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Why Fast Food Got So Expensive — Transcript

by Wendover Productions · 3,575 words · 573 segments · language en · Watch on YouTube

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0:00The backlash began with just a photo.
0:03Here, at a rest stop off of Route 95 in
0:05Darien, Connecticut, between a Subway,
0:07Dunkin' Donuts, and Sparro, sits a
0:09McDonald's. In 2023, a traveler passing
0:12through was astonished by its prices.
0:15Instead of reaching for their wallets,
0:17they pulled out their phone to capture
0:18the absurdity. A Big Mac meal running
0:21nearly $18.
0:24The picture was posted on Twitter and
0:25accompanied by a question, and the
0:27response was overwhelming. The meal and
0:29its outlandish price tag went viral. It
0:32sparked conversation across social
0:34media. It made national news. It got so
0:37big that even McDonald's itself got
0:39involved, releasing a statement
0:41accompanied by a handy graphic aimed to
0:43bust some myths about just how expensive
0:45McDonald's had become over the past few
0:47years.
0:48What gave this story such staying power
0:50was that it felt like the perfect
0:52example of a phenomena that was a bigger
0:54than the Northeast and bigger than
0:56McDonald's, but instead one impacting
0:58all Americans at all fast and
1:00fast-casual food spots. That these cheap
1:03and convenient dining options were just
1:06no longer cheap. An $18 burger meal
1:09proved that point anecdotally, but some
1:11further research proved as much, too. In
1:13the past decade, overall food prices
1:15were trending higher than the overall
1:17consumer price index, and then prices
1:19for food away from home have trended yet
1:21higher again than overall food prices.
1:24Within the category of food away from
1:26home, more research showed, price growth
1:28at limited service restaurants, or fast
1:30and fast-casual, was outpacing sit-down
1:32restaurants. Fast food wasn't just
1:34reflecting broader rising costs for the
1:36American consumer, it was leading the
1:38charge.
1:40Now, accompanying the general outrage
1:41over an $18 Big Mac meal were the
1:44explanations as to how we got here.
1:46Often led by industry insiders or the
1:48industry itself, the explanations cited
1:50things simply out of fast food's
1:52control. Labor, for instance, had become
1:54more expensive after COVID. California
1:56had passed a bill that was going to hike
1:58minimum wage for fast food workers to
2:00$20 an hour. Retail ground beef prices
2:03had soared across the decade, too, while
2:05supplies like paper wrapping, cups, and
2:07packaging shot upward, as well. With
2:09trade wars, tariffs, stimulus checks,
2:11and increasing minimum wages, fast food
2:14chains were forced to get more expensive
2:16and hand these prices off to the
2:17customer. Or at least, that's what
2:19they'd like their customer base to
2:21believe.
2:22What's lost in this broadly true, but
2:25incomplete explanation is the fact that
2:27pricing is not just a reflection of
2:29strictly costs and constraints, but
2:31broader business strategy. Fast food is
2:34not just getting more expensive because
2:36of factors beyond the industry's
2:37control, it's getting more expensive
2:39because the business of fast food is
2:41changing on the fly.
2:43Compare these two burger joints on
2:44either side of I-5 in Burbank,
2:47California. One representing the cutting
2:49edge of fast food's change, [music] the
2:51other an industry outlier that simply
2:53refuses to change. These two storefronts
2:56offer a very similar product at a very
2:58similar price. The double-double at
3:00In-N-Out Burger costs $6.10,
3:03and the Big Mac at McDonald's at $6.49.
3:07Both offering a conceptually analogous
3:09item sold at about the same price is
3:11largely where the similarities between
3:13these two businesses end. Their business
3:16strategies and operations, in fact, are
3:18so different that In-N-Out wants you to
3:20buy a double-double burger, while
3:22McDonald's, on the other hand, actively
3:24hopes you don't.
3:26While a bit cheaper, on average, the
3:28consumer is going to find the
3:29double-double an objectively better
3:31product. Personal preference aside, the
3:33double-double is made up of ingredients
3:35that have never been frozen. The meat
3:37was processed by In-N-Out at one of
3:39these two locations that are both within
3:41a day's drive, while ingredients like
3:43buns have been contracted out to the
3:44same company since the 1950s, [music]
3:46ensuring freshness and consistent
3:48quality. That superior consistency and
3:50quality is then carried through the
3:52process of preparing those ingredients
3:53and interacting with the customer making
3:55the order as each location is laid out
3:57in an almost identical manner while
3:59staff is trained and expected to deliver
4:01a highly standardized product with a
4:03cheery, welcoming attitude. Whether by
4:05comparative Google reviews between
4:07Burbank locations or annual rankings for
4:09customer satisfaction, In-N-Out is going
4:12to beat McDonald's and it has to as it's
4:15core to the company's strategy.
