Fast food chains, traditionally seen as recession-proof due to their affordability and convenience, are now facing declining sales because they have become more expensive, slower, and less reliable, signaling broader economic distress and shifts in consumer behavior.
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fast food has never been good food but it was a quick easy reliable and cheap way to get a meal
that appealed to people who were time poor or just well you know actually poor Mass
layoffs increasing economic uncertainty deferred student loan payments kicking in and spiking
levels of consumer debt should be the perfect opportunity for these cheap offerings to bring
in customers who don't have much money to spare but still want to eat For a long time companies
like McDonald's Domino's KFC Taco Bell and Wendy's were considered recession proof because even in
the most dire of circumstances people still need to eat And the companies typically offered the
best exchange rate of dollars to calories in the market But that's changed In a business
move that can only be described as confusing these brands have responded to cost-conscious busy and
desperate consumers by becoming more expensive slower and less reliable Unsurprisingly sales
across the industry have plummeted at a time when they should be outperforming It would almost be
comical if they weren't collectively some of the largest employers in the country However the MC
recession has been caused by more than some management missteps It's a clear sign of some
much bigger problems in the wider economy You know it's supposed to be cheap quick and an easy option
I personally stopped eating out at fast food for me because it got so expensive it wasn't worth the
McDonald's posted its biggest US sales decline in nearly 5 years I buy the Mac chicken sandwich It's
$3 almost $4 It's also hitting what traditionally had become the cheaper option But for many that's
no longer the case Okay So before we get into the fast food industry is the canary in the coal mine
for much larger structural economic problems there is something more important you need
to understand Fast food locations used to be fun Pizza Huts looked like actual huts Chuck-E-Cheese
had rodent themed decor and McDonald's was full of bright colors escaped convicts and
nightmareinducing clowns That's clearly changed and now almost any fast food store you go into
is the same generic style of nondescript boxy modern commercial building This has happened
for a few reasons that are each very revealing about the broader direction the industry has
gone The first reason is that children have become less important to overall business demand In the
good old days companies would advertise directly to children in the hopes they would effectively
become little sales representatives and threw a fit until their parents gave in and took
them to get some deep fried slop Regulations around advertising to children and a general
cultural shift away from feeding children too much unhealthy food means that companies can't rely on
this market as much anymore though According to a Yugov survey Americans between the ages of 18 and
34 are now the largest consumers of fast food with 42% reporting they consume it several times a week
Demographic shifts means this age group is now less likely to have children of their own So the
extra money and maintenance on custom storefronts isn't worth it since a ball pit is unlikely to
appeal to most 20somes No shame though Shifting consumer trends are one thing but the bigger
reason is that restaurant locations have become far less important and much more interchangeable
According to market data from the consulting firm McKenzie & Company people are now almost twice as
likely to order food through a delivery service like Uber Eats or Door Dash than they are to
physically sit in a fast food restaurant and eat their meal Fast food locations are increasingly
just becoming distribution centers for Postmate drivers So maybe we shouldn't be surprised that
they have started looking like Amazon warehouses Anyway alongside ingredients and staffing the
real estate these restaurants sit at top is simultaneously the largest expense in most
locations as well as being a significant asset As the story goes Ray Croc the man responsible
for scaling McDonald's into a global fast food empire figured out that he wasn't in the burger
business He was in the real estate business To this day for the majority of fast food locations
most of the money is made by the commercial real estate The restaurant that sits on the land is
basically just a tenant producing cash flows It doesn't matter if the tenant is a Wendy's or a
McDonald's So stores have become more uniform to lower the cost of construction and the risk of
having an unusual building that nobody else wants to rent if a franchise moves out So if you want
to know why fast food restaurants look so boring these days you can blame real estate speculation
shifting socioeconomics and middleman technology something of a recurring theme on this channel
Now anyway this whole game only works if these businesses still bring in cash And to do that
they need to move some hamburgers The trouble is that's getting really hard Fast food prices
have increased significantly beyond inflation According to data collected from Finance Buzz
the average McDonald's menu item is now twice as expensive as it was 10 years ago This trend
is partially because fast food items used to be artificially cheaper than they should have been
When people would order in store there was more opportunity to upsell them to larger meal sizes
and tack on higher margin extras like desserts and drinks so they could make their staple menu items
cheaper to attract customers Now ingredients in rent has become more expensive And on top of that
restaurants need to give a significant portion of their topline revenue to delivery companies
To maintain their margins they had to raise prices and their pivot to more premium branding was a way
to justify this change without acknowledging that getting food handd delivered is a luxury
with inherent increased costs Fast food companies aren't allowed to directly offer lower prices in
their stores than they do via delivery apps even though they don't have the additional expenses So
they have had to become sneaky and offer various meal deals so that in restaurant customers can get
better deals if they are willing to navigate through deals via their own apps and pick out
intore meal combinations If you are a savvy Mick connoisseur and you are willing to sit down do
the math and make the most of various deals on the company run fast food apps and intore offers you
can end up paying half as much for the same food as someone who just turned their brain off and
poked at the cheeseburger pictures they wanted on their delivery app of choice This has made
shopping for fast food increasingly confusing and timeconuming which is exactly the opposite reason
why customers go to these companies in the first place Now the companies are not exactly blameless
victims in this trend Bloated and confusing menus and premium offerings had the potential
to extract the most possible money out of the widest spectrum of customers from the rich and
lazy to the poor and savvy But now the market has turned against them and this clever little
business model could be their undoing So it's time to learn how many works to find out if fast food
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price head over to storyblocks.com/howmoney works or click the link in the description So it's not
all bad news As Q1 earnings have been revealed some brands have actually increased their sales
Taco Bell which is owned by the conglomerate Young Brands increased average store sales by
9% compared to last year This success has been attributed almost exclusively to the company's
