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Fast Food Sector About to Hit A Consumer Wall…

The Fast Food sector is heading for a wall over its soaring menu prices. The reason? It’s now cheaper for the low income masses to cook at home. And at least one restaurant chain honcho says the industry is racing to respond to the ‘threat’…

Big Mac Combo - © 2024 - McDonald'sThe Classic Combo: A Big Mac, fries and a fountain drink…

McDonald’s Chief financial Officer Ian Borden told an investor conference call last week that the industry is facing, “a challenging consumer environment.” He noted, many lower-income families are struggling to manage inflation, higher interest rates and dwindling savings. And as a result, they’re abandoning Fast Food dining, opting to eat at home.

An economic flipflop

The break point came over the past year, as the rise in Fast Food menu prices overtook the increase in supermarket prices. A year ago, it was still cheaper to dine out. Restaurant prices were up 8.4 percent year over year. And grocery store prices were up 10.2 percent for the same period.

This month, restaurant menu prices are up 4.5 percent over the same time last year. But supermarket food prices are up just 1.0 percent.

Responding to a crisis

Borden insists, “We want to make sure the consumer knows what’s available and obviously is thinking of us when they’re making their choices.” To that end, McD’s is rolling out (and heavily promoting) a series of new, limited-time Combo Bundles priced at $4 or less. The first such deal has already débuted: An Egg McMuffin and Small Coffee for… $4 (plus tax). It’;s up to you to decide how much of a ‘deal’ that represents.

And that may be just the start of the chain’s response to the dine-at-home ‘crisis’. Time will tell…

Another economic flip

McDonald’s reported record profits in 2023, in spite of lower sales. The chain explained, fewer people were dining. But those who did patronise the Arches were paying significantly higher prices, offsetting the decline in revenue. The offsetting effect can’t make up the difference forever.

My take

Nevertheless, the dine-at-home trend is too significant to ignore. Watch for other Fast Food chains to follow MD’s lead and offer more ‘deals’ in line with industry’s original allegiance to value and affordability as core business values. This year will be the sales period where the effects of higher menu prices come home to roost…

~ Maggie J.

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