Kind of an interesting discussion blew up out of a chart I put up on Facebook that I’d gotten from an X tweet. It was a five-year illustration of the increase in fast-food prices from a couple of the major chains. The numbers seemed to be pretty legit, and so I posted just the chart on my page with not a word of comment, believe it or not.
Seriously. I just posted this graphic:
Very much in the vein of those comparative gas price per gallon charts, right? they’re always fun.
NEW: Florida conservative group @AFPFlorida to host gas holiday in Kissimmee, offering $2.38 gas, representing the same price as when Biden took officehttps://t.co/woCSTLrTJx
— Florida’s Voice (@FLVoiceNews) May 22, 2024
Fun or depressing.
And I didn’t even include an “I did that!” Biden sticker – I was totally mature.
Normally, I only post goofy memes or links to my HotAir pieces, and there are either people laughing or doing a “Yeah, buddy” kind of high five.
But for some reason, this little bit of info brought out a couple friends of a more liberal bent who normally don’t wrangle politically (I never get into it on their pages). They were quick to say, “Yes, but check their profits.” The inference being, of course, that it wasn’t #Bidnenomics inflation responsible for raising those, say, McDonald’s prices, but greedy corporate overlords making the moneys.
As it always is.
And this turned into a story in two parts.
Even as I was putting several different charts from Mickey D’s corporate earnings in the comments, one of POTATUS’ ardent fans was helpfully doing the same with gross profit percentage. He noted there were a lot of reasons for the price increases, but gosh, you couldn’t leave this out:
McDonald’s gross profit for the quarter ending March 31, 2024 was $3.439B, a 3.77% increase year-over-year.
McDonald’s gross profit for the twelve months ending March 31, 2024 was $14.688B, a 9.03% increase year-over-year.McDonald’s annual gross profit for 2023 was $14.563B, a 10.26% increase from 2022.
McDonald’s annual gross profit for 2022 was $13.207B, a 4.98% increase from 2021.
McDonald’s annual gross profit for 2021 was $12.58B, a 29% increase from 2020.
Again, an ee-ville corporation is at fault for making money hand-over-fist, not the administration’s misguided economic policies.
But the net income, when I went digging as I always do, was like even more WOWSAHS.
- McDonald’s net income for the quarter ending March 31, 2024 was $1.929B, a 7.05% increase year-over-year.
- McDonald’s net income for the twelve months ending March 31, 2024 was $8.596B, a 25.03% increase year-over-year.
- McDonald’s annual net income for 2023 was $8.469B, a 37.09% increase from 2022.
- McDonald’s annual net income for 2022 was $6.177B, a 18.13% decline from 2021.
- McDonald’s annual net income for 2021 was $7.545B, a 59.5% increase from 2020.
The information I came across also posed a question that I asked the X world at large. If there were inflationary pressures on Mickey D’s prices, they sure weren’t showing up in corporate financials.
Bingo. My man Don came through.
Beege – 95% of their restaurants are franchised. The local restaurant deals with incoming goods price fluctuations
— Don Hodun (@donhodun) May 21, 2024
McDonald’s corporate revenue stream:
…The company’s revenues include sales by company-operated restaurants and fees from restaurants, which are managed by franchisees…
Besides paying $45K for a franchise to begin with (and somewhere in the neighborhood of $2M to get it running), those additional “fees” from franchisees to corporate HQ run about 8% of a franchise’s revenue (more on that in a bit). With the average franchise pulling in $3.5M in sales per year, Mickey D’s is sitting fat and happy watching the checks roll in.
The first part of the story is the conclusion that contrary to POTATUS’ “shrinkflation/greedy corporation” rhetoric, it seems the Biden years have been very, very good for “greedy” corporate growth at the expense of working people and the middle class.
It’s quantifiably true.
I’m pretty sure that’s not the result the “but what were the profits” crowd was looking for when they first raised their objection to my innocuous little chart.
Part two takes up where Don’s reply sent me next.
What about those 95% of McDonald’s stores that are franchisees? How are they doing in Biden’s economy?
The first thing to establish is that franchisees – not the corporate headquarters except for agreed-upon national promotions – set menu prices as they are the ones purchasing on the local economy and dealing with rent and labor laws.
…Franchisees set menu prices, based on help from a consultant and based on local market conditions. The company does have a national value offer, 123 Dollar Menu, but inflation has hit that, too, with almost no items priced less than $2 anywhere in the country.
McDonald’s corporate is trying to roll out a $5 menu this summer to bring people back into the restaurants. What they’re running into is resistance from franchisees who cannot afford the loss-leader of a $5 menu. They can barely afford to run what they have now.
McDonald’s is set to start offering a $5 bundled meal promotion this summer as it looks to offset declines in traffic as consumers frustrated with inflation dine out less frequently.
