Yes, that Big Mac meal may cost $18 — but there’s one good reason for it
If you’re hoping to gauge Americans’ lingering discontent with postpandemic price increases, look no further than the McDonald’s menu.
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You can find gripes on social media about a $5 chicken sandwich, $3 hashbrowns or a $5.50 Egg McMuffin , all of which some customers have called too pricey for a place known for cheap fast food.
The price of a meal at the classic burger chain has even hit $18 at one location — that’s what a Big Mac combo meal will run you at a rest stop in the wealthy town of Darien, Conn.
In New York City, the same combo of Big Mac, medium fries and medium soda costs $13.89 on DoorDash before any fees or delivery charges — or $17.79 if you swap the soda for a shake.
But those cost increases — so sharp that McDonald’s MCD is having a harder time pulling in lower-income customers, CEO Chris Kempczinski said on the company’s earnings call this week — may have a silver lining, at least for the folks working behind the counter.
Several months ago, the most significant factor pushing fast-food prices upward was the rising cost of food itself. Now, the No. 1 driver is the cost of labor, said Eric Gonzalez, a senior analyst covering the restaurant industry for KeyBanc Capital Markets. In other words, McDonald’s workers are making more money than they used to.
“I would have said food [costs] maybe a year and a half ago, but food inflation, I think, has become a lot more manageable,” he said. “Labor inflation is sticky.”
That’s a challenge for company leaders, but it’s good news for the employees working some of the most notoriously low-paid roles in the job market. The average hourly wage for a U.S. fast-food or counter worker was $13.53 in 2022, according to the Bureau of Labor Statistics. For a full-time worker, that comes out to about $27,000 a year.
“The reason McDonald’s was so cheap was because they paid so little for their labor,” Washington State University economist Christopher Clarke says in a TikTok video examining the rise in restaurant prices. “Fast-food prices going up are mostly going to workers.”
A McDonald’s spokesperson told MarketWatch that pricing is at the discretion of franchisees and thus varies by location.
“Providing our customers with affordable options has always been core to our brand,” McDonald’s CFO Ian Borden said on the company’s fourth-quarter earnings call. “That’s even more important as consumers feel pressure on their spending.”
How much are fast-food wages rising?
Pay for restaurant workers is going up and has risen faster than wages in other parts of the economy.
Hourly compensation for workers at limited-service restaurants grew 26% between 2019 and 2022, according to data from the Bureau of Labor Statistics. By contrast, wages across the economy only grew by about 17% during that period.
“It is absolutely a win for low-wage workers,” Clarke, the Washington State University economist, told MarketWatch. “We haven’t seen this in 40 years.”
Lower-paid workers in general have seen historic wage gains in the postpandemic years.
In the current relatively robust job market, those upward pressures on wages aren’t likely to disappear anytime soon, said Brian Harbour, a restaurant-industry analyst at Morgan Stanley.
“When you have such low unemployment , that usually continues to put pressure on wages, especially at the low end,” he said.
Fast-food employees are still among the lowest-paid workers in the economy and, in several states, they can still be paid the federal minimum wage of $7.25 an hour.
There are are only about 16 counties across the U.S. where an employee earning that wage and working 40 hours a week can afford a one-bedroom rental at fair-market rent, according to the National Low Income Housing Coalition.
Some states require employers to pay much more than that federal minimum. In California, fast-food restaurants with more than 60 U.S. locations will need to pay workers at least $20 an hour starting in April.
In 2022, McDonald’s increased hourly wages at over 90% of its U.S. company-owned stores, resulting in an 8% increase to the average hourly pay rate, the company spokesperson told MarketWatch. That followed a 2021 effort that increased wages at company-owned restaurants by an average of 10% .
Other costs putting pressure on fast-food profit margins include the still-elevated cost of ingredients — although the size of that burden depends on the kind of food being served, KeyBanc’s Gonzalez said. Construction delays and other hurdles to building new restaurant locations are also squeezing chains’ bottom lines.
“It’s been hard to get units built over the last few years,” he said. “That’s still persistent.”
Will McDonald’s lower its prices?
Although higher wages workers are receiving may be cold comfort for anyone who’s shelled out close to $20 for a fast-food meal lately, there could be good news in the offing for price-conscious customers.
Consumers broadly seem to be pushing back on higher fast-food prices — and that might lead some brands to start offering better deals, analysts said.
The gap between what it costs to cook at home versus eating out — or ordering in — has been growing, and that’s dinging sales across the fast-food industry.
Nowadays, it costs about five times more to eat away from home as opposed to staying in, Gonzalez said.
“When that gap widens, that’s usually a tough operating environment [for restaurants],” he said.
Kempczinski admitted on Monday’s earnings call that McDonald’s has had a harder time attracting customers who are on tighter budgets.
“The battleground is certainly with that low-income consumer,” he told investors and analysts. “I think what you’re going to see as you head into 2024 is probably more attention to what I would describe as affordability.”
Consumers seem to care more about absolute price points of individual menu items than about combo deals like two items for $6, Kempczinski said.
That means you might see some less-expensive options on the menu at McDonald’s or similar restaurants soon, Gonzalez said, as restaurants offer items or deals aimed at getting more customers in the door.
“That entry-level price point is something we might start to see emphasized,” Gonzalez said.
How have higher prices affected your life and how you think about the U.S. economy? Let us know at readerstories@marketwatch.com . One of our reporters might reach out to you to learn more.
