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Look no further than the fast-food drive-thru for evidence of inflation fatigue.
Food companies have been passing along higher labor and ingredient costs to consumers long after inflation peaked at 9.1% in June 2022. Diners are getting fed up, eating less fast food and griping on social media that their go-to cheap meals aren’t so cheap anymore.
Sales show it. McDonald’s reported underwhelming results in the fourth quarter, and Yum Brands showed weaker-than-expected growth in its top brands, which include KFC, Taco Bell and Pizza Hut.
Fast-food executives are taking note. McDonald’s CEO Chris Kempczinski told analysts Monday that consumers are becoming more discriminating with their dollars, and he promised the company would focus more on affordability this year.
Kempczinski noted that consumers earning $45,000 or less annually were favoring comparatively cheaper groceries over Mickey D’s, opting to cook their own meals more often.
“Eating at home has become more affordable,” he said. “The battleground is certainly with that low-income consumer.”
Some common grocery items have been falling in price. In the Bureau of Labor Statistics’ Consumer Price Index, the food at home category rose only 1.3% between December 2022 and December 2023, but food away from home rose 5.2%.
Long known for its Dollar Menu, McDonald’s was recently pilloried online for a Connecticut restaurant’s $18 Big Mac combo meals and $7 Egg McMuffin.
McDonald’s told NBC News that pricing is up to franchisees and can vary by location but that the company strives to strike a balance for value.
In recent years, many fast-food companies have expanded offerings and tweaked their restaurants to try to attract as many customers as possible across income levels. McDonald’s recently upgraded its famous burgers and opened a new concept called CosMc’s, all while leaning into nostalgia.
But inflation-scarred diners may care more about price, said Laura Murphy, managing director of Bolt PR who specializes in food and beverage marketing.
“People are really telling fast food QSR [quick-service restaurant] industry leaders, ‘This is what we’re looking for, this is what we want: We want efficiency. We want affordability.’”
Meanwhile, Taco Bell is leaning in on its value menu, promoting 10 items for $3 or less. The company told NBC News it “remains dedicated to offering our fans delicious food at affordable prices.”
This isn’t the first time in recent years that consumers have balked at menu price hikes, or taken to social media to gripe about them.
Yum CEO David Gibbs told Yahoo Finance last year that the company was planning more modest price increases than the ones it implemented in 2022. Amid the latest quarter’s disappointing results, Yum announced plans to juice sales at KFC by launching a smashed potato bowl and the chicken chain’s first loyalty program.
Some major food and beverage brands operating in the Middle East — including McDonald’s, Starbucks and Yum — have said conflict in the region and related boycotts have also dented business. Burger King’s parent company warned in November that the turmoil there threatened to pile on top of other global pressures, from the war in Ukraine to Covid-19, that have already driven up costs over the last few years.
That could potentially “have an adverse impact on our business and results of operations if we and our franchisees are not able to adjust prices sufficiently … without negatively impacting consumer demand,” the company told investors.
Bucking the trend, Chipotle’s sales rose 8.4% in the fourth quarter and foot traffic improved, too, after a 3% menu price hike back in October. The company credited the return of carne asada with helping drive the growth.
With prices for almost everything higher today than three years ago, even though inflation has slowed sharply, Murphy said what matters most in today’s fast-food industry are cost and convenience.
“Let’s go back to really making sure that we’re providing simple food in an affordable way that’s efficient, quick, and it gives people really the basics of what they’re looking for,” she said.
