In recent weeks, fast-food chains have been slashing their prices one after the other, first with Burger King’s $5 Your Way Meals in mid-June, then McDonald’s $5 Meal Deal, available for a limited time. Not to be outdone, Taco Bell has now joined the fray with its $7 Luxury Cravings Box. It seems like every chain is trying to outsell their competitors.
But Ronald McDonald, despite his reputation as a philanthropist, hasn’t suddenly stopped caring about profits, and companies aren’t being forced to lower prices because of presidential pressure (despite Biden’s recent claims): They’re simply responding to changing consumer demand.
They are raised The previous price hike is what started that passionate anti-greed sermon in the first place.
Proponents of “greedflation” argue that companies are using inflation as a smokescreen to raise prices regardless of rising operating costs. And teeth True, there have been times when companies have raised prices by more than offset the increase in their own input costs, but that is exactly what is expected when consumer demand is strong.
During the pandemic, consumers were unusually flush with cash, the result of forced savings (people stayed home and refrained from traveling and going to fine dining restaurants) and generous fiscal policies (e.g., stimulus packages from both the Trump and Biden administrations). When this high household demand collided with stalled supply chains, companies raised prices.
So businesses of all stripes, from mom-and-pop shops to multinationals, have raised prices to combat long lines and rising costs that would otherwise leave endless empty shelves.
The amount of greed in the economy didn’t suddenly skyrocket, or businesses start to care about making money again. The explanation is more mundane: demand outpaced supply.
Fast-food inflation has received a lot of attention, in part because burgers and nuggets have traditionally been great bargains. A TikTok video bemoaning the exorbitant $16.10 price tag for a McDonald’s (specialty) menu item went viral and even reached the White House. McDonald’s released its own McFlation fact-check to convince customers that the price hikes aren’t that drastic. Ironically, the Big Mac is one of the least expensive popular fast-food items.
Despite the high price of a super-sized burger, consumers continued to spend their spare cash ordering fast food at (and eventually above) pre-pandemic levels. Plus, a tight labor market put upward pressure on wages. As a result, prices kept rising because Americans kept ordering. And they kept ordering.
But consumer demand has cooled in recent months: Federal data shows consumers are burning through much of the savings they made to prepare for the pandemic, wage growth is slowing, and interest rates are rising, making it more expensive to buy things on credit.
This is especially true for low-income households. everytime Not only do they have less disposable income, but they have also been hit hard by inflation in recent years, burning through savings they had made to prepare for the pandemic faster than their higher-income neighbors.
All of this has made consumers a little more price sensitive and less willing to spend money on non-essentials. In fact, data from consumer analytics firm Numerator shows that spending at limited-service restaurants increased from late 2022 until about September 2023, then plateaued, especially among lower-income customers. In fact, when adjusted for inflation, spending actually increased by 1.5%. under.
The changes have forced companies to work harder to attract customers to restaurants: “Everybody is struggling with declining customer numbers…. Customers are certainly coming to our restaurants less frequently,” McDonald’s Chief Financial Officer Ian Bowden said during an earnings call in April. In response, Bowden urged companies to adopt a “street-fighting mentality to win.”
The company’s not-so-secret weapon in this battle for the city? Its value menu. And so began the race to the bottom for the fast-food prices we now enjoy (deliciously).
It’s not just fast food. Big box stores like Walmart and Target have also made huge price cuts this summer to lure shoppers back. The president, who apparently thinks greedflation is a winning political message, is trying to take credit for those cuts. The White House said retailers are “answering Biden’s call” to “give families more money.”
But the truth is that multinationals don’t do this out of goodwill: they’re still just trying to make money.
The recent price fluctuations up and down confirm the old adage: “The best cure for high prices is high prices.” If inflation was driven primarily by greed or corporate shady behavior, prices would have stayed high. But high prices ultimately encouraged customers to spend less, which in turn encouraged companies to offer better prices. A lesson in economics served with fries.