McDonald’s Raising Prices?
February 2, 2011
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You may be “Lovin’ It” a little less in the near future, according to McDonald’s Chief Financial Officer, as discussed during a conference call with investors earlier this week. As commodity prices rise, the need to increase prices on their menu items seems to be an eminent change for the popular fast food chain. What changes are to be made, and how much the prices will increase, is still a mystery, but the probability of a sharp increase is unlikely due to several factors.
Despite the fact that McDonald’s net income rose from $1.22 billion from last year, to $1.24 billion this year, they believe that their food costs will rise 2 to 2.5% in the United States and 3.5 to 4.5% in Europe in 2011. In order to offset these costs, they are suggesting passing this off to the consumer. Yet, there is no need to worry. Why is this? McDonald’s has always been known for low cost, no frills food. Originally, they had no competition, but over the years, other fast food chains have opened. Places like Burger King and Wendy’s offer similar food, with prices to match. If McDonald’s were to raise their prices, one of two things could happen.
Since they all have similar food, they have to buy the same ingredients. McDonald’s is not the only company that rising costs, in areas such as beef, are affecting. If they were to raise their price, competitors may do the same thing. This would leave them on an equal playing field. However, there is also the possibility that other fast food restaurants would capitalize on new price increase. With the use of clever marketing strategies, targeting McDonald’s as the expensive fast food could hurt them substantially. They have a reputation for low cost food, and if they were to lose that, they could lose all their customers as well.
Regardless of how McDonald’s goes about this, they assure customers that staple items will not increase sharply. This would ensure that regulars would continue to eat there, who began when the economy failed. Nothing is official yet, and until McDonald’s crunches the numbers, it is uncertain whether they will go through with these changes. Nevertheless, be warned: if your favorite “Dollar Menu” items go up; you may have to shell out an extra nickel or dime in order to enjoy it. Will you look somewhere else for your fast food needs, or will you stay loyal to McDonald’s?