Why Fast Food Got So Expensive

0:00 The backlash began with just a photo. Here at a rest stop off Route 95 in Darian, Connecticut, between a Subway, Dunkin Donuts, and Sparrow sits a McDonald's. In 2023, a traveler passing through was astonished by its prices. Instead of reaching for their wallet, they pulled out their phone to capture the absurdity. A Big Mac meal running nearly $18. The picture was posted on Twitter and accompanied by a question, and the response was overwhelming. The meal and its outlandish price tag went viral. It sparked conversation across social media. It made national news. It got so big that even McDonald's itself got involved, releasing a statement accompanied by a handy graphic aimed to bust some myths about just how expensive McDonald's had become over the past few years. What gave this story such staying power was that it felt like the perfect example of a phenomena that was bigger than the Northeast and bigger than McDonald's, but instead one impacting all Americans at all fast and fast casual food spots. That these cheap and convenient dining options were just no longer cheap. An $18 burger meal proved that point anecdotally, but some further research proved as much too. In the past decade, overall food prices were trending higher than the overall consumer price index. And then prices for food away from home have trended yet higher again than overall food prices.

1:24 Within the category of food away from home, more research showed price growth at limited service restaurants or fast and fast casual was outpacing sit-down restaurants. Fast food wasn't just reflecting broader rising costs for the American consumer. It was leading the charge. Now, accompanying the general outrage over an $18 Big Mac meal were the explanations as to how we got here. Often led by industry insiders or the industry itself, the explanations cited things simply out of fast foods control.

1:53 Labor, for instance, had become more expensive after CO. California had passed a bill that was going to hike minimum wage for fast food workers to $20 an hour. Retail ground beef prices had soared across the decade, too, while supplies like paper wrapping, cups, and packaging shot upward as well. With trade wars, tariffs, stimulus checks, and increasing minimum wages, fast food chains were forced to get more expensive and hand these prices off to the customer. Or at least that's what they'd like their customer base to believe.

2:22 What's lost in this broadly true but incomplete explanation is the fact that pricing is not just a reflection of strictly costs and constraints, but broader business strategy. Fast food is not just getting more expensive because of factors beyond the industry's control. It's getting more expensive because the business of fast food is changing on the fly. Compare these two burger joints on either side of I5 in Burbank, California. One representing the cutting edge of fast foods change, the other an industry outlier that simply refuses to change. These two storefronts offer a very similar product at a very similar price. The Double Double at In-N-Out Burger cost $6.10 and the Big Mac at McDonald's at $649.

3:07 Both offering a conceptually analogous item sold at about the same price is largely where the similarities between these two businesses end. Their business strategies and operations in fact are so different that In-N-Out wants you to buy a Double Double Burger, while McDonald's, on the other hand, actively hopes you don't. While a bit cheaper on average, the consumer is going to find the Double Double an objectively better product. Personal preference aside, the Double Double is made up of ingredients that have never been frozen. The meat was processed by In-N-Out at one of these two locations that are both within a day's drive, while ingredients like buns have been contracted out to the same company since the 1950s, ensuring freshness and consistent quality. That superior consistency and quality is then carried through the process of preparing those ingredients and interacting with the customer making the order. as each location is laid out in an almost identical manner while staff is trained and expected to deliver a highly standardized product with a cheery welcoming attitude. Whether by comparative Google reviews between Burbank locations or annual rankings for customer satisfaction, In-N-Out is going to beat McDonald's and it has to as it's core to the company's strategy. This In-N-Out and every In-N-Out has a lot of staff to pay. Whereas McDonald's can run a slow shift with 5 to 10 employees, an In-N-Out will be staffed with 10 to 15, and during the lunch and dinner rushes, this number can regularly balloon to 25.

4:34 And not only are there more people to pay, but they're getting paid better as this Burbank location starts its staff at $22 an hour with benefits and quick positional and pay advancement opportunities. With industryleading pay and staffing and a comparatively cheap product, the chain saves through vertical integration. The company owns the locations rather than renting them. It operates its own meat processing and trucking. And it sources products from Pink Lemonade to paperware from the same singular companies it has for decades.

5:02 But those savings aside, to profit off a menu built around five and $6 burgers, this location needs to sell a lot. Because of a combination of quality and consistency, an In-N-Out customer will gladly brave a 20-minute drive-through wait or stand in line for a few minutes without the privilege of ordering ahead or through an app. And because of this loyalty to the product, an average location does annual revenue of about $6 million a year. McDonald's, on the other hand, averages about $4 million per location a year. More impressive still, In-N-Out pulls in 33% more business in 15% less time as its locations are open for an average of 14 and 1/2 hours a day compared to McDonald's's 17.

