Watch Out, Big Kahuna Burger: Commodity Price Inflation Hurts Fast Food

Consumers won't be McLovin' the latest changes to fast-food cuisine at McDonald's. The restaurant's ever-popular Dollar Menu, which stimulated sales growth for the company in the past, is about to meet its untimely end. Commodity price inflation is hurting companies everywhere, and McDonald's is no exception.

"Launched in 2003, the Dollar Menu has been a key driver of sales at McDonald's 14,000 U.S. restaurants and has helped it ride out dips in consumer spending," the Wall Street Journal reported earlier this month. "But recently, franchisees have complained that the menu has brought too much unprofitable traffic into their restaurants."

The star of the Dollar Menu, the glorious Double Cheeseburger, shares the blame with other items that include cheese or meat. Rising dairy and beef prices, as well as a general increase in energy and commodity prices, are turning the double cheeseburger into a super-sized problem at its current price. The company is exploring ways to make the burger less expensive, with some franchises altering the make-up of the burger (two beef patties, one slice of cheese?) and other restaurants increasing the item's price.

Last month, the Chicago Tribune offered an interesting comparison between the Double Cheeseburger and its more expensive counterpart, the Quarter Pounder with Cheese. More than triple the cost of the Double Cheeseburger, this pricy item left one writer scratching his head: "The QPC is an ounce heavier than the DC, and packs 70 extra calories and three more fat grams, but basically it's the same combo of beef, two slices of cheese, ketchup, mustard and pickles on a bun. Oh, you get sesame seeds on the QPC bun." But the price leaps from $1 to about $3.40 when consumers choose one item over the other. Given these price differences, the writer asks, how much would YOU pay for a Double Cheeseburger? Anywhere near as much as the Quarter Pounder price?

Right now, McDonald's is thinking about creating a "mid-price" menu, with prices ranging from $1.30 to $2. "We know customers are facing tough times in this economy," Don Thompson, president of McDonald's U.S. business, told the Wall Street Journal. So making burgers more expensive is the response? Interestingly, it wasn't long ago that the company announced that price increases were unlikely -- but they're singing a different tune now that the company expects cheese prices to rise 21 percent over the next few months in the U.S. Beef costs should rise about 8 or 9 percent. You might not be "lovin' it" when you have to pay more for that double cheeseburger, but increasing product prices is a rational response to higher input costs and a possible spending slowdown. Still, consumers who rely on McDonald's for cheap, fast food instead of gourmet coffee and overpriced salads won't be too pleased to shell out that extra nine cents, 30 cents, or dollar.

- Amy Edwards

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