Fast Food’s Traditional Appeal vs. Today’s Reality#

Okay, so let’s talk about fast food. For a long time, it was never really considered “good” food, but it was definitely a quick, easy, reliable, and cheap way to get a meal. This appealed a lot to folks who didn’t have much time or, well, didn’t have much money.

Think about it: Mass layoffs, increasing economic uncertainty, deferred student loan payments restarting, and spiking consumer debt. You’d think these conditions would be perfect for cheap food options, right? Companies like McDonald’s, Domino’s, KFC, Taco Bell, and Wendy’s were even called recession proof because people always need to eat, even when things are tough. They used to offer the best “exchange rate” – lots of calories for your dollar.

But that’s all changed. In a move that’s honestly kind of baffling, these brands have reacted to customers who are trying to save money and are short on time by becoming more expensive, slower, and less reliable. It’s probably no surprise then that sales across the whole industry have plummeted. This is happening exactly when you’d expect them to be doing really well. It would almost be funny, except these companies are some of the largest employers in the country.

Beyond the Drive-Thru: Fast Food as an Economic Indicator#

This “McRecession,” as you might call it, isn’t just about a few bad business choices. It’s a pretty clear sign of some much bigger problems going on in the wider economy. Fast food is supposed to be that cheap, quick, and easy choice.

Personally, I stopped grabbing fast food because it just got too expensive for me. It didn’t feel worth it anymore. And I’m not alone. McDonald’s actually saw its biggest US sales decline in nearly 5 years. I mean, you buy a McChicken sandwich now, and it’s almost $4. It’s even hitting what used to be the absolutely cheapest stuff on the menu. For lots of people, that cheap option just isn’t there anymore.

The Changing Landscape: From Fun Hut to Generic Box#

Before we dive into how fast food might be a warning sign for larger economic troubles, there’s something else important to understand.

Fast food spots used to be… well, fun.

• Pizza Huts actually looked like huts.
• Chuck-E-Cheese had all that rodent-themed stuff.
• McDonald’s was bright, colorful, and, yes, maybe a little creepy with those clowns and characters.

That’s definitely not the case anymore. Now, most fast food restaurants look pretty much the same – a generic, nondescript, boxy, modern commercial building.

This shift happened for a few reasons, and they tell you a lot about where the industry is heading.

The Price Hike Problem#

Now, all of this only works if these businesses are still bringing in cash. And to do that, they need to sell some food. The trouble is, that’s getting really hard.

Fast food prices have increased significantly, even more than just regular inflation. Data collected by Finance Buzz shows that the average McDonald’s menu item is now twice as expensive as it was just 10 years ago.

Part of this is because fast food items used to be artificially cheaper than they probably should have been. When customers ordered inside the store, there were more chances to upsell them to larger sizes or add on high-profit items like desserts and drinks. This let them keep the core menu items cheap to get people in the door.

Now, costs like ingredients and rent are higher. On top of that, restaurants have to give a significant chunk of their sales revenue to the delivery companies. To keep making money, they had to raise their prices. Their move towards “premium” branding was basically a way to try and justify these price increases without admitting that getting food delivered by hand is a luxury that naturally costs more.

Fast food companies actually aren’t allowed to directly offer lower prices in their own stores compared to the delivery apps, even though they don’t have those extra delivery expenses. So, they’ve had to get a bit sneaky. They offer various meal deals and combinations, but you usually have to navigate through their own apps or figure out specific in-store combos to get the better price.

If you’re a really savvy fast food pro, willing to sit there, do some math, and use the deals on the company’s own apps and in-store, you could end up paying half as much for the same food as someone who just mindlessly picked pictures on their delivery app of choice. This has made trying to buy fast food increasingly confusing and time-consuming, which is the exact opposite of why people went there in the first place!

Companies Aren’t Blameless#

Now, the companies aren’t completely innocent victims here. Their complicated menus and push for “premium” items were meant to try and squeeze the most money possible out of everyone, from rich people who are lazy to poor people who are savvy. But the market has turned against them, and this clever business model might actually be what does them in.

So, we’re learning how money works to see if fast food companies have, well, cooked themselves into a corner.

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A Glimmer of Hope: Taco Bell’s Approach#

Okay, it’s not all bad news. As the first quarter earnings reports came out, some brands actually managed to increase their sales.

Taco Bell, which is part of the big company Yum Brands, saw its average store sales increase by 9% compared to last year. Most people are saying this success is almost entirely thanks to the company’s Lux Boxes. These boxes have basically become what fast food used to be: a large amount of food with lots of calories for not very much money.

Even though the fast food industry as a whole saw sales drop, Taco Bell grew because it successfully brought in customers who felt they were being priced out of other options. The company’s own CEO even bragged on their earnings call that their performance was thanks to “massive wins with low-income consumers.”

Yum Brands, which also owns chains like KFC and Pizza Hut, has a different approach to real estate than McDonald’s. They don’t invest heavily in owning the land and buildings. Instead, they rent most of their locations from third-party commercial landlords. This means when they pick a spot for a new store, they don’t have to worry as much about the underlying details of the real estate market in that area. They can focus purely on what locations are going to get the most foot traffic. This also lets their brands operate in places that might not look appealing to real estate investors who also happen to own a burger joint on the side.

The Competition: Cooking at Home#

Across the rest of the industry, though, fast food has mostly lost ground to people just choosing to cook from home. I know, not exactly shocking news, but food has gotten pretty expensive everywhere, right?

