Fast food restaurants burnt by red-hot inflation are turning to customers to cool down. From McDonald’s to Domino’s Pizza, big chain operators are raising menu prices and shrinking portions.
So far that has not kept diners away. That is because an even steeper rise in grocery bills can make eating out a relative bargain. Keeping these price increases going will be a supersized challenge however, especially if more cash-strapped consumers trade down.
At McDonald’s, same-store sales in the US rose nearly 4 per cent in the second quarter. The gain was driven mainly by price increases — which were in the “high single digits”, the company said. That comes after a similar percentage price hike in the first quarter.
Elsewhere, rival Burger King has reduced the number of chicken nuggets from 10 to eight pieces per order. Domino’s Pizza has raised the price of its popular Mix & Match delivery deal by a dollar to $6.99.
For now, McDonald’s and its ilk are benefiting from the fact that eating out can be a better deal than cooking at home. Grocery prices jumped 13.5 per cent year-on-year in August, compared to an 8 per cent rise in restaurant food prices, according to the Labor Department. This makes the gap between the two the widest since 1974, a Lex analysis of the data shows.
The advantage provided by the trend is unlikely to last. Supermarket chains and grocers have noted that consumers are buying more private label brands and cheaper cuts of meats to save money. The average cost of a Big Mac in the US stood at $5.15 in June, according to The Economist’s Big Mac Index. That is 30 per cent higher than a decade ago. Yet the federal minimum wage has remained unchanged at $7.25 an hour since 2009.
To put it another way: it once took a minimum-waged worker 33 minutes to earn the price of a Big Mac. It now takes 43 minutes. Investors who have loaded up their portfolios with burgers, fries and pizza could end up feeling queasy.
