Exploring the increase in fast food prices and the factors contributing to it.

The Rise of Fast Food Prices

Analyzing the impact of labor costs and market competition on fast food establishments.

Labor Costs and Market Competition

Examining the shift in consumer behavior and sales trends in the fast food industry.

Consumer Behavior and Sales Trends

Discussing the challenges of affordability and market positioning in the fast food industry.

Affordability and Market Positioning

Exploring the value, loyalty programs, and future outlook of the fast food industry.

Value, Loyalty, and Future Outlook

**The High Cost of Fast Food: Why Prices Are Soaring**

*Have you noticed the rising prices of fast food? You're not alone. In this newsletter, we'll explore the reasons behind the high cost of fast food and how it's impacting consumer behavior.*

**Rising Prices and Consumer Behavior**

- Fast food prices have been steadily increasing, making it less affordable for many consumers.
- The Consumer Price Index shows that prices in the limited service meals category have increased by nearly 28% from 2019 to 2023.
- Labor costs are a major factor contributing to the rise in prices, with wages making up about a third of the cost of menu items.
- As a result, fast food restaurants are passing these costs onto customers, especially in states with higher minimum wage laws.

**Impact on Consumer Spending**

- Despite the soaring prices, sales at fast food chains like McDonald's, Wendy's, and Yum Brands have remained strong.
- However, lower-income consumers are feeling the pinch, as they are unable to maintain their previous spending levels in the face of higher prices.
- The decrease in value offered by fast food has led to changes in consumer behavior, with some people reducing the frequency of their visits to fast food restaurants.

**Industry Response and Future Outlook**

- To combat the decrease in value, fast food chains are investing in apps and loyalty programs to retain customers.
- McDonald's, for example, plans to expand its loyalty program to 250 million 90-day active users by 2027.
- The industry is also focusing on targeted advertisements and promotions to attract and retain customers.

**Conclusion**

While the cost of fast food continues to rise, the industry is adapting to retain customers and drive growth. However, the impact on consumer spending and behavior remains a key factor in shaping the future of the fast food industry.

Stay tuned for more updates on the fast food industry and its impact on consumers.

"Fast Food Prices Soaring: How It's Affecting Your Wallet"

Increased consumer demand for healthier options

Decreased competition from other potential employers

- Fast food prices have increased significantly in recent years
- Labor costs have been a major factor in the price increases
- Despite the high prices, sales for fast food chains have remained strong
- The industry is focusing on affordability and loyalty programs to retain customers
- The value offered by fast food will continue to determine the industry's future

Prices at limited-service restaurants including Wendy's, Taco Bell, Chick-fil-A and Chipotle have increased more over the past decade than both full-service restaurants and overall inflation, according to the U.S. Bureau of Labor Statistics. Experts say rising labor costs are the main culprit. McDonald's underwhelming first-quarter 2024 earnings results are one example of a fast-food giant feeling the repercussions of its soaring prices. Watch the video to learn more.

Chapters:
0:00 Introduction
4:30 Rising costs
6:05 Looking ahead

Produced and Shot by: Ryan Baker
Camera by: Natalie Rice
Edited by: Evan Lee Miller
Animation: Jason Reginato and Christina Locopo
Supervising Producer: Jeniece Pettitt
Senior Managing Producer: Tala Hadavi
Additional Footage: Getty Images, Burger King, Chili’s, Subway

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Why Fast Food Has Gotten So Expensive

Well, you may be hard pressed to find any fast food item that actually costs a dollar anymore.

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

Would 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.

Here are the prices at fast food locations by the NBC offices in Midtown Manhattan.

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 percent.

Think sit down restaurants with servers, which increased nearly 24 percent.

And it's also more than overall inflation, which increased 19 percent.

So why are fast food prices so high and where will they go from here?

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.

It is about a third of the cost of the menu items.

So even as those costs moderate, in many cases, and particularly given 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 percent.

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 from any 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 breakfast, 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 on to the customer, especially as states like California have raised the minimum wage for workers.

And 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 a dollar or 2 dollars 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 percent 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 3 for me only 1099 when fast food is so expensive?

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

It has created a shift in fast food consumer behavior.

Perhaps before they were going there 10 times, but now they're still only spending $100 and maybe they're going there 8 times or 7 times.

And so you start to see this this traffic fall off 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 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.

McDonald's missed earnings estimates in the first quarter of 2024, and an Evercore analyst called it 1 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 household 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 50K 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.

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.

1 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 says that it plans to invest approximately 15 million dollars, 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 that's still good news for the industry.


Speaker 0: 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 3 filet-o-fishes at McDonald's? Are you kidding me?

Speaker 1: I don't have the money to buy fast food anymore. Would you just miss the days when fast food was actually cheap?

Speaker 0: 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

Speaker 1: are performing much stronger than foot traffic, and that's due in part to higher prices.

Speaker 0: 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 percent. That's more than full service meals.

Think sit down restaurants with servers, which increased nearly 24 percent. And it's also more than overall inflation, which increased 19 percent. 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.

Speaker 2: It is about a third of the cost of the menu items. So even as those costs moderate, in many cases, and particularly given 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.

Speaker 0: 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 percent.

Speaker 1: As things normalize after COVID, you still see a higher amount of job openings and less people coming in to fill those jobs.

Speaker 0: Compared to 2019, The percentage of sales that goes towards paying for labor has grown from any 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.

Speaker 1: 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 breakfast, 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.

Speaker 0: And companies are passing these costs on to the customer, especially as states like California have raised the minimum wage for workers.

Speaker 2: And 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 a dollar or 2 dollars that an operator passes on just by definition as a higher percentage increase on it.

Speaker 0: From December 2023 to February 2024, the national average for a quick service restaurant check was about $18, which is 4.5 percent 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 3 for me only 1099 when fast food is so expensive? It could be because we don't have to pay for any mascots.

Please! I was blind for this! It has created a shift in fast food consumer behavior.

Speaker 2: Perhaps before they were going there 10 times, but now they're still only spending $100 and maybe they're going there 8 times or 7 times. Right? And so you start to see this this traffic fall off because they're still spending essentially the same amount, but they're now going less frequently.

Speaker 0: 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.

Speaker 2: A lot of the sales are still going up. A lot of that's driven by price as opposed to frequency or visits.

Speaker 1: 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.

Speaker 0: 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 1 of the most sobering quarters for the fast food giant. Others like KFC and Pizza Hut are experiencing the same consumer pullback.

Speaker 3: 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.

Speaker 1: 100k plus income household 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 50K 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.

Speaker 0: Remember the $5 foot long 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.

Speaker 1: Prices in general across the economy very rarely ever come down once they've been reset higher. 1 of the reasons for that is wages once they're reset higher very rarely get pushed back down and reset lower.

Speaker 0: 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 says that it plans to invest approximately 15 million dollars, 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. What

Speaker 1: 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.

Speaker 0: 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.

Speaker 2: 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 that's still good news for the industry.

Speaker 0: 2 condo areas, 427. 2 hamburgers, $4.47.

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Why Fast Food Has Gotten So Expensive