Why Fast Food Has Gotten So Expensive

Big and tasty for just a dollar.

You did your thing, dawg.

Remember the dollar menu?

Well, you may be hard pressed to find any fast

food item that actually costs a dollar anymore.

$17 for three Filet-O-Fish at McDonald's.

Are you kidding me?

I don't have the money to buy fast food anymore.

Don't you just miss the days when fast food was

actually cheap?

When looking at fast food menus nationally, here are

the average prices for fries from McDonald's, a

Happy Meal and a burger combo from Burger King.

But I paid even more than that.

Here are the prices at fast food locations by the NBC

offices in Midtown Manhattan. Broadly speaking.

Sales are performing much stronger than foot traffic,

and that's due in part to higher prices.

The Consumer Price Index measures inflation or the

average increase in prices over time.

Fast food falls into the limited service meals

category. Think anything that's typically ordered at

a counter and taken to go from 2019 to 2023, prices in

this category are up nearly 28%.

That's more than full service meals.

Think sit down restaurants with servers, which

increased nearly 24%.

And it's also more than overall inflation, which

increased 19%.

So why are fast food prices so high and where will they

go from here? Can I please get a Titan turkey?

Can I get a foot long?

Yeah, just that.

Between 2022 and 2023, the cost of food, beverage and

packaging rose around 11% for both McDonald's and

Chipotle. Still, as of late, labor is the main

culprit. Food is about a third of the cost of a menu

item.

So even as those costs moderate in many cases, and

particularly given the the laws that were seen in

California and some of the other, you know, minimum

wage laws and just increases that are happening

is that that wage pressure remains elevated.

The fast food labor market became increasingly

competitive for employers during the pandemic, as

companies struggled to fill their restaurants.

In 2022, the number of employees in the limited

service restaurant category were still below 2019

levels. During that same time, the number of limited

service establishments grew by over 4%.

As things normalize after Covid, you still see a

higher amount of job openings and less people

coming in to fill those jobs.

Compared to 2019, the percentage of sales that

goes towards paying for labor has grown for many

limited service restaurants like Wendy's and Shake

Shack, where it has actually decreased for

restaurants like The Cheesecake Factory and

Darden Restaurants, which owns chains like Olive

garden, Longhorn Steakhouse, and the Capital

Grill.

In order to maintain the same service levels and

expand their operating hours to accommodate the

consumers late night snack demands and demands for

earlier breakfasts.

Fast food restaurants need to hire more labor across

the day part, and so as they're competing with other

potential employers, they need to make the job more

enticing. And the easiest way to do that is by raising

the wage rate.

And companies are passing these costs onto the

customer, especially as states like California have

raised the minimum wage for workers.

In an obviously, despite this huge wage inflation,

there's a lot of other factors at play.

I think when you look at inflation within limited

service, first of all, you're starting with a lower

check average. And so any increase of $1 or $2 that an

operator passes on just by definition as a higher

percentage increase on it.

From December 2023 to February 2024, the national

average for a quick service restaurant check was about

$18, which is 4.5% more than the same time period

last year. That's a higher percentage increase than

both casual and fine dining, and full service

restaurants are capitalizing on the

decreasing price gap.

How is this Chili's three for me, only $10.99.

When fast food is so expensive.

It could be because we don't have to pay for any mascots.

Please. I was born for this.

It has created a shift in fast food consumer behavior.

Perhaps before they were going there ten times, but

now they're still only spending $100, and maybe

they're going there eight times or seven times.

Right. And so you start to see this, this traffic

falloff because they're still spending essentially

the same amount, but they're now going less

frequently.

Although prices for fast food have soared, sales have

remained strong. Mcdonald's, Wendy's and Yum

brands, which owns KFC, Pizza Hut and Taco Bell,

have all seen revenue surge past pre-pandemic levels.

A lot of the sales are still going up, and a lot of

that's driven by price as opposed to frequency or

visits.

A lot of investors are now focused on who is best

positioned to drive growth based on volume, because you

can obviously only push your price higher for so

long.

And that for so long may have arrived.

Mcdonald's missed earnings estimates in the first

quarter of 2024, and an Evercore analyst called it

one of the most sobering quarters for the fast food

giant. Others, like KFC and Pizza Hut, are experiencing

the same consumer pullback.

We must be laser focused on affordability, which means

good entry level price points available every day.

In the markets where we're doing this well, the

business is outperforming.

In some markets, however, it's clear we still have

opportunities to strengthen our proposition.

$100K plus income households are really powering through

and still spending at kind of normalized levels where

we see a lot of the constraint or perhaps

behavioral changes is the 50 K and below consumer.

And so your lower end consumer who just doesn't

have enough spending power to keep doing everything

that they were doing when the economy had a lot of

additional Covid stimulus available.

Remember the $5 footlong at subway?

Well, that's a thing of the past. This turkey sub cost

me over $11.

The bad news about inflation is prices aren't

going to go down. The good news is the increases are

slowing.

Prices in general across the economy very rarely ever

come down once they've been reset higher.

One of the reasons for that is wages.

Once they're reset higher, very rarely get pushed back

down and reset lower.

To combat the decrease in value offered by fast food,

chains are relying on apps and loyalty programs.

In its 2023 fourth quarter earnings call, Wendy's says

that it plans to invest approximately $15 million,

primarily in 2024 to further enhance its mobile

app experience, McDonald's announced its goal to expand

its loyalty program from 150 million to 250 million

90 day active users by 2027.

They haven't been able to do before is have targeted

advertisements that go directly to consumers based

on their consumption preferences, and the

companies will be able to see, almost in real time,

the return on investment of those advertisements and

those promotions that they push to the consumer,

because they can tell I pushed them the promotion on

Tuesday, and they made a purchase on Wednesday or on

Thursday.

The value offered by fast food is something that

customers will continue to evaluate each time they make

a purchase, and it may ultimately determine how the

industry reacts going forward.

Restaurants still take dollars to the bank, not

consumer visits. And as long as they're able to

continue to drive growth from a value or from a

dollar perspective, I think, you know, that's

still good news for the industry.

Two burgers 447.