4:18This In-N-Out and [music] every In-N-Out
4:20has a lot of staff to pay. Whereas
4:23McDonald's can run a slow shift with
4:24five to 10 employees, an In-N-Out will
4:26be staffed with 10 to 15 and during the
4:29lunch and dinner rushes, this number can
4:31regularly balloon to 25.
4:33And not only are there more people to
4:35pay, but they're getting paid better as
4:37this Burbank location starts its staff
4:39at $22 an hour with benefits and quick
4:42positional and pay advancement
4:44opportunities. With industry-leading pay
4:46and staffing and a comparatively cheap
4:48product, the chain saves through
4:50vertical integration. The company owns
4:52the locations rather than renting them.
4:54It operates its own meat processing and
4:56trucking and it sources products from
4:58pink lemonade to paperware from the same
5:00singular companies it has for decades.
5:02But those savings aside, to profit off a
5:04menu built around five and six-dollar
5:06burgers, this location needs to sell a
5:09lot.
5:11Because of a combination of quality and
5:13consistency, an In-N-Out customer will
5:15gladly brave a 20-minute drive-thru wait
5:17or stand in line for a few minutes
5:19without the privilege of ordering ahead
5:21or through an app. And because of this
5:23loyalty to the product, an average
5:25location does annual revenue of about $6
5:27million
5:28a year. McDonald's, on the other hand,
5:30averages about $4 million per location a
5:33year. More impressive still, In-N-Out
5:35pulls in 33% more business in 15% less
5:39time as its locations are open for an
5:41average of 14 and 1/2 hours a day
5:43compared to McDonald's' 17.
5:46Family-owned, consistent, [music] clean,
5:48simple, In-N-Out feels like what fast
5:51food was like at its founding in the
5:52'50s. But, that's exactly why it's so
5:55singular, so unique from the rest, and
5:57so small. In its home state of
5:59California, there are only 289 locations
6:02compared to over 1,200 McDonald's's
6:04within the state. Just within this
6:07narrow cross-section of Burbank,
6:08McDonald's outnumbers In-N-Out 4:1.
6:12>> [music]
6:12>> In-N-Out is tiny in the grand scheme of
6:14things, and in every trend of fast food,
6:16it's an outlier. But, the very fact that
6:19it competes with, and in many cases
6:21outcompetes the larger fast food chains
6:22on price while providing equal to better
6:24quality, shows that pricing is a tool, a
6:28choice, an extension of strategy rather
6:30than something simply forced upon the
6:32industry.
6:34With 14,000 locations in just the US,
6:37but just 5% of those locations operated
6:39by the publicly traded company,
6:40McDonald's as a corporation just can't
6:42maximize consistency or quality of
6:45products like In-N-Out. [music]
6:46Nor are they really incentivized to. You
6:49see, the transformation that shot prices
6:51through the roof began with a pivot,
6:53making breakfast available all day.
6:57In the 2010s, as year-over-year sales
6:59across US locations were either
7:00stagnating or falling, McDonald's, under
7:03new leadership, looked to counter the
7:05rise of fast casual restaurants
7:06encroaching on their territory. CEO
7:09Steve Easterbrook wanted McDonald's to
7:10be the modern, progressive burger
7:12company. That meant better quality
7:14chicken, fresher beef, more data-driven
7:17decisions, and a more capable mobile
7:19app. The first major move was that
7:21all-day breakfast extension. Customers
7:23had always clamored for this, surveys
7:25called for it, but leadership
7:27understandably had reservations. Would
7:29it be worth the kitchen remodels and
7:30complications? Would the move
7:32cannibalize lunch and dinner product
7:33performance? Rather than go off a hunch,
7:36they modeled it, leaning on a tech
7:37partnership with Applied Predictive
7:39Technologies, and rolling out a regional
7:41trial, and collecting receipt data with
7:42the help of the NPD group. The study
7:45showed that all day breakfast would
7:47bring customers they had lost back while
7:49also adding to overall receipt totals as
7:51midday diners were showing a tendency to
7:53toss a breakfast item like a McMuffin or
7:55hash brown on their order. Confident
7:57enough to push the franchise to remodel
7:59their kitchens and take on all day
8:00breakfast, the company began a major
8:03turnaround and they attributed to not
8:05just a host of breakfast items but the
8:07increasing importance of big tech and
8:09big data in the company's operations. It
8:11was [music] just the start.