Lux Boxes which have become what fast food used to be a large quantity of food with a lot of
calories for not very much money Even though the industry declined overall Taco Bell grew because
it attracted customers priced out of other options The company's own CEO boasted on the
earnings call that the company's performance was thanks to massive wins with lowincome consumers
Young Brands which also owns chains like KFC and Pizza Hut does not invest heavily into real estate
like McDonald's and instead rents most of their locations from third party commercial landlords
This means that when picking a location to open a store they don't have to worry about
the underlying fundamentals of the area in the real estate market They can focus exclusively on
what locations are going to bring in the most foot traffic This also lets brands operate in locations
that would otherwise be considered undesirable by real estate investors with a side hustle and
burgers Across the rest of the industry though fast food as a whole has largely lost ground to
people just choosing to cook from home I know this isn't exactly groundbreaking news to you
watching but food has become kind of expensive The key demographics of young workers that consume
fast food are the same people who are getting laid off first and statistically have less savings to
get them through periods of reduced income These people also on average have more debt to manage
outside of a residential mortgage By now you have probably seen the memes about being able to split
your burrito purchase into four easy installments using CLA through Door Dash Now this has probably
been blown out of proportion as CLA is just a payment processor that a lot of people are more
comfortable with over a credit card or a bank transfer But it's a humorous way to acknowledge
the more serious issue that people are going into debt just to keep up And new platforms like this
are making it easier than ever to do CLA and similar services now represent an extra $700
billion worth of consumer debt that isn't being officially recorded on top of over a trillion
dollars in credit card debt in student debt which people now actually need to pay again So people
are short on cash but these companies are also losing another group of consumers Fast food has
typically been popular with people who just didn't have that much time after working a long shift and
then spending an hour or more commuting But even that has become less of a selling point Fast food
is not that fast anymore Average weight times have increased significantly which means unless you are
willing to pay the premium to get food delivered it's almost faster to cook some basic food for
yourself Now fast food getting slower has happened for two reasons The first is that larger menus
make it harder to prepare food in advance and keep it ready to be instantly handed over Now this also
means that food is prepared to order which is nice apart from the second reason Fast food turnover is
higher than it's ever been And overall staff care is low because people simply do not value these
jobs as much as they once did Now expecting people to go above and beyond for a minimum wage job at a
fast food franchise is clearly a bit dumb But it's getting harder to find people that want to do the
job at all Once again fast food companies have kind of been outmaneuvered by the delivery apps
Minimum wage workers now have more options And delivering food and answering to an algorithm is
more attractive to a lot of people than cooking food and answering to the power tripping shift
manager Of course the obvious solution is to just pay people more And some companies are basically
being forced to do that But then they either need to raise their prices even further or cut into
already razor thin margins These companies are investing a lot of money into automated kitchens
to cut down on staff before they get too much negotiating power But that technology is still
in its infancy And these brands have shareholders to answer to now If they raise prices anymore they
will also be competing directly with slightly more upmarket fast casual dining And even local
independent restaurants which are getting harder to differentiate from longer wait times in a
slightly more expensive menu is expected at these stores For people who want convenience and are
willing to pay a few extra dollars for it they can just order from these more upmarket restaurants
off the apps as well People who aren't worried about paying a $5 delivery fee and 20% delivery
tip also aren't going to think twice about paying a few extra dollars to get chef prepared food over
a barely assembled McChick For everybody else the struggles of the cheapest restaurant is a sign of
a pretty bleak financial reality Most of the CEOs that presented poor earnings for this quarter
acknowledge tough economic times for people choosing to eat takeaway less concluding that
cooking from home has become much more popular for people looking to make their money go further Now
individually this is a fantastic trend Unless you are an extremely high income earner or working an
equally extreme schedule cooking for yourself is one of the best things you can do to improve
your health and personal finances So if you can do it you probably should do it But for society
at large when fast food becomes a luxury that should raise a few alarm bells Grocery store
food has also become much more expensive and more people than ever now work multiple full-time jobs
So finding the time amongst that schedule to also prepare food is hard That's also ignoring
that according to US census data around 9% of households below the federal poverty level don't
have an adequately functioning kitchen at all Yes a lot of people are choosing to cook from home
instead of ordering some Kentucky fried carbs and that's good but a lot of people are just
skipping meals altogether and that's bad A survey conducted by Credit Karma found that more than a
quarter of respondents admitted to skipping meals because of rising grocery costs This survey was
also conducted on people who are using a credit score tracking service So the population sample
is probably doing better than the true average Now this has the potential to cause a feedback
loop in low-income communities because fast food is one of the country's largest employers Outside
of Walmart Young Brands and McDonald's are the second and third largest employers of American
workers They may not be the most desirable jobs in the world but they provide some income to millions
of people If restaurants start closing down that could quickly become a huge unemployment problem
amongst people with the least financial security to begin with Now the story is
not much better for these companies outside of America either Most people around the world are
struggling with the same financial realities of increased living costs and economic uncertainty
On top of that America isn't exactly the most popular kid on the block at the moment Brands
like McDonald's KFC and Starbucks are struggling with the general anti-American sentiment across
most of their markets as people are choosing to support the local chains over the unashamedly
American businesses According to McDonald's own market survey they found an increase in people
in various markets saying they're going to be cutting back on purchases of American brands
Now companies delivering poor financial news to their shareholders always comes armed with
some excuses but this is clearly a major shift in consumer behavior right when they can least afford
it Now there is a growing group of consumers that unfortunately fast food isn't particularly
good at taking advantage of Go and watch this video next to find out how some Americans got
so good at buying And make sure to like and subscribe to keep on learning how money works
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