In the recent months, commodity prices have soared to record highs, with the sharpest increase being in the price of beef. The reason for this increase is partially due to last summer’s drought, but it is much higher than most analysts predicted. This has begun to affect the profits of large restaurant chains such as Burger King, Wendys, and most importantly McDonalds.
In early May, McDonalds announces that it would remove its Angus Third Pounders from their menu. The company said the removal of this burger was done to make room for other food options, but most experts agree that the profit margins are too low for beef items like these to remain profitable.
This has resulted in McDonalds and other restaurant chains to begin to retool their supply chain to put a heavier emphasis on chicken products, which is more profitable than beef. McDonalds has already begun to roll out new items such as the premium chicken wraps. This will definitely be more costly in the short run, but with rising prices, and more health-conscious consumers, it is a good long-term strategy.
With obesity at all time highs, and consumers becoming more health-conscious, this rise in beef prices could not come at a better time. Chicken is much healthier that beef, having significantly less calories and fat. With chicken prices being low, this could benefit both the restaurants and the consumer.
This situation can be compared to gas prices hitting an all time high in 2008. Once prices hit the high, there was a sudden demand for more fuel-efficient vehicles, planes, trains, etc. They use less fuel, are much more efficient, and produce significantly less emissions that harm our environment. Similar to beef prices, consumers had no reason to switch to the better option until it became cost-effective.
In any industries of this size, change has to be gradual. Switching from beef to chicken is easy for consumers. On the contrary, in order to fulfill demand, restaurants like McDonalds have to completely re-tool their supply-chain. Farms need to change their facilities to accommodate more chickens, processing plants need to change all their machinery, and restaurants need to change how they cook and prepare the final product.
I personally believe that this will benefit both the profit-minded producer, along with the health-conscious consumer. The fast food world is changing, and these companies know that innovation is essential to adapt to the changing taste buds of consumers.
What is your eating preference at these fast food chains? Do you think this rise in commodity prices is a good thing? Have you become more health-conscious?
http://www.nbcnews.com/business/wheres-beef-mcdonalds-dropping-angus-burgers-us-menu-1C9864163
Personally, I do not eat out at fast food restaurants since I am more health-conscious and make food at home. But when I do eat out, I look at both the price and quality of the food I am consuming. This article made me think about Upton Sinclair’s The Jungle, which is about the early meat-packing industry. Now a days, majority of the people are somewhat conscious about what they consume, whether be for health reasons or socioeconomic situations. Importantly, this is crucial for McDonald’s and other fast food chains to go through necessary changes to their supply-chain and so forth in order to introduce new products to meet the consumers’ demands.
I do not think the rise in commodity prices is a good thing because if this continues, fast food chains may have to increase prices in order to increase profit margins. However, I believe McDonald’s is dealing with the price increase well. As you mentioned, many health conscious people will take advantage of the new menu items and choose chicken over beef.
As long as fast food chains like McDonald’s don’t remove their essential food products that have made them profitable over the years, like their cheese burger, I don’t think this will greatly affect net income. You bring up a good point about how the market has became more health savvy. I think providing more chicken and health provoking meals will rake in more profit long term because they will still be providing their target consumers with burgers as well has the health craved consumers with what they desire.
Personally, I don’t eat much fast food, but one has to admire McDonalds executive stewardship. More than any other fast food company, McDonalds has continually been able to adapt and thrive as market conditions change. Out of the three companies mentioned in your post: Burger King, Wendy’s, and McDonalds, McDonalds is the only one that has created wealth for its shareholders over the past decade or so. The reason for this is they have been amazing at adapting to conditions and consumer preferences, while the others have not. Whether it be accommodating local preferences in foreign nations or catering to the cafe craze in the U.S., McDonalds has generally been successful at every turn. For these reasons, I believe anything that shakes up the industry, like rising beef prices, will actually benefit McDonalds and allow them to gain marketshare over their competitors.
McDonald’s is on its own planet when it comes to the fast food world. In general I would agree with the author here that the rise in beef prices may detour consumers to eat chicken instead. This detour is ultimately a more healthy choice. I personally enjoy food that is unhealthy and will not stop eating it anytime soon. I imagine many people like me are out there, and therefore McDonald’s and other chains will never discontinue their beef products because of a simple price increase.
McDonald’s has an uncanny ability to innovate and reinvent themselves according to the ever changing demands of their customers. I myself am not a big fast food goer but when I do I usually go to McDonald’s. They have introduced a lot more healthy food options that were missing from their menu before; with introductions of premium snack wraps and fruit smoothies McDonald’s has expanded their market even further. They seem ever progressive in their thinking and their operations seem to always be in sync with what the public is asking for. In terms of beef prices, I believe it can be good to lay off the sale of beef for not only McDonald’s to increase their profit margin but because the waste that goes into producing beef. I read that 30% of the earth’s land mass is used to grow crops to feed the raising of animals while reportedly it takes 2400 gallons of water to complete the process of creating 1 pound of beef. While I expect the company to continue serving the staples on their menu that include beef; I would not expect them to expand their beef menu.
(http://www.peta.org/issues/animals-used-for-food/meat-wastes-natural-resources)