8:14Consider these three transactions. One
8:17buying a Big Mac meal in Aztec, New
8:18Mexico, one buying a Big Mac meal in
8:21Newcastle, Colorado, and one buying the
8:23same product again, this time in
8:24Burbank, California. The difference in
8:26prices between the three reflect what
8:28McDonald's can't control, the
8:30independent [music] franchisee pricing
8:32that accounts for labor costs and other
8:34local factors.
8:35>> [music]
8:35>> But consider the medium through which
8:37each transaction occurred, two kiosks
8:39and a phone screen, and now McDonald's
8:41is greatest tool for business
8:42optimization comes into focus.
8:44Historically, a common refrain for those
8:47in the know was that McDonald's is a
8:49real estate company. This still holds
8:51true. They own much of the land on which
8:53their franchise locations sit. They
8:55count on rent as a core income stream.
8:58But in the last decade, McDonald's,
8:59along with its large competitors, have
9:01increasingly become a tech companies,
9:03too.
9:04Turning to tech allowed McDonald's to
9:06focus on a critical aspect of the
9:07company shortcomings that all day
9:09breakfast had hinted at, convenience.
9:12Customers wanted shorter wait times,
9:14faster orders, and ways to order ahead.
9:16In short, this meant screens. In 2019,
9:20the restaurant chain acquired a company
9:21called Dynamic Yield to help further
9:23optimize and personalize the ordering
9:25experience through past user data and
9:27trends. It was the largest acquisition
9:30by McDonald's in 20 years and it forever
9:33altered the ordering process.
9:35Take, again, getting a Big Mac. Now,
9:38really no matter its price, a Big Mac is
9:40either a loss leader or only derives a
9:42tiny turn of profit for McDonald's
9:44location. If you were to order one in
9:46the past then, whether in the drive-thru
9:48line or counter line, you'd be faced
9:49with a whole host of promotions of new
9:52products, drinks, or all-day breakfast
9:54items in the form of physical posters
9:56and banners on the menu. And when you
9:57went to order your simple sandwich,
9:59you'd be asked if you'd like to turn it
10:00into a meal. As french fries and
10:02especially fountain drinks have far
10:04better margins. Perhaps you'd be tempted
10:06to do so because McDonald's, after all,
10:09has years of experience and tricks in
10:10getting you to spend a little bit more.
10:13McDonald's has a long used meal pricing
10:15decoy strategies, for example, to make
10:17the large meal feel so similarly priced
10:19to the medium that you go ahead and opt
10:21for the large. If you were to leave with
10:23just a sandwich, that'd be a loss for
10:25the chain. If you were to leave with a
10:26sandwich, a drink, and an odd end
10:28add-on, McDonald's would count that as a
10:31win. But now, Dynamic Yield, the kiosk,
10:35the McDonald's app, and drive-thru have
10:37all taken this to the next level through
10:39far smarter, far more personalized sales
10:42tactics.
10:44Digitized, personalized, customized
10:46menus means long gone are the days of
10:49the drive-thru board listing every
10:51possible meal item. Today, if you're
10:53planning on ordering at the counter or
10:55off the digital menu at the drive-thru,
10:56you're only going to see the options the
10:58company wants you to see. At this New
11:00Mexico location, the only listings and
11:02prices are for extra value meals. If
11:04you're planning on just ordering a Big
11:05Mac and not the meal, you're going to
11:07have to ask. And if you want to know the
11:09exact price before committing, you'll
11:11have to ask for that, too. You can still
11:13order anything off the menu, of course,
11:15but a curated menu passively pushes your
11:17order towards what they want to sell.
11:19And this goes both ways, too. The
11:21company actively wants to make a sale,
11:23too, and is pushing options that have
11:25proved popular. Or, say if it's a super
11:27hot day, it'll push items like ice cream
11:29and cold drinks that it assumes will be
11:31popular. This creation also keeps things
11:33moving quicker, too, as a massive menu
11:35with every offering slows lines to a
11:37crawl during rush hours. So, to optimize
11:40the convenience factor the company leans
11:41on, it keeps these menus simple.
