The Reason Behind the $18 Price Tag on the Big Mac Meal
In recent months, Americans have been expressing their discontent with the rising prices of fast food items on social media. From $5 chicken sandwiches to $3 hashbrowns and $5.50 Egg McMuffins, customers are voicing their concerns about the increasing cost of affordable fast food. However, the most striking example of this price surge can be found at a McDonald’s location in Darien, Conn., where a Big Mac combo meal will set you back a whopping $18.
This surge in prices has posed challenges for McDonald’s, as CEO Chris Kempczinski noted on the company’s earnings call. The sharp increase in prices has made it difficult to attract lower-income customers who have come to expect affordable meals from the fast-food giant. However, there may be a silver lining to these price increases – McDonald’s workers are now making more money than they used to.
According to Eric Gonzalez, a senior analyst covering the restaurant industry for KeyBanc Capital Markets, the rising cost of labor is now the primary driver behind fast-food price increases. In the past, it was the rising cost of food that pushed prices upward, but now labor inflation has become more significant. This presents a challenge for company leaders but is good news for employees in low-paid roles. The average hourly wage for a U.S. fast-food or counter worker was $13.53 in 2022, which translates to around $27,000 a year for full-time workers.
For years, McDonald’s has been known for offering low prices by paying their workers relatively little. However, with wages in the fast-food industry rising faster than wages in other sectors of the economy, workers are finally seeing historic wage gains. Christopher Clarke, an economist at Washington State University, explains that the increase in fast-food prices is mostly going to workers. This shift in labor costs is challenging for McDonald’s and other fast-food chains, but it is a win for low-wage workers who have seen their pay increase significantly.
The upward pressure on wages is unlikely to disappear anytime soon, especially in the current robust job market. Brian Harbour, a restaurant-industry analyst at Morgan Stanley, explains that low unemployment rates continue to put pressure on wages, particularly at the lower end of the pay scale. Despite these wage gains, fast-food employees remain among the lowest-paid workers in the economy. In several states, they can still be paid the federal minimum wage of $7.25 per hour.
However, some states are taking steps to ensure higher wages for fast-food workers. In California, for example, fast-food restaurants with more than 60 U.S. locations will need to pay workers at least $20 an hour starting in April. McDonald’s has also increased hourly wages at over 90% of its U.S. company-owned stores, resulting in an 8% increase to the average hourly pay rate.
Besides labor costs, other factors are putting pressure on fast-food profit margins. The cost of ingredients remains elevated, although the impact varies depending on the type of food being served. Additionally, construction delays and other obstacles to building new restaurant locations are squeezing chains’ bottom lines.
While higher wages for workers may not provide much consolation to customers paying close to $20 for a fast-food meal, there might be good news on the horizon for price-conscious consumers. Analysts suggest that consumers are pushing back against higher fast-food prices, which could lead brands like McDonald’s to offer better deals. The increasing gap between the cost of cooking at home versus eating out has affected sales across the fast-food industry. Consumers now face a fivefold increase in the cost of eating away from home compared to staying in.
McDonald’s CEO acknowledged the company’s struggle to attract customers on tighter budgets and expressed a focus on affordability in the future. Customers seem to care more about the absolute price of individual menu items rather than combo deals. As a result, McDonald’s and other restaurants may introduce less-expensive options to entice more customers through their doors. Emphasizing entry-level price points could become a strategy to address customer concerns and boost sales.
Overall, the rise in fast-food prices is driven by increased labor costs, a significant departure from the past when rising food costs were the main driver. While these higher prices have posed challenges for McDonald’s and other fast-food chains, they have also resulted in historic wage gains for low-wage workers. The ongoing pressure on wages is unlikely to subside, but customers can expect to see more affordable options on fast-food menus as brands respond to consumer demand for better deals.
