It's not the wages that are the issue making the prices go up. These companies aren't hurting for profit.
Out of curiosity, what does that mean? It appears to me the main business of McDonald's is to collect franchising fees. Most McDonald's fast food joints (93%) are owned and operated by independent local business owners, who have to pay McDonald's-the-company the frinchising fees, which are about $45k/year [1].
So, I can see how McDonald's, the company, can be highly profitable, while individual stores could be barely surviving.
Don't they also pay % on top of the franchise fee as well as are required to purchase all the food and werez from Macdonalds which I assume also got more expensive.
Sure, and if those individual franchises start failing or finding other corporate overlords, then McDs profits may go down and they may have to reduce those fees in order to remain competitive. Such is capitalism.
Does this equilibrium-finding method create undo misery and stress for the franchise owners? I would say yes. If franchisees banded together to negotiate in order to extract better fee arrangements from McDs without going through individual bankruptcy, well...
Since the franchisees are themselves independent businesses, wouldn’t this constitute collusion and price fixing? Something similar was raised around discussions about Uber drivers jointly negotiating rates with Uber.
Note that given the franchise model, that's 50k profit on basically no expenses (i.e. you aren't looking at the profit of the stores, that's the amount of money being taken out of each store by McDonalds in addition to the profit that the owners are making). McDonalds isn't paying for the employees or the food or the buildings. That's just the tax they are charging the franchises for the privilege of calling themselves a McDonalds store.
> Note that given the franchise model, that's 50k profit on basically no expenses
Profit is already past expenses.
> That's just the tax they are charging the franchises for the privilege of calling themselves a McDonalds store.
McDonalds does plenty for the franchise restaurants:
1. Brand recognition and marketing which bring in tons of customers, without the franchise owner having to spend a cent.
2. Recipes that will sell. Franchise owners does not have to know anything about cooking, people's tastes etc. It's all covered by McDonald's R&D.
3. Efficient operations. Similar to the above, franchise owner's does not need to know anything about running an efficient restaurant. All equipment design as well as day-to-day operational procedures are standardized, highly efficient, and provided by McDonalds.
4. Employee training.
5. Restaurant interior design. Again, provided by McDonald - no need to think about it, no area to make costly mistakes by inexperienced owner.
6. Supplies. No need to worry about managing supplies and suppliers - it's all provided by McDonalds.
In fact, McDonalds does so much for a franchise owner that he's somewhat closer to a glorified manager with a profit sharing agreement, that to a real business owner.
> McDonalds isn't paying for the employees or the food or the buildings.
I would suggest doing at least a little research on this topic before commenting.
For instance, "McDonald's owns about 70% of the buildings and 45% of the land at its locations worldwide. Once all the math is done, calculations show that McDonald’s owns around 47,037 acres of land."
Your assertion makes no sense without comparing the profit to the scope of the enterprise. Put another way, for a $4.25 grande latte, Starbucks generates about $0.43 in profit.
Aside from the confusion around franchisee vs franchisor numbers pointed out by others, total profit isn’t a useful metric unless you also provide the number of meals sold per year.
What matters when discussing unit prices is margins.
For example, if a company makes a profit of $10B on a trillion units sold, they likely couldn’t even afford to absorb a marginal cost increase of two cents per unit. In contrast, if they’re making $10B in profit on ten units sold, then a cost increase of a million dollars per unit would have a negligible impact on their bottom line.
At least correct for inflation .. they could be making the same exact profit margins every year but as long as there's inflation, the number will be bigger every single year. Just saying "but number bigger!" doesn't mean squat.
I've also noticed that the economics of fast food make no sense anymore compared to groceries and casual restaurants. Inflation has hit everything, but fast food has not retained the relative discount.
A footlong basic chicken sub at a Subway near me is $13. A "Supreme Meats" is over $18. A "Beast" (whatever that is) is $21! All without a side or drink.
Taco Bell and Wendys are similarly out of my guilty pleasure rotation. The discount was part of the basic contract we had with bottom tier food.