5:46 Familyowned, consistent, clean, simple, In-N-Out feels like what fast food was like at its founding in the '50s. But that's exactly why it's so singular, so unique from the rest, and so small. In its home state of California, there are only 289 locations compared to over 1,200 McDonald's within the state. Just within this narrow cross-section of Burbank, McDonald's outnumbers In-N-Out 4 to one. In-N-Out is tiny in the grand scheme of things. And in every trend of fast food, it's an outlier. But the very fact that it competes with and in many cases out competes the larger fast food chains on price while providing equal to better quality shows that pricing is a tool, a choice, an extension of strategy rather than something simply forced upon the industry. With 14,000 locations in just the US, but just 5% of those locations operated by the publicly traded company, McDonald's as a corporation just can't maximize consistency or quality of products like In-N-Out. nor are they really incentivized to. You see, the transformation that shot prices through the roof began with a pivot, making breakfast available all day. In the 2010s, as year-over-year sales across US locations were either stagnating or falling, McDonald's under new leadership looked to counter the rise of fast casual restaurants encroaching on their territory. CEO Steve Easterbrook wanted McDonald's to be the modern, progressive burger company. That meant better quality chicken, fresher beef, more datadriven decisions, and a more capable mobile app. The first major move was that allday breakfast extension.

7:23 Customers had always clamored for this. Surveys called for it, but leadership understandably had reservations. Would it be worth the kitchen remodels and complications? Would the move cannibalize lunch and dinner product performance? Rather than go off a hunch, they modeled it, leaning on a tech partnership with applied predictive technologies, then rolling out a regional trial and collecting receipt data with the help of the NPD group. The study showed that allday breakfast would bring customers they had lost back while also adding to overall receipt totals as midday diners were showing a tendency to toss a breakfast item like a McMuffin or hash brown on their order. Confident enough to push the franchise to remodel their kitchens and take on all day breakfast, the company began a major turnaround and they attributed to not just a host of breakfast items, but the increasing importance of big tech and big data in the company's operations. It was just the start.

8:14 Consider these three transactions. One buying a Big Mac meal in Aztec, New Mexico. One buying a Big Mac meal in Newcastle, Colorado. And one buying the same product again, this time in Burbank, California. The difference in prices between the three reflect what McDonald's can't control. The independent franchisee pricing that accounts for labor costs and other local factors. But consider the medium through which each transaction occurred. Two kiosks and a phone screen. And now McDonald's's greatest tool for business optimization comes into focus.

8:44 Historically, a common refrain for those in the no was that McDonald's is a real estate company. This still holds true. They own much of the land on which their franchise locations sit. They count on rent as a core income stream. But in the last decade, McDonald's, along with its large competitors, have increasingly become a tech companies, too. Turning to tech allowed McDonald's to focus on a critical aspect of the company's shortcomings that all day breakfast had hinted at. Convenience. Customers wanted shorter wait times, faster orders, and ways to order ahead. In short, this meant screens. In 2019, the restaurant chain acquired a company called Dynamic Yield to help further optimize and personalize the ordering experience through past user data and trends. It was the largest acquisition by McDonald's in 20 years, and it forever altered the ordering process. Take again a Big Mac. Now, really, no matter its price, a Big Mac is either a loss leader or only deres a tiny turn of profit for a McDonald's location. If you were to order one in the past, then whether in the drive-through line or counter line, you'd be faced with a whole host of promotions of new products, drinks, or all day breakfast items in the form of physical posters and banners on the menu. And when you went to order your simple sandwich, you'd be asked if you'd like to turn it into a meal, as French fries, and especially fountain drinks have far better margins. Perhaps you'd be tempted to do so because McDonald's, after all, has years of experience and tricks in getting you to spend a little bit more. McDonald's has a long used meal pricing decoy strategies, for example, to make the large meal feel so similarly priced to the medium that you go ahead and opt for the large. If you were to leave with just a sandwich, that'd be a loss for the chain. If you were to leave with a sandwich, a drink, and an odd-end add-on, McDonald's would count that as a win. But now, Dynamic Yield, the kiosks, the McDonald's app, and drive-thru have all taken this to the next level through far smarter, far more personalized sales tactics.

10:44 Digitized, personalized, customized menus means long gone are the days of the drive-thru board listing every possible meal item. Today, if you're planning on ordering at the counter or off the digital menu at the drive-thru, you're only going to see the options the company wants you to see. At this New Mexico location, the only listings and prices are for extra value meals. If you're planning on just ordering a Big Mac and not the meal, you're going to have to ask. And if you want to know the exact price before committing, you'll have to ask for that, too. You can still order anything off the menu, of course, but a curated menu passively pushes your order towards what they want to sell.