11:44If you want the full menu, you'll have
11:45to turn to the kiosks or the app, but
11:47it's going to be in exchange for your
11:48data, or at least asking for your data.
11:51Your location and your order habits are
11:53hugely helpful for McDonald's to
11:54optimize for efficiency, so when you use
11:57a kiosk, it'll ask you to log into your
11:58McDonald's account, and then it'll ask
12:01again. And once in, you'll just have to
12:03maneuver around the headline items like
12:04the brand new refreshers and the top
12:06ticket items like the Arch Burger, a
12:08novelty luxury item with fairly good
12:10margins, to get to your sandwich of
12:12choice. The app is going to be less
12:13pushy to get you to log in because once
12:15in, you stay logged in and you're
12:17incentivized to stay through the
12:18accumulation of points and the varying
12:20personal promotions, whether it's a free
12:22item on your birthday or a boilerplate
12:24limited time free medium fry with any
12:26order to hopefully get you in the door.
12:29Such deals create loyalty both ways,
12:31while also allowing McDonald's to better
12:33suggest and surface items to a customer
12:35based on their past orders. And it
12:37provides user data that then goes on to
12:39inform strategy and pricing
12:40company-wide. If, for example, you're
12:42consistently ordering Big Macs when
12:44they're $6.10, then when the price goes
12:46up to $6.49, you no longer order the
12:49sandwich, or worse yet, you no longer
12:51spend at McDonald's, that's extremely
12:53valuable information for the company to
12:55have. And ultimately information that
12:57the company will act on. While altering
12:58the quality of the product or the
13:00products itself presents a massive
13:02undertaking for a chain so big, screens
13:04and big data allow McDonald's to better
13:06alter and fine-tune prices and offerings
13:09to best match what the customer is
13:11willing to pay. Where In-N-Out optimizes
13:13through what it controls in the physical
13:14world, the big chains optimize through
13:17the digital.
13:18In the wake of the $18 Big Mac meal
13:20going viral, concerns over McDonald's'
13:23pricing strategy were voiced in an
13:24earnings call. The company was losing
13:26its important lower income customer and
13:29the perceived value of the company's
13:30products in relation to price was
13:32declining. The answer came in the form
13:35of a major value push. First, the $5
13:38meal deal launched in mid-2024, then the
13:41McValue menu the year following. Both
13:43span breakfast and lunch items, both
13:45have marked a pivot in sales and broadly
13:47have proved to work. And yet, if you
13:49were to go to this McDonald's location
13:51in Darien, Connecticut, a Big Mac meal
13:53would still run you nearly $18.
13:56And that's because the word perceived in
13:58perceived value is doing a ton of work.
14:02McDonald's is not in the business of
14:03quality food or cheap food so much as
14:06it's in the business of convenient food
14:08at a stomachable price. That's why the
14:10company developed the app, it's why it
14:12revamped drive-thru menus to get average
14:14ticket times down. It needs to provide a
14:16product at [music] pace. More
14:18accurately, it needs to provide products
14:20at pace. It needs to be a place where
14:23you can grab lunch, a coffee drink, and
14:25a bag of ice all at the same time. But a
14:27customer will only act on such
14:29convenience so long as they believe
14:31they're not getting ripped off for a
14:32fairly unspectacular product. So
14:34McDonald's pores over the data, tinkers
14:37with prices, alters its value menu
14:38offerings over and over to find the
14:40precise price point that the customer
14:43will tolerate.
14:44Recently, the company launched its own
14:46line of refreshers and they're pushing
14:47the product hard. Now, these products,
14:50simply by being drinks, have high
14:52returns. But they also create incentive
14:54in the customer to alter habits. Rather
14:56than going to Starbucks, one could just
14:58hop in the McDonald's app and order one
15:00of these along with a food item that
15:01Starbucks can't match. At $3.69 to
15:04$4.69, these drinks aren't cheap, but
15:08they're comparatively cheaper. They're
15:10cheaper than the options at Dutch Bros,
15:12Starbucks, and Sonic. They're just cheap
15:14enough, the company hopes, for the
15:16customer to think they're getting decent
15:17value for their money and benefiting
15:19from the convenience of being able to
15:20grab food in the same stop that they'll
15:22change up their typical afternoon
15:23refresher routine and instead bring
15:25their business over to the golden
15:26arches.
