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U.S. restaurant prices broadly rose 6% over the past 12 months –
driven by wage increases and higher costs for everything from
meat to kitchen equipment – leading analysts to caution that
weary customers may begin to trim fast-food spending.
Franchisees can set their own prices, which vary by region, with
a Big Mac, soft drink and large fries costing nearly $10 in New
York City.
McDonald's Corp, among the first major restaurant chains to
report fourth quarter results, is expected to report a 6.9%
increase in U.S. comparable sales growth, down slightly from
estimates of 7% two weeks ago. It reported 9.6% growth in the
third quarter.
The chain's U.S. menu prices have increased 2.7% over the last
three months, according to Gordon Haskett analysts. Some
McDonald's franchisees now say more expensive sandwiches are
hurting foot traffic and sales, according to independent analyst
Mark Kalinowski's survey of operators, published Monday.
"Is there an inflection point at which customers start deciding
it's not worth paying $9.50 for a burrito, it's not worth paying
$7 for a hamburger?" said Morningstar analyst Sean Dunlop.
Weekly visits to many fast-food restaurants have been falling in
recent weeks, according to Placer.ai, which tracks cell phone
location data. McDonald's visits started dropping in
mid-December and fell 12.6% in the week ended Jan. 10 versus
2019 levels, the analytics firm said.
And fast-food menu prices could increase another 6% to 8% in
2022, according to Wedbush Securities.
To be sure, consumers have had pent-up spending power after
saving money at the start of the pandemic and later getting cash
injections from government rescue aid. Several chains including
Chipotle Mexican Grill Inc and Popeyes' parent company
Restaurant Brands International Inc have so far reported little
resistence to higher menu prices.
"We haven't seen much pushback yet on the price taken in 2021,"
Restaurant Brands CEO Jose Cil said during an investor
conference on Monday. "The key is not to get too far ahead of
the consumer."
Restaurants face multiple pressures including COVID-related
staffing shortages, limited seating and reduced hours on top of
bad winter weather and normally slow January sales.
McDonald's is expected to use its new digital rewards program to
grab market share from smaller rivals, including Restaurant
Brands' Burger King.
McDonald's huge scale lets it "defray the costs of really heavy
investments in technology across an enormous sales base and
swallow those costs better than a lot of smaller peers," Dunlop
said.
(Reporting by Hilary Russ in New York and Uday Sampath Kumar in
Bangalore)
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