11:19 And this goes both ways, too. The company actively wants to make a sale, too. And it's pushing options that it proves popular. or say if it's a super hot day, it'll push items like ice cream and cold drinks that it assumes will be popular. This curation also keeps things moving quicker, too, as a massive menu with every offering slows lines to a crawl during rush hours. So, to optimize the convenience factor the company leans on, it keeps these menus simple. If you want the full menu, you'll have to turn to the kiosks or the app, but it's going to be in exchange for your data, or at least asking for your data. Your location and your order habits are hugely helpful for McDonald's to optimize for efficiency. So, when you use a kiosk, it'll ask you to log in to your McDonald's account. And then it'll ask again. And once in, you'll just have to maneuver around the headline items like the brand new refreshers and the top ticket items like the Archburger, a novelty luxury item with fairly good margins to get to your sandwich of choice. The app is going to be less pushy to get you to log in because once in, you stay logged in and you're incentivized to stay through the accumulation of points and the varying personal promotions, whether it's a free item on your birthday or a boilerplate limited time free medium fry with any order to hopefully get you in the door.

12:29 Such deals create loyalty both ways while also allowing McDonald's to better suggest and service items to a customer based on their past orders. And it provides user data that then goes on to inform strategy and pricing companywide. If, for example, you're consistently ordering Big Macs when they're $6.10, then when the price goes up to $649, you no longer order the sandwich, or worse yet, you no longer spend at McDonald's. That's extremely valuable information for the company to have, and ultimately information that the company will act on. While altering the quality of the product or the products itself presents a massive undertaking for a chain so big, screens and big data allow McDonald's to better alter and fine-tune prices and offerings to best match what the customer is willing to pay. Where In-N-Out optimizes through what it controls in the physical world, the big chains optimize through the digital. In the wake of the $18 Big Mac meal going viral, concerns over McDonald's's pricing strategy were voiced in an earnings call. The company was losing its important lowerincome customer and the perceived value of the company's products in relation to price was declining. The answer came in the form of a major value push. First, the $5 meal deal launched in mid 2024. Then, the McVal menu the year following. Both span breakfast and lunch items. Both have marked a pivot in sales and broadly have proved to work. And yet, if you were to go to this McDonald's location in Darian, Connecticut, a Big Mac meal would still run you nearly $18. And that's because the word perceived in perceived value is doing a ton of work.

14:02 McDonald's is not in the business of quality food or cheap food so much as it's in the business of convenient food at a stomachable price. That's why the company developed the app. It's why it revamped drive-through menus to get average ticket times down. It needs to provide a product at pace. More accurately, it needs to provide products at pace. It needs to be a place where you can grab lunch, a coffee drink, and a bag of ice all at the same time. But a customer will only act on such convenience so long as they believe they're not getting ripped off for a fairly unspectacular product. So, McDonald's pours over the data, tinkers with prices, alters its value menu offerings over and over to find the precise price point that the customer will tolerate. Recently, the company launched its own line of refreshers and they're pushing the product hard. Now, these products simply by being drinks have high returns, but they also create incentive in the customer to alter habits. Rather than going to Starbucks, one could just hop on the McDonald's app and order one of these along with a food item that Starbucks can't match. At $3.69 to $4.69, these drinks aren't cheap, but they're comparatively cheaper. They're cheaper than the options at Dutch Bros, Starbucks, and Sonic. They're just cheap enough, the company hopes, for the customer to think they're getting decent value for their money and benefiting from the convenience of being able to grab food in the same stop that they'll change up their typical afternoon refresher routine and instead bring their business over to the Golden Arches. The tech pivot is broader than McDonald's. Taco Bell, owned by the publicly traded Yum Brand, has turned to a bifurcated menu with extreme value items and high dollar bundle items pushed through the app.

15:39 Practically every fast and fast casual restaurant from Jimmy John's to Panera Bread have mobile apps and digital loyalty programs. Wendy's found itself in hot water when it launched a digital menu system that could potentially alter prices of products midday. Customers called it surge pricing and the outcry started a larger conversation over an accusation that no restaurant wants to be associated with dynamic pricing. Of course, none in the industry want to be associated with dynamic pricing given how much distrust the label engenders.

16:09 But the technology exists, the data, and the data processing exists. And already and just about every big chain, though it doesn't happen over the course of the day, the prices of products do change, and the value menus shift around every few months. It may seem too far of a reach now, but pricing structures that shift by the hour and by the customer would fit the larger optimization and efficiency pushes that fast food has leaned into the last decade. Customers have come to stomach rising costs. So perhaps if slowly and quietly implemented, they'll come to embrace dynamic ones, too.

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