…But that could frustrate operators, particularly in high-cost markets, where margins have been squeezed following three-plus years of inflation. Wage rates in California, insurance premiums in several markets and beef costs all over the place continue to put pressure on wages.
In California, fast-food franchise owners are scrambling to keep their heads above water in an already challenging environment.
“The focus is survival,” Rodrick said during an interview on “Varney & Co.”
Yoicks.
In response to California’s new $20 minimum wage law, fast food franchises are being forced to rethink their business strategies to stay afloat.
…Rodrick described the past few weeks as a “whirlwind” of activity trying to adapt to the new financial pressures the “unprecedented law” has created.
…The new wage law not only raises operational costs but also prompts business owners like Rodrick to consider broader implications for their business locations and future family involvement in the industry. He shared concerns about whether continuing the business in California remains viable for the next generation, considering the state’s regulatory environment.
According to Bloomberg, the law has instigated broader economic changes across various industries. Michaela Mendelsohn, who operates six El Pollo Loco locations, has had to raise managers’ salaries by over 10% to more than $83,000 annually to align with new wage regulations. This adjustment is a response to a specific provision in the law that requires salaried staff at fast-food establishments to earn at least double the hourly minimum wage.
Man, you have to sell a lot of dead chickens to pay managers $83K a year. And you have to have managers.
Other companies are handling inflationary and wage issues with combinations of yet more price hikes and switching to automation where it’s feasible.
…In-N-Out has, however, raised prices in Los Angeles restaurants by about 25 cents per burger. That’s still less than the price hikes other restaurants had to implement.
According to the New York Post, one Burger King in Los Angeles raised the price of its Double Texas Whopper by 12% from $15.09 to $16.89.
Many restaurant chains started preparing for wage hikes, even before the law was passed last September. Some companies are exploring automation as a strategy — a trend that took off in 2017 with self-service ordering kiosks.
Insider reported that some restaurant franchises, including a major Burger King franchise, are ordering new digital order kiosks to replace existing staff.
McDonald’s Corporation, for all their worry about butts in seats or rolling through the drive-through, aren’t quite feeling their franchisees’ pain yet. Last November, even as fast food sales started sliding and the CA wage rules were looming, the corp upped its franchise fee for new owners or anyone who had the wherewithal to purchase an already existing company restaurant.
McDonald’s will start gradually increasing the royalty rate it charges to its U.S. and Canadian franchisees by 25% starting next year, adding to a series of major changes in its relationship with the people who operate most of its restaurants.
The Chicago-based burger giant will increase what it has traditionally called a “service fee” to 5% of revenues from 4%, starting in January, according to a system message on Friday from McDonald’s CFO Ian Borden and Andrew Gregory, SVP of global franchising, seen by Restaurant Business.
…Franchisees heard of the changes early Friday morning and were still trying to digest the news. But operators we spoke with were angry at the news, arguing that the move increases the company’s revenues while opening the door to potential service cuts down the road, thanks to the change in terminology from “service fee” to “royalty.” “They continue to take more share of the pie,” one operator said.
It’s kind of like She Lob waiting for a fat orc to wander into the cave so she can suck him dry and then wrap him up for later.
Out of a yearly median sales of $3.5M, most owners realize an EBITDA (earnings before interest, taxes, depreciation, and amortization) of around $189K. (COGS is cost of goods sold.) In some markets, COGS can run upwards of 30% of sales, as anyone who’s been to a grocery store would know.
We estimate that a McDonalds franchised restaurants makes $186,000 in profits per year. This represents a 5.3% EBITDA margin.
This is just a ballpark worksheet based on a franchise agreement before the new 5% fee kicked in. Also, it doesn’t look like it’s for CA, but it does give you a good idea of the money involved.
So the second part of the #Bidenomics fast food story plays out on the local level and badly as well. Inflation was a running theme in every industry article on franchise issues I read. When inflation hits food prices in a typically 6-9% profit margin business, and then the pain is compounded by outrageous minimum wage policies, everyone at the restaurant level loses. Customers can’t afford a $16 cheeseburger, owners can’t begin to pay the help, who then wind up unemployed because of pricing pressures forcing a switch to automation. If franchise owners give up or move out, as many are seriously thinking of doing in California, that creates its own ripple effect in real estate markets and city tax bases.
There’s nothing worse than empty buildings.
Everyone loses.
The conversation my little chart started wound up being pretty informative, and, even more interesting, none of the conversations, facts, or figures went Biden’s way.
He’s the good-for-big-business, corporate shill they try to paint every Republican as.
He and his progressive toadies have been stomping the crap out of everyone trying to make an honest living in his lousy economy.
Yeah.
HE did that.