price increases are already there in fast food

The soaring cost of certain materials such as frying oil or packaging is forcing small traders and fast-food giants to significantly increase their prices.

It is one of the most popular “döner kebab” in the 18th arrondissement of Paris. Every day, dozens of people line up in front of “Gemüse” to taste one of their “kebap”. But for a few days, customers have been informed of bad news: a poster announces a significant and almost general increase in prices.

The restaurant explains that it can no longer cash in on price increases on certain materials alone, in particular “200% on frying oil” (obviously widely used) or even “packaging” in cardboard. As a result, he is forced to increase his dishes, fries and formulas by a few tens of cents to “preserve” his economic model.

“We can’t do otherwise”, indicate other owners of this type of restaurant to our colleagues from France Bleu. All had to raise their prices by a few tens of cents to cope.

Oil, sauces, packaging

The soaring price of sunflower oil is turning into a nightmare for this type of fast food. It is one of the many consequences of the war between Ukraine and Russia, the two countries representing 78% of world exports of sunflower oil. Sold for 640 euros per tonne in mid-February, it is trading for more than 1,000 euros today.

And not only does this inflation affect the frying oil, but also the sauces which are notably made with this oil.

This problem does not spare the fast food giants. Like McDonald’s. In the United States, despite the chain’s colossal footprint allowing it to absorb some of this inflation, menu prices have risen 2.7% in the last three months, according to Gordon Haskett analysts after to have increased by 6% in 2021.

It must be said that the sign also had to agree to an average increase of 10% in wages across the Atlantic.

In the United States, increases at McDonald’s and Burger King

At Chipotle (Mexican food), prices are up 10% year on year. Same thing at Burger King in North America. “We anticipate additional price increases in 2022 and are working closely with franchisees to make the best decision for customers,” said Restaurant Brand International CEO José Cil last February.

More generally, menu prices in fast food could still increase by 6 to 8% in 2022, according to Wedbush Securities.

In France, the trend is similar even if it is still difficult to assess precisely because in most cases, restaurants are franchised and are free of their prices.

Contacted, Burger King France explains: “Today, faced with the constant rise in raw materials, we have made some price adjustments in our restaurants but they remain lower than the inflation that we are experiencing and which concerns the vast majority of our ingredients. We make recommendations to our franchisees (85% of our restaurants are operated by franchisees) but they are then free to set their own selling prices to customers”.

“We maintain (and recommend to our franchisees to maintain) the prices of certain iconic products at the national level such as the King Junior children’s menu which is 4 euros or our King Deal Menu (Burger Fries and Drink) which is 5 euros in the majority of our restaurants in France”, adds the group.

Contacted, McDonald’s has not yet returned our requests for comment.

Asked by BFM Business, Bernard Boutboul, president of Gira Conseil (specialized in the out-of-home catering industry sector) explains that there are two “camps” among operators today.

“Psychological threshold”

“The former absolutely do not want to apply price increases for fear of dropping attendance. The latter are looking for solutions to mitigate or circumvent these increases by reducing their costs, in particular by making changes to their recipes”.

For franchisees, “some will follow the recommendations of the franchisor, others will not, they have no obligation. So there will be incomprehensible price disproportions for the consumer in the territory”, adds the expert.

But in the case of McDonald’s (83% of the 1500 restaurants are franchised), Bernard Boutboul believes that the increases will be homogeneous. “Franchisees generally trust the recommendations of the franchisor”.

“We’re stuck”

Problem, there will be a psychological threshold not to be exceeded. According to a survey by independent analyst Mark Kalinowski conducted among franchisees (who may or may not apply the price increases recommended by the parent company), the price increase is already beginning to weigh on sales in the United States.

“Is there an inflection point where customers start deciding that it’s not worth paying $9.50 for a burrito, that it’s not worth paying $7 for a burger?” said Morningstar analyst Sean Dunlop.

“We are not very far from this breaking point in France”, adds Bernard Boutboul, “we already have one of the most expensive restorations in the world, we are stuck”. Especially since the prices of raw materials, basic products or even packaging are not about to turn around. “It’s not over, we can expect a new outbreak this fall,” warns the expert.

Olivier Chicheportiche Journalist BFM Business

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