By Alex Bertrand
When most people think of fast food, they visualise an affordable, speedy, no frills meal that packs a tasty, gratifying punch. In recent years however, this assumption has become increasingly undermined as prices throughout the sector continue to soar.
Once synonymous with affordable dining, fast food today is increasingly out of reach for many. Across the globe, surging prices—driven by inflation, labour costs, and geopolitical conflict—challenge its identity as a budget-friendly option.
According to a recent BBC article, based on results from the Office of National Statistics, the average price of a fish and chips takeaway reached £9.88 in July this year, from £6.48 only five years ago – a massive 52% spike.
Nowhere, however, is this shift more pronounced than in the United States, the world’s fast food capital, where demand remains robust despite skyrocketing costs. Since 2017, fast food restaurants across the nation registered price increases averaging 41%.
The concept of quick, affordable and on-the-go dining emerged in the US during the 20th century, with the launch of self-serve restaurants known as ‘Automats’. These gained popularity among customers looking to save time by bypassing the time constraints of traditional dining.
Opening its doors in 1921, the White Castle in Kansas is widely considered the first modern fast food restaurant. A pioneer in the assembly-line approach that prioritised efficiency and consistency, the White Castle’s success was propelled by the nation-wide highway expansion in the 1950s and 60s and its introduction of drive-through restaurants. Following this model, White Castle, along with its early competitors rapidly made fast food a consumer staple, and an intrinsic part of the fast, modern and efficient American lifestyle.
Once valued primarily for its affordability, fast food is no longer seen as the cheap convenience it once was. A recent study found that 78% of Americans now consider dining at fast-food restaurants a “luxury”. The fast food industry however points the blame of price hikes on the significant increases in food and labour costs, both of which have been heavily impacted by inflation over the past five years, as well as current geopolitical crises.
The pandemic is particularly to blame for escalating food prices as the global lockdowns significantly disrupted production and distribution worldwide. Inflationary pressures were only further intensified by the Russo-Ukrainian conflict, as the conflict saw the disruption of Ukraine’s wheat and grain exports, subsequently driving up the cost of essential ingredients for chains worldwide.
Labour costs have also played a crucial part in rising prices. In 2021, the fast food industry experienced what became known as the “Great Resignation”, as restaurants saw a colossal number of job resignations while those remaining in the workforce sought higher wages, benefits and improved working conditions. This shift took labour prices up by one third with the average hourly wage rising from $13.36 to $18.36 since 2020 – a 37.4% increase according to the US Bureau of Labor Statistics.
The quicker cooling of grocery inflation also added pressure to fast food prices. As grocery prices stabilise faster than restaurant prices, consumers are increasingly weighing the costs of eating out versus dining at home due to the low food prices at supermarkets which make eating at home a much stronger value proposition.
Despite rising prices, it is surprising to see that consumer behaviour has seemingly remained unaffected. The Catalyst study shows that while 78% of Americans view eating out as a “luxury”, 75% still consume fast food weekly – a 35% increase from just a generation ago. This paradox of high demand amidst high prices suggests that fast food’s appeal endures despite many viewing prices as being “too high”. Jon Miltmore, the author of this study, reasons that this paradox likely exists due to the unparalleled convenience and addictive qualities provided by fast food, which many may struggle to give up.
Food delivery apps have also played a significant role in sustaining demand despite soaring prices. Pre-pandemic, while the restaurant industry was growing at a steady rate of 3-4% annually, delivery services were expanding at twice the rate (7-8%), driven largely by Gen-Z’s preference for convenience and comfort. Online delivery services such as UberEats, Deliveroo, or DoorDash, have allowed fast-food restaurants to reach customers at home, thereby allowing them to expand their customer reach. According to a McKinsey study, the typical fast-food meal on a delivery app costs around $25, however, including platform and delivery charges, the final bill is likely to amount up to $35. Such additional costs, reflects the growing demand for convenience, but more importantly, the price consumers are ready to pay for it, as delivery apps are capitalising on the increasing reclusiveness of its young customers.
While the US is certainly the central driver in the global fast food market, prices worldwide have mirrored a similar pattern. Using The Economists’ ‘Big Mac Index’, which uses a McDonald’s Big Mac as a price benchmark, we are able to evaluate how the price of a hamburger in the US compare to those abroad. This index reveals that a Big Mac costs €5.60 in the Euro Area and $5.69 in the United States, such that, adjusting for exchange rates, the Euro appears overvalued by 6.5%. This indicates that European consumers are paying €0.37 more than their American counterparts, thereby underlining how inflation in the fast food sector is affecting customers across borders.
Similar or higher figures are reported across the European continent and in South America, however the opposite can be said about countries in Asia. With trade routes that are not impacted by the ongoing conflicts in the Middle East, lower labour costs and less public engagement concerning current conflicts in the West, in countries such as Taiwan or Indonesia, McDonalds has been able to sell its Big Macs at a 59.9% discount in comparison to its state of origin.
Though high prices continue to be met with high demand, McDonald’s CEO, Chris Kempczinski, warns that this is unlikely to last since consumers “are more likely to discriminate with every dollar they spend”.
For chains to maintain their traditional image of affordability, they may need to adapt their business models, as consumers will increasingly consider cheaper alternatives, notably in the form of ready-made supermarket meals or home cooking. We have already seen a progression as restaurants are looking to maximise on the output of delivery services, notably through the development of ‘Dark Kitchens’. While relatively unknown, ‘Dark Kitchens’ are restaurants that have no front of house for customers, most commonly found in rented-out parking-lots, that are used primarily by delivery apps to satisfy the online demand for food.
As prices remain high, fast-food corporations may need to further develop and expand such projects, or undertake similar alternatives in order to gradually ease the weight on the consumer wallet. In doing so, chains should look to increase output to meet demand without sacrificing quality or ethical standards. With Trump set for a return to the White House in 2025, the economy is poised to favour large corporations – leaving us to watch whether chains will lower prices if inflation cools or cling to high price points as consumer demand remains strong.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.
Image Rights: Bloomberg