One of the best things about fast-food is that it’s quick and easy to get without putting a strain on your wallet. Sure, prices have gone up over the years, but still, McDonald’s and other places like it are some of the cheapest places to eat. Ever wonder why? Here are 10 Important Reasons Why McDonald’s Is Always So Cheap.
10. History of McDonald’s
Before we get into the meat of it, let’s talk about the humble beginnings of one of the most recognizable fast-food chains in the entire world. The first McDonald’s was started by Maurice and Richard McDonald, two brothers who had no idea what life had in store for them. It all started in 1948 when the brothers converted a drive-through barbecue restaurant into a burger and milkshake joint. The original McDonald’s focused on burgers, fries, and shakes, and even back then, their prices were low, selling their food products for half the price and in half the time of competing restaurants. How did they do this? Well, McDonald’s started doing things differently right from the start. Instead of relying on waiters and waitresses, the McDonalds brothers installed a self-service counter. Instead of cooking each meal to order, they prepared their burgers ahead of time and kept the food warm under high-powered heat lamps. Nowadays, this concept isn’t unusual, we’ve grown up with McDonald’s and Wendy’s and a whole lot of other places that have been operating by this standard fast-food model, so it’s not out of place. But at the time, this type of thing was unheard of, and it gave them a much-needed edge against their competitors. We all know the story from there; McDonald’s continued to grow, and grow, and grow. It expanded into Canada, into Russia, into Australia. Nowadays, the famous golden arches are one of the most recognizable symbols around the world.
9. It Has A Big Side Business
Even though McDonald’s is one of the biggest and most successful fast-food restaurants in the world, selling food is not their main concern; it’s simply a side hustle. The real deal? The giant real estate company masquerading as a fast-food empire. The way it works is pretty simple: McDonald’s sells their name, branding, and proprietary formulas in exchange for a share of the franchisees profits, as many other franchises do. But the only difference is, McD’s franchisees have to pay rent since the corporation owns most of its location’s physical property. McDonald’s buys up cheap locations and then leases these lots to franchisees, using variable rates. This means lease payments continue to rise over the years even though the cost to McDonald’s doesn’t change. The chain has 36,000 locations, 90 percent of which are owned by franchisees, and the average franchise pays nearly $400,000 per year in rent and associated fees. So, if you do the math, you get to pretty big revenue stream, which in no way affects your ability to sell cheap food. The truth is, as long as the doors are open, McDonald’s is making money. With increasing rents and new locations opening up every day, it’s no wonder the prices are so low – they can afford it!
8. Wholesale is Everything
If you’ve ever shopped at Costco or Bulk Barn, you know that buying in bulk is a great way to save money. McDonald’s understands this as well, and it’s one of the ways it saves big on costs. Imagine, instead of buying food for one single outlet, you’re buying food for nearly forty thousand restaurants worldwide. If you think about how much money you save buying in bulk, imagine how much money a huge corporation like McDonald’s can save. Since McDonald’s tends to buy all of their products from the same suppliers, their constant business and large orders get them a big discount. This is one of the big ways they’re able to keep their products cheap. If they don’t pay a lot for the ingredients in the first place, they can still profit off of the relatively cheap prices. Here’s a fun fact for you: McDonald’s is the world’s largest buyer of beef, pork, potatoes, lettuce, and tomatoes. They’re also the second-largest purchaser of chicken behind only KFC. Needless to say, the phrase “buying in bulk” takes on a new meaning with this fast-food corporation. Because the company is essentially buying the ingredients it needs at wholesale prices, that means that it can sell its food for cheap. This, combined with all the other things on this list, means that the customer gets a relatively inexpensive meal.
7. Cheap Ingredients
Everyone knows that McDonald’s is bad for you, but why is it bad, exactly? Well, one of the reasons may be because the company always goes for the cheaper alternative when it comes to ingredients. For example, let’s think about where this fast-food company gets its eggs. While the company has started phasing these eggs out, McDonald’s has – historically speaking – used caged eggs. According to its site, only 12 million of the 2 billion eggs McDonald’s serves in the United States each year are cage-free. That’s .06 percent, not a big amount at all. The reason behind this is simple: while it may be better morally to have cage-free eggs, financially speaking, it’s more than the company is willing to spend. The cost of producing cage-free eggs is significantly higher than caged eggs. Farms have to upgrade their facilities and pay more in labor, not to mention the fact that hens produce fewer eggs when roaming free. That cost then gets passed onto the buyer. The average cost of one dozen caged eggs is 91 cents. The price of cage-free eggs is nearly three times higher at $2.65. Another way McDonald’s sources cheap ingredients is by shopping overseas. The company buys many of its ingredients from foreign countries. When purchasing something from a poorer country, such as coffee from Guatemala, it will cost McDonald’s less than if they had done so from a domestic producer.
6. Cheap Labor
Working at McDonald’s – or any fast-food joint, for that matter – is one of the most common jobs for students or people with no work experience. Considering that the workforce is an extremely important part of any business, you would think that they would treat their employees better. For McDonald’s in the US, that’s not the case! Why? Because they know they can get away with it. In the recent past, the wage at McDonald’s in America was a measly $6.25 an hour. It has gone up slightly to $7.25 an hour as the minimum wage across the United States was increased. On average, even when including supervisors and managers, the hourly pay is only $8 per hour. This is because managers tend to only get a wage increase of 50 cents an hour. Regular workers tend to only get a 5 cent raise in their 6-month reviews. Of course, