McDonald's is faced with higher food and labor costs, is raising menu prices at a much faster pace than historical rates, focused on preserving profits. The problem with higher-priced menu items is that they will diminish the buying power of the working poor who frequent the Chicago-based burger giant.
Famous for the Big Mac burger, the company is paying more for food, packaging, and other supplies, CEO Chris Kempczinski told investors Wednesday. He said commodity costs are up 3.5% to 4%, up from the 2% increase earlier this year. On top of that, labor costs are up at least 10%. Rising labor and commodity costs are pushing up menu prices in the US by approximately 6% this year.
"Certainly, I was hoping and expecting that we were going to see the situation improve maybe a little bit more quickly than what's materialized," Kempczinski said.
The news of McDonald's increasing menu prices comes as the restaurant industry battles a supply chain crisis (read: here & here) and labor shortage that is disrupting operations. The labor shortage issue has been widespread for the burger chain - even forcing some stores to limit hours of operation. It has become harder than ever to retain or even find workers.
Earlier this year, some McDonald's franchisees offered signing bonuses and paid interviews to attract new workers.
The National Owners Association (NOA), an independent, self-funded advocacy group of McDonald's franchisees, warned months ago that attracting new workers was challenging because generous unemployment benefits allowed many low-income workers to stay home and get paid more. NOA warned also warned an "inflationary time bomb" was imminent and would be passed along to customers:
"Inflation is the flip side to all of these changes," NOA said. "Price increases are happening everywhere you look and will continue as employers pass along these added costs. We will do the same. A Big Mac will get more expensive."
"Our government officials need to know what is happening out in the real world," NOA continued. "They need to know what they are creating; an inflationary time bomb."
Rising menu prices at America's favorite fast-food burger chain will only impact the working poor the hardest who see their real wages crumble as inflation continues to run rampant through the economy.