Restaurant chains are in a pickle, caught between soaring ingredient costs and fears that raising prices will turn off their budget-conscious customers, who generally
remain pessimistic about the economy. Companies like McDonald’s Corp., Buffalo Wild Wings Inc. and Chipotle Mexican Grill Inc. are taking different approaches to the dilemma. Some are trying to pass on rising costs to customers to avoid squeezing their profit margins. Others are holding the line on prices or emphasizing their existing low-cost menu items to keep
consumers coming through the door.The worst drought in decades has driven up prices for foods including corn, chicken and beef this summer. Further complicating matters for restaurants and other retailers, consumer confidence in August fell to its lowest level since November 2011, the Conference Board said Tuesday.Fast-food chains are struggling to balance soaring prices for ingredients against the price-sensitivity of pessimistic consumers. Julie Jargon has details on Earlier this month McDonald’s attributed The News Hub. Photo: Reuters.
flat global same-store sales in July to waning consumer sentiment, and market-research firm NPD Group predicted that restaurant traffic would be flat for the next
two years, dialing back its previous forecast of a 1% gain.
“Restaurant operators are in a position where they don’t have much of a choice but to raise prices because they operate on such thin margins,” said Darren Tristano,
executive vice president of restaurant consulting firm Technomic Inc.
The pressure is greater on some chains than others. Fine and causal-dining restaurants can better stomach commodity-cost increases because of their higher-priced menus and ability to adjust portion sizes. “But when you’re McDonald’s, a lot
Requirments: In your own words, focus now on the economic content of the article. Why did ingredient food prices increase? What is the effect of increases in ingredient prices on the cost of providing fast food? In turn, what is the effect of increases in ingredient prices on the market supply for fast food? How does “consumer confidence” affect this market?
3. Use a supply/demand diagram to analyze graphically the effect of low “consumer confidence”
and reduced consumer budgets for fast food and an increase in the cost of ingredients on the
equilibrium price and quantity sold of fast food. Will the price of fast good undoubtedly increase?
What will happen to quantity sold? You must include a supply and demand diagram in your
essay to illustrate. You must briefly explain in writing your diagram to the reader.
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