The main group of people who eat fast food – often young workers – are the same folks who are frequently the first to get laid off. They also statistically have less savings to help them get through periods without income. On top of that, they tend to have more debt to manage, outside of owning a home.

By now, you’ve probably seen the jokes about being able to pay for your burrito in four easy installments using a “Buy Now, Pay Later” service like Klarna through DoorDash. This meme might be a bit overblown – Klarna is just a payment processor many find easier than a credit card or bank transfer – but it’s a funny way to point out the more serious issue: people are actually going into debt just to keep up. And new platforms like these are making that easier than ever. Klarna and similar services represent an extra $700 billion worth of consumer debt that isn’t being officially tracked, on top of over a trillion dollars already out there in credit card debt and, yes, student debt, which people now have to start paying back again.

So, people are short on cash. But these fast food companies are also losing another group of customers.

Fast Food Isn’t “Fast” Anymore#

Fast food has always been popular with people who just didn’t have much time, maybe after working a long shift and then facing an hour-long commute or more. But even that’s not as big a selling point now. Fast food is not that fast anymore. Average wait times have gone up quite a bit. This means unless you’re willing to pay the extra cost for delivery, it’s often quicker to just make some basic food yourself at home.

There are two main reasons why fast food has gotten slower:

1. Larger Menus: Bigger menus mean it’s harder for kitchens to prepare food ahead of time and just keep it ready to hand over instantly. On the plus side, this often means the food is made fresh when you order, which is nice, except for the second reason…
2. Staffing Issues: Staff turnover in fast food is higher than ever before, and overall, staff don’t seem to care about the job as much as they used to. Look, expecting people to go above and beyond for a minimum wage job at a franchise is probably asking too much, but it’s becoming genuinely hard to find people who want to do the job at all.

Again, the fast food companies have kind of been outsmarted by the delivery apps here. Minimum wage workers now have more options. Delivering food and answering to an algorithm is more appealing to a lot of people than cooking food and having to deal with a manager who might be a bit of a power tripper.

The obvious answer to staffing issues is to just pay people more. And some companies are getting forced into doing that. But then they have to either raise prices even more or cut into their already small profit margins.

These companies are spending a lot of money trying to develop automated kitchens to reduce the need for staff before workers get too much power to negotiate for higher wages. But that technology is still pretty new. Plus, these brands have shareholders to keep happy.

If they raise prices much more, they start competing directly with slightly nicer places, like fast casual dining, and even local independent restaurants. At those places, longer wait times and a slightly higher price are generally expected. For people who want convenience and are okay paying a bit extra for it, they can just order from these nicer spots through the same delivery apps anyway. Folks who aren’t worried about a $5 delivery fee and a 20% tip probably won’t think twice about paying a few more dollars for food made by a chef over a barely put-together McChicken.

What This Means for Everyone#

For most people, the struggles of the cheapest restaurant options are a sign of a pretty bleak financial situation.

Most CEOs who reported poor earnings this quarter admitted that tough economic times are leading people to order less takeaway. They concluded that cooking from home has become much more popular for people trying to make their money last longer.

Now, if you’re looking at this individually, cooking for yourself is a fantastic trend! Unless you earn a massive salary or work an incredibly demanding schedule, cooking for yourself is one of the best things you can do for your health and your personal finances. So, if you can cook, you probably should.

But for society as a whole, when even fast food becomes a luxury, that should definitely set off some alarm bells. Grocery store food has also gotten a lot more expensive. And more people than ever are working multiple full-time jobs. Finding the time in that kind of schedule to also prepare meals is really hard. That’s also ignoring that, according to US census data, about 9% of households below the federal poverty level don’t even have a properly working kitchen at all.

So yes, a lot of people are choosing to cook at home instead of ordering some Kentucky fried carbs, and that’s good! But a lot of people are also just skipping meals altogether, and that’s definitely not good. A survey by Credit Karma found that more than a quarter of people they asked admitted to skipping meals because of rising grocery costs. Keep in mind, this survey was done on people using a service to track their credit score, so that group is likely doing financially better than the true average population.

Impact on Jobs and Global Reach#

This situation also has the potential to create a negative cycle, especially in lower-income communities. Fast food is one of the country’s largest employers. After Walmart, Yum Brands and McDonald’s are the second and third largest employers of American workers. These jobs might not be the most sought-after in the world, but they provide some income to literally millions of people. If restaurants start closing down more widely, that could quickly turn into a huge unemployment problem, particularly for people who have the least financial security to begin with.

The story isn’t much better for these companies outside of America either. Most people around the world are dealing with the same financial realities: increased living costs and economic uncertainty. On top of that, let’s be honest, America isn’t exactly everyone’s favorite country globally right now. Brands like McDonald’s, KFC, and Starbucks are facing challenges from general anti-American sentiment in many of their markets as people choose to support local chains over obviously American businesses. According to McDonald’s own market research, they found more people in various countries saying they plan to cut back on purchases from American brands.

Companies reporting bad financial news always come armed with excuses, but this is clearly a major shift in consumer behavior, and it’s happening right when these businesses can least afford it.

Looking Ahead#

There’s also a growing group of consumers that, unfortunately, the fast food industry isn’t particularly good at reaching effectively right now.

Go and watch this video next to find out how some Americans got so good at buying!

And make sure you like and subscribe to keep on learning how money works!