Opinion | The battle of fast-food chains for cheap menus is a blessing for consumers

Fast food chains have been cutting prices in droves over the past few weeks, first in mid-June with Burger King’s “$5 meal of your choice.” Then came McDonald’s “$5 meal deal,” which was also available for a limited time. Not to be outdone, Taco Bell is joining the fray with its $7 “Luxe Cravings Box.” It seems every chain is trying to undercut its competitors.

But Ronald McDonald, as recognized a philanthropist as he may be, has not suddenly stopped caring about profits. Nor have companies felt pressured to cut prices by the president’s speeches (despite recent claims by President Biden). These companies are simply responding to changes in consumer demand.

Just like when she behaved Prices were already so high that they had given rise to all the feverish talk against greed.

Proponents of “greedflation” argue that companies use inflation as a cover to raise prices regardless of higher operating costs. And lo and behold, it Is While it is true that companies sometimes raised their prices even more than their own input costs increased, this is exactly what is to be expected when consumer demand is strong.

During the pandemic, consumers have been unusually affluent. This was a result of forced savings (people were stuck at home and foregoing travel and fine dining) as well as generous fiscal policy (e.g., stimulus checks from both the Trump and Biden administrations). When this high household demand collided with faltering supply chains, companies raised prices.

This means that businesses of all kinds, from corner shops to multinational corporations, responded to long queues and higher costs by raising prices. If they hadn’t done so, they would have ended up with endless empty shelves.

Greed in the economy did not suddenly become so great. Companies no longer cared about making money. The explanation is more banal: demand exceeded supply.

Inflation at fast-food restaurants has received inordinate attention, in part because burgers and nuggets are traditionally so inexpensive. A TikTok bemoaning the exorbitant $16.10 price tag for a McDonald’s (specialty) meal went viral and made it to the White House. McDonald’s released its own McFlation fact check to convince customers that the price increases weren’t that dramatic. Ironically, of all known fast-food items, the Big Mac has had one of the least price increases.

Despite these inflated burger prices, customers continued to order fast food at pre-pandemic levels (and eventually even more) because they had money left to spend. Plus, the tight labor market put upward pressure on wages. In turn, prices continued to rise because Americans kept ordering. And kept ordering. And kept ordering.

But in recent months, consumer demand has cooled. Federal data shows that consumers have now spent much of their pandemic savings. Wage growth has slowed. And interest rates are higher, meaning it’s more expensive to buy things on credit.

This is especially true for low-income households. They have always had less disposable income but were also more affected by inflation in recent years. They used up their pandemic savings sooner than their higher-income neighbors.

All of this made consumers a little more price-conscious and less willing to spend on non-essentials. In fact, data from consumer analytics firm Numerator shows that spending at limited-service restaurants increased from late 2022 to around September 2023 — and then leveled off, especially for low-income customers. In fact, after adjusting for inflation, spending would have been even down.

This shift forced companies to work harder to get customers into stores. As McDonald’s CFO Ian Borden put it on an April conference call, “Everyone is fighting for fewer customers… who certainly come in less frequently.” In response, Borden urged the adoption of a “street fight mentality to win.”

The company’s not-so-secret weapon in this street fight? Affordable menus. And with it the ensuing race to the bottom in fast-food prices, of which we are now getting a (delicious) taste.

And it’s not just fast food. Major supermarkets like Walmart and Target have also cut prices this summer to lure customers back. The president, who apparently believes greedflation is a winning political message, has tried to take credit for these price cuts. The White House has said retailers are “heeding Biden’s call to give families more breathing room.”

But the truth is that multinational corporations are not doing this out of the goodness of their hearts. They are still just trying to make money.

This recent rollercoaster ride in prices proves an old adage: the best cure for high prices is high prices. If inflation was caused primarily by greed or underhanded corporate behavior, prices would have remained high. Instead, high prices have ultimately caused customers to reduce their spending, which in turn has caused companies to offer better deals. A lesson in economics with a side of fries.