In a blog post published recently, Joe Erlinger, president of US McDonald’s, responded to recent online complaints regarding the $18 price for a Big Mac meal, including the sandwich, fries, and a drink. He clarified that this price is specific to only one location.
Rising fast food prices are significantly impacting American consumers. While chains like Burger King and Wendy’s concentrate on keeping prices low, a notable burger company is addressing public discontent. McDonald’s is working to balance its pricing strategy to address the concerns of customers upset by the higher Mcdonald’s prices, much like its competitors and other retail businesses.
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Key Takeaways
- McDonald’s Addresses Price Misconceptions: President Joe Erlinger clarifies exaggerated claims about McDonald’s prices, stating that $18 Big Macs are sold at only one location out of over 13,700 in the US. This emphasizes the company’s commitment to accurate information.
- Consumer Dissatisfaction Impacts Spending: Rising fast food prices reduce consumer spending and slow down fast food sales, highlighting the impact of price hikes on customer behavior and restaurant traffic.
- McDonald’s Affordability Efforts: CEO Chris Kempczinski emphasizes customer affordability, highlighting McDonald’s history of value pricing and plans to introduce a $5 value meal to attract customers.
- Understanding Inflation with the Big Mac Index: The Big Mac Index serves as a tool to measure purchasing power parity (PPP) among nations, indicating inflation trends. Recent studies show that while Big Mac inflation has increased, it hasn’t matched the rapid rise seen in the Consumer Price Index (CPI), underscoring the complexity of food price dynamics amidst broader economic factors.
McDonald’s Addresses Exaggerated Claims About Rising Prices
McDonald’s president, Joe Erlinger, is concerned with recent claims suggesting that the company has been raising its prices beyond inflation rates. In a rare open letter to US customers, he stated that reports of excessively high fast food pricing have been overstated.
In his letter, Erlinger acknowledged that $18 Big Macs are real but specified that they are sold at only one of the over 13,700 locations in the US. He expressed frustration and concern over how this information has been widely circulated and misrepresented in viral social posts and inadequately researched reports, leading many to mistakenly believe these are typical prices.
He also addressed rumors about the average Big Mac price in the US, clarifying that it has not doubled since 2019 but increased from $4.39 to $5.29, marking a 21% rise. Erlinger emphasized the company’s commitment to providing accurate information, noting their responsibility to the nearly 90% of the US population they serve annually.
People are expressing their dissatisfaction with rising fast food prices online. This isn’t just talk; customers are also reducing their spending. Due to frustration with high prices, diners are eating out less frequently and spending less when they do, which is leading to a slowdown in fast food sales and a decrease in customer traffic.
Joe Erlinger is addressing these concerns because McDonald’s is increasingly viewed as a symbol of rising fast food prices, a perception that could negatively impact both sales and the company’s reputation.
McDonald’s CEO Chris Kempczinski emphasized the importance of affordability for their customers. He said that they wrote the book on value and that they are dedicated to continuing to be industry leaders.
To attract customers, the burger chain is reportedly considering introducing a limited-time $5 value meal to the menu.
The average cost of a Big Mac combo in the US is now $9.29. The Egg McMuffin’s price has risen to $4.29, showing a 23% increase from its 2019 price of $3.49. Additionally, the price for a 10-piece McNuggets meal has climbed to $9.19, up 28% from $7.19.
Joe Erlinger pointed out that over 95% of McDonald’s locations in the US are operated by franchise owners who set their own menu prices. This independent pricing allows for many items to increase in cost at a rate lower than inflation, keeping prices competitive in the quick-service restaurant industry. He also mentioned that over 90% of US franchisees provide bundled meals priced at $4 and even lower.
Understanding Inflation With The Big Mac Index
Global Big Mac Index: source
To clarify, the Big Mac index was introduced by The Economist magazine in 1986 as a tool to measure PPP among nations, using the price of a McDonald’s Big Mac as a standard.
Purchasing Power Parity (PPP) is an economic theory that suggests exchange rates will eventually adjust to ensure that an identical basket of goods costs the same in different countries. In this case, a Big Mac is used as the basket of goods. The cost of a Big Mac includes labor, materials, taxes, transportation, and other elements, providing a useful measure of inflation.
Recent research shows that since 2012, the price of a Big Mac has consistently exceeded the Consumer Price Index (CPI), yet it has not increased at comparable rates. Yet, as inflation began to rise in 2021, the price of the Big Mac did not climb at the same pace as the CPI.
The study examined Big Mac and CPI inflation rates in January and July of each year starting from 2018. It noted that both rates were around 1% at the beginning of 2021. From this time onwards, the CPI inflation rate started surpassing the Big Mac rate, climbing to a high of 8.5% in July 2022, whereas the Big Mac inflation rate remained lower at 4.5%.
Since that time, the inflation rate for Big Macs has continued to rise, while the CPI inflation has begun to fall. By July 2023, Big Mac inflation exceeded 8%, while the CPI was just over 3%.
It’s important to understand that the CPI includes a wide variety of items, such as energy and clothing prices. The Big Mac price changes tend to mirror shifts in the cost of dining out. The index for food away from home, including the Big Mac index, saw greater increases than the CPI for all items after July 2022.
The CPI’s food away from home category encompasses costs from restaurants and similar establishments. Despite the general decline in the overall CPI, rising food prices continue to play a significant role in the inflation figures.
Conclusion
In response to public dissatisfaction with fast food prices, McDonald’s USA President Joe Erlinger addressed exaggerated claims about the cost of a Big Mac meal, clarifying that the $18 price only applies to one specific location. He highlighted that the average price of a Big Mac has increased modestly, from $4.39 to $5.29 since 2019. Erlinger emphasized McDonald’s commitment to affordability and accurate information.
Despite rising fast food prices, largely due to inflation and individual franchise pricing decisions, McDonald’s aims to remain competitively priced and customer-focused. The company is considering introducing a $5 value meal to attract customers and maintain its reputation as a leader in value within the fast food industry.