What I've noticed is there there is a huge "app subsidy" (drive through tax?) for many fast food chains. For example, Taco Bell has a $6 online-only combo that's probably 40-60% discount over the drive-thru menu equivalent. I've noticed similar things with other chains as well.
As a business strategy, this makes some minor amount of sense since the app orders are transparently more efficient than drive through orders (say name and get food vs read menu and then "can I get uhhhhhh"). I also suspect online orders probably on average larger than drive up orders because it's easier to order more. On the other hand, there is very very minimal advertising of the app at the store. That sort of makes sense too - App orders probably have lower margin because the price sensitive customers are using it. So you don't want to steer your price insensitive customers to it if you don't have to. Overall, it's actually a nice case of price discrimination.
I can generally order anything I want, pickup or delivery, through GrubHub. Of course they track me; I pay them and they find me at home for delivery.
But I can also sit on a bus and order from the restaurant that's at my next stop, 20 minutes away. Google Maps has become great for this, actually. You find a restaurant and you hit the "Order" button, and there's a menu of choices for who to order from. You could GrubHub, DoorDash, Uber Eats, or you could order from the restaurant's website.
Restaurant websites have variable quality, mostly very poor, unless they're a franchise, or signed up with an aggregator, but hey, it's not an app.
Fair. To each their own. I didn't make an account to use <redacted>, and the convenience of putting in my order before I walk over there means it's ready when I get there so I have more time to enjoy eating it at the park nearby.
App subsidy / price discrimination is real. You can get $5 taco bell meals, $8 McD double quarter pounder meals, and $2 dunkin coffee and donut if you know where to look. They all then have rewards that is another 7-10% cash back.
Everyone's saying "they want you to use the app", but maybe it's also to overcharge people who just don't care or realize that they're wasting money. Older people who don't use their phone and just keep going to the same places out of routine, get the higher prices; while younger people and those who actually pay attention, instead of not eating there at all, get the lower prices.
I wonder whether their subsidizing the app orders to push users over: not just because they can presumably mine other data but because they can hire fewer cashiers and maybe keep their kitchen utilization up if there’s never a delay due to someone slow ahead of you in line. It would not be surprising to see a logical endpoint here treating the cash register like banks treated ATMs where there’s eventually a charge to talk to a person (who might be on video so they can farm it out to a call center?).
Another angle is moving money overseas. A few developers in Ireland subsidiary managing a mobile app which is licensed back to the parent American company and now every $1.00 in profit they siphon into licensing fees is taxed at 12.5% and not 35%.
Every decade or so they bribe US politicians to have a repatriation tax holiday to bring those dollars back home.
Sounds complicated but another likely reason they want you to use their app.
I suspect its more about market segmentation. Its a slight hassle to use the app and if you want those great deals you dont get much choice in what you can order at a discount - the discounted menu items rotate frequently.
So people who have more disposable income wont make a habit of using the steep in-app discounts and just order whatever they feel like eating at MSRP.
Growing up their jingle was "$5 foot long" (this lasted til 2011 or so?). I figured there was no way a $5 price held, but I did not expect it to have almost tripled.
That is insane. Publix subs (a Florida thing) are around $12 and the quality difference is not even comparable. How do these fast food places stay in business?
Considering that the USA has higher salaries overall than Norway or Switzerland and comparable cost of living, it seems like the USA is just catching up and being on the level one would expect it. In those countries, a fast-food meal is around US$20.
Traditional restaurants and/or fast casual spots in the USA involve “mandatory” tipping, so even if menu prices are lower, I would assume that the total meal price is higher once one includes the tip, which nowadays is up to at least 20% if not 25%. I remember a Facebook thread that drew some angry wait staff posting things like “You better tip X% or you’re going to get some nastiness in your food next time”, and they were mainly coming from low-end chains.
Oh man, I remember being shocked a Big Mac Meal went for 11 CHF in Lausanne in...2006. It must be up to at least 20 CHF now.