15:28The tech pivot is broader than
15:29McDonald's. Taco Bell, owned by the
15:31publicly traded Yum Brand, has turned to
15:33a bifurcated menu with extreme value
15:36items and high-dollar bundle items
15:38pushed through the app. Practically
15:39every fast and fast-casual restaurant
15:41from Jimmy John's to Panera Bread have
15:43mobile apps and digital loyalty
15:45programs. Wendy's found itself in hot
15:47water when it launched a digital menu
15:49system that could potentially alter
15:51prices of products midday. Customers
15:53called it surge pricing, and the outcry
15:55started a larger conversation over an
15:57accusation that no restaurant wants to
15:59be associated with, dynamic pricing. Of
16:02course, none in the industry want to be
16:04associated with dynamic pricing given
16:06how much distrust the label engenders.
16:09But the technology exists, the data and
16:11the data processing exists, and already
16:13in just about every big chain, though it
16:15doesn't happen over the course of the
16:16day, the prices of products do change
16:19and the value menus shift around every
16:21few months. It may seem too far of a
16:23reach now, but pricing structures that
16:25shift by the hour and by the customer
16:28would fit the larger optimization and
16:30efficiency pushes that fast-food has
16:32leaned [music] into the last decade.
16:34Customers have come to stomach rising
16:36costs, so perhaps, if slowly and quietly
16:39implemented, they'll come to embrace
16:40dynamic ones, too.
16:45There's an interesting problem with how
16:46information spreads online today. Modern
16:49media ecosystems are incredibly
16:50efficient at amplifying stories, but not
16:52necessarily at helping people understand
16:54them. Important news events quickly
16:56fragment into thousands of headlines,
16:58reactions, and interpretations that all
17:00emphasize different incentives, angles,
17:02and narratives. So, when news broke
17:04during the production of this video that
17:05the head of the Food and Drug
17:06Administration had resigned, I wanted a
17:08clear way to understand not just the
17:09story itself, but how the story was
17:11being framed, and that's why I turned to
17:13our sponsor, Ground News. Ground News is
17:16an app and website that gathers news
17:17from over 50,000 sources worldwide in
17:20one place so you can get the full
17:22picture of every story by comparing
17:24coverage across outlets, getting insight
17:26into a source's bias, how factual they
17:28are, and who owns them. When looking
17:29into this resignation at the FDA, on
17:31Ground News I can see that over 350
17:34sources covered the story. If I scroll
17:36down, I can see every article on this
17:37story and compare in real time how the
17:39story is being framed across different
17:41outlets. And just looking at these
17:42headlines, you can already see just how
17:44different the story is framed from
17:46either side of the political spectrum.
17:48This headline from what Ground News
17:49identifies as a right-leaning source
17:51frames Marty Makary at odds with the
17:53current administration, while this
17:55headline from a left-leaning source
17:56frames Makary as Trump's FDA chief
17:58before then highlighting the new
18:00appointment's alignment with the
18:01president. Effectively, both sources
18:03then are framing the same person and the
18:05same story in a fairly different light
18:07when it comes to Makary's standing and
18:09relationship to the president, signaling
18:10to me to look into this more before just
18:12echoing either side's framing.
18:14Additionally, another feature I love is
18:16Ground News's Blind Spot Feed, which
18:18surfaces stories that are
18:19disproportionately reported by either
18:20side of the political spectrum. These
18:22are stories that you may be missing and
18:24could be buried for a reason. I find I
18:26don't always have the time or energy to
18:27deep dive into every news story when my
18:29job is basically deep diving and
18:31understanding broader news stories like
18:32fast food prices, so it's super helpful
18:34to see the talking points of each side
18:36to understand where there's agreement
18:37while also seeing where the disconnects
18:39are. And honestly, as someone that tries
18:40not to mindlessly repeat biased talking
18:42points, Ground News is an awesome way to
18:44check my own biases and make sure I'm
18:46not falling for overly simplistic or
18:48unfair characterizations of the news
18:49that tend to pop up too often these
18:51days. They've even been endorsed by the
18:53Nobel Peace Center for their positive
18:54impact on media literacy. If you'd like
18:56to clean up your news diet and speak
18:58with more confidence on subjects because
19:00you see how all sides are covering it, I
19:02partnered with Ground News to get you
19:0340% off the same unlimited access
19:05advantage subscription I use if you
19:07subscribe through my link
19:09ground.news/wendover.
19:11They're completely subscriber funded so
19:12there's no corporate influence deciding
19:14what you see, and you'll be supporting
19:15the channel while you're at it. So,
19:17thank you.

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