Menu Prices Up in 2008 – Fast Food Rising Fastest
August 30, 2008 by admin · Leave a Comment
We recently reported on the rising prices across the nation for a variety of goods and services. Another one is coming….
The National Restaurant Association reports a 4.1 percent increase in menu prices thus-far for 2008. Fast food menu prices are up 4.3 percent and even higher prices are expected given announcements by the country’s largest burger chains. All these price hikes are still currently in line with the U.S. Department of Agriculture’s projection of total menu price increase for 2008 of 3.5-4.5 percent, but there is still the last quarter to go, and one wonders if prices will go higher before 2009.
On July 23rd McDonald’s (MCD) corporate COO Ralph Alvarez announced that the chain’s “Dollar Menu” will be seeing some changes. Industry experts expect that similar changes will be seen at other fast food joints around the country. Possible changes include changing recipes, lowering quantity, and/or raising prices. All changes would be aimed at making value meals more profitable for McDonald’s to offer.
It will be interesting to see how the nation’s No. 2 burger chain, Burger King (BKC), and No. 3 Wendy’s (WEN) react to price/quality changes on the McDonald’s value meals.
Wendy’s already announced earlier this year expectations to increase overall menu prices by 3-4 percent over the course of 2008 with the goal of offsetting rising costs. It is unclear how much prices have already risen and if the plan has changed. The issue is further convoluted by the current acquisition of Wendy’s by Triarc Companies Inc. (TRY).
So what’s causing the price hikes?
The biggest commodity cost for fast-food burger joints is beef. McDonald’s CFO Pete Benson said that he expects cost increases in 2008 of up to 9 percent for beef, 5-6 percent for chicken and up to 21 percent for cheese.
Because beef is the main cost factor, one option for the burger giants is to encourage customers to buy meals which combine smaller burgers with higher profit-gathering fries and drinks. Another option to keep prices low is to skimp out on toppings. However, customers would be less than thrilled with smaller burgers and less toppings, so most restaurants are going the other direction and raising prices.
The value of the value meal.
Fast food industry experts know that they can’t drop the value menus all together – these are the deals that keep customers coming. QSR Consulting Group Inc. President Stuart Morris told MSNBC that McDonald’s Dollar Menu is key for it’s strategy. The Dollar Menu may only account for 14 percent of sales, but he says that it could account for 30 percent of McDonald’s transactions. His opinion: raising the price of the $1 double cheeseburgers could send customers off to competitors.
Bucking the trend.
A fast food counter-trend can be seen at YUM (yUM) subsidiarys Taco Bell and KFC. Both of them are offering NEW value menu items that are even lower than 99 cents. Taco Bell is understandable: their staple commodities are cheaper: beans and rice. What is KFC’s secret?