I just got back from Japan, however, and I was absolutely spoiled by how affordable eating out was, really good food and no tipping culture. Heck, even the convenience stores in Japan provide better options than most fast food restaurants in the states. But I got a sense that the workers are struggling with the current system.
Total comp + benefits + social welfare for a fast food worker in Norway or Switzerland is far better than the equivalent for a fast food worker in Minnesota, the price rising in Minnesota to match Norway would not be commensurate as the Minnesota worker has far worse lifestyle economically.
I wasn’t thinking of the fast-food workers but rather the clientele. With American salaries being as high as they are, and a lot of other things in life being priced relatively high, I would have expected the American fast-food industry to easily get away with raising prices up to $20/meal, at least in some US markets.
America is a lot better at logistics and has lower energy costs, too, though.
Lower-end fast food is also pretty price sensitive since most the people who buy it don’t have the high salaries you might be thinking of. In general, the people earning those would never eat at McDonald’s.
> America is a lot better at logistics and has lower energy costs, too, though.
Are you sure about that?
The immediate counter example that springs to mind is the suspicion that (say) India feeds a lot more people with a lot less energy consumption (per capita but likely also in total).
The commenter I was replying to was speaking of Switzerland, not India. I was referring to the cost of energy, not the total usage. You’re totally right that India uses less energy in general (in total usage per person, but not sure about per McDonald’s meal). And the energy is cheaper there.
For comparison here are the costs per kwh in USD for the three places I see with a quick Google:
Fast casual does not have 'mandatory' tipping, but traditional restaurants do. Fast casual and fast food have started to include the tip options on credit card POS machines, but it's running into some public backlash.
At least in Florida, if you’re an employee that makes tips, your employer can pay you less than min wage as long as the tips bring you to at least min wage.
I never understood why this was a thing. If you just charge more for the food, you don’t need to put the onus of paying your staff literally directly on the customer
I don't think the wage increases are the biggest input to the increase in sandwhich pricing. Some random Quora answer says that you might see 50-120 orders served at peak per McDonalds employee. Increasing the price by... what, 50 cents? Is already looking at an extra $25-$60.
Peak hours of course, but given that the McDonalds business model is mostly "sell drinks at pure profit, sell food at cost", price changes at best are just linked to raw materials costing more, and other expenses. Cynicailly: most of that price increase is not landing in workers pockets.
Some other random website states that wages are 20% of a McDonald's franchisee's costs. So I bet a part of the cost is for wages, but most of it is probably about everything else.
Word. I'm just pointing out that they like to blame the price hikes on increased wages when there's no way the wages are causing costs to go up that much.
> I'm always shocked that taking Chili's to go is cheaper than fast food.
That's because the quality is even worse. Chili's (and Applebees) make almost zero profit on their food, it's just a loss leader to get people in the door and keep them drinking. The entire business model is real estate + cheap booze. The food just allows them to operate as a restaraunt instead of a bar, which is much easier to license in most places.
> What is interesting, however, is that we're not witnessing this with traditional restaurants
I think they've buffered against this a little by reducing wait staff and/or coming up with novel justifications to skim their earned tips.
Also restaurants downgrading to fast-casual (a brewery near me now makes customers dispense their own soft drinks, leaving the single bartender to bus food and tend bar).
Those are very similar to the prices we’re paying in Houston, for what its worth. Generally about $12 per person for a basic fast food meal. McDonalds, What-a-burger (our version of In-n-Out), Wendy’s, Raising Canes, its all about $12/pp.
On a macro level, there's an employee shortage (which is good, because the alternative is a job shortage), and over time workers will shift away from the least important jobs. Arguably, fast food workers are some of the least important jobs, judging from pay. In the long run fast food might stop existing, or rather, the fast food worker might stop existing, replaced by machines or other food sources.
What is interesting, however, is that we're not witnessing this with traditional restaurants and/or fast casual spots. I wonder if they will catch up or if this sort of wage inflation or shove McDs out of the fast food category.