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.
