McDonald’s BUSTED Red Handed RIPPING OFF CUSTOMERS & It’s COLLAPSING The Fast Food Business!

Our Take: Has McDonald’s Priced Itself Out of the Market?

We’ve been talking a lot about the fast food industry lately, and it’s clear that things are collapsing. We believe this rot is entirely of their own making. During and after the lockdowns began, companies like McDonald’s, Burger King, and Wendy’s seemed to decide that since Americans were getting stimulus checks, they could engage in price gouging. This led to prices soaring, like a Quarter Pounder with Cheese extra value meal potentially costing $14 or $15.

Now that things have calmed down and people are returning to work, reports confirm just how greedy these companies have been. What’s baffling to us is how far we, the consumers, let them push prices.

Earnings reports suggest that some consumers have turned away from fast food because offerings have become more expensive. We’ve seen people say things like, “If I’m going to pay $5 for a fry, I’ll just go to this place over here,” or “If I’m going to pay 15 bucks for a quarter pounder with cheese value meal, I’ll just go to Chili’s”. While we might not put Taco Bell and Chili’s in the same category quality-wise, the sentiment that people feel they get better value elsewhere is clear. People feel we, as an industry standard-bearer, pushed them too far.

McDonald’s latest financial report suggests sentiment has grown against it among its traditional customer base. While the company blames disappointing first-quarter results on fewer people dining out generally, some experts suggest budget-conscious consumers are turning to chains like Taco Bell and Chili’s, seeing them as better value. In the first quarter, McDonald’s saw its worst year-over-year revenue drop since the height of the lockdowns, with sales tumbling 3.6% for US locations open at least a year. Visits from low and middle-income consumers plunged 10%. The chief executive stated people are being more judicious about cutting back visits and that they are not immune to industry volatility or consumer pressures.

Let us be very clear: we believe they are the reason people are thinking twice. For our entire youth and into our early adulthood, McDonald’s was synonymous with cheap food. You never questioned if you could get a better deal; you just knew McDonald’s would be cheap. That’s completely different now. They’ve pushed prices so high, even charging extra on delivery apps, which we find scummy. Consumers are now asking if there’s a better option, questioning if they can get better food for their money because McDonald’s has become so incredibly greedy and ripped off customers so badly.

The price gap between fast food, fast casual, and sit-down restaurants has now blurred. This makes it harder to justify spending more than $10 at McDonald’s when just a few extra dollars can get you a meal at places like Wingstop (though we think Wingstop is garbage tier too) or Shake Shack. We see fast casual options like Culver’s, Five Guys, Chili’s, Applebee’s, and TGI Fridays.

The average price of a McDonald’s menu item has increased 40% between 2019 and 2024. The company says this tracks with rising costs, but we note that the consumer price index rose almost 23% over the same period. The price of a Big Mac rose 21% during that time, according to a company fact sheet. An Egg McMuffin climbed 23%, and a 10-piece McNugget meal increased 28%.

These significant price hikes have led competitors to question the chain’s value. For instance, Chili’s, which has thrived in a struggling industry, promoted its burger on their 10.99 three-for-meal by noting it had twice the beef of a Big Mac and urged customers to “ditch the tiny drive-through burger”. As consumers who appreciate value and portion size, it’s hard to argue with that. We feel a Quarter Pounder isn’t enough meat anymore; you need a Double Quarter Pounder. A Chili’s burger is often much bigger and juicier. You can get endless chips and salsa for a few dollars there, and while you have to tip a waiter, the perceived value at around $10 is much better than potentially spending $25-$35 for two people at McDonald’s.

Other chains like Burger King, Popeye’s, Chipotle, and Wendy’s have also reported same-store declines in recent quarters and warned of a broader consumer slowdown. However, McDonald’s, long seen as the industry standard-bearer and icon of affordable dining, is more vulnerable because it raised prices while offering weaker deals than rivals. We disagree with that analysis; the reason they are more vulnerable is because they “pummeled” people with high prices during the lockdowns. Many low-income consumers, a significant part of their base, spent stimulus money on food delivery, and when prices rise rapidly, these consumers are heavily impacted. In some ways, McDonald’s is one of the most vulnerable companies.

While other chains like Wendy’s and Burger King also raised prices to offset inflation, McDonald’s trailed in slowing those price hikes last year as inflation cooled. It wasn’t long ago that McDonald’s sales boomed, even seeing an 8.7% increase in US same-store sales as recently as 2023. But we must discuss the context: during the lockdowns, mom-and-pop restaurants were often closed, while super mega corporations like McDonald’s and Wendy’s were allowed to stay open. There were simply no other options for many people.

Despite the challenging consumer environment potentially offering an opportunity to outperform, we feel they are simply too greedy. Fast food restaurants are still in decline. April traffic at US quick-serve restaurants was down 1.7% year-over-year, signaling growing consumer caution or shifts in dining behaviors. At the same time, fast food prices on average increased by 2% year-over-year in April, consistent with inflation trends.

However, the issue isn’t just the cost; it’s the perceived value. Consumers don’t just care what your product costs; they care about the satisfaction they get for the price. McDonald’s has long positioned itself as a cheap alternative. Now they are expensive, and the food quality hasn’t increased. So, people are moving on to other options, including cooking at home. We remember our adult life where an extra value meal rarely cost more than $5; the fact that it can now cost $15 tells you everything that’s wrong with these “greed-hungry losers”. If this trend means more mom-and-pop shops thrive, we are 100% for it.