Fast-food restaurants scorched by overheating are turning to customers to cool off. From McDonald’s to Domino’s Pizza, big chain operators are raising menu prices and cutting portions.
So far, that hasn’t deterred diners. This is because a sharp rise in grocery bills can make eating out a relative bargain. Maintaining these price increases will be a major challenge, especially if the number of cash-strapped consumers decreases.
At McDonald’s, same-store sales in the United States rose about 4 percent in the second quarter. The company said the gains were primarily driven by price increases – which were in “high single digits”. This follows a similar price hike in the first quarter.
Elsewhere, rival Burger King has reduced the number of chicken nuggets from 10 to 8 per order. Domino’s Pizza has raised the price of its popular Mix & Match delivery deal by $1 to $6.99.
Currently, McDonald’s and its ilk are taking advantage of the fact that eating out can be better than cooking at home. Grocery prices jumped 13.5 percent year on year in August, compared to an 8 percent rise in restaurant food prices, according to the Labor Department. This makes the gap between the two the widest since 1974, Lex’s analysis of the data shows.
The advantage offered by the trend is unlikely to last. Supermarket and grocery store chains have noticed that consumers are buying more private brands and lowering meat prices to save money. The average cost of a Big Mac in the United States was $5.15 in June, according to The Economist’s Big Mac Index. That’s 30 percent higher than it was a decade ago. However, the federal minimum wage has remained unchanged at $7.25 an hour since 2009.
In other words: It took 33 minutes for a minimum wage worker to earn the price of a Big Mac. It now takes 43 minutes. Investors who have loaded their portfolios with burgers, fries and pizza may end up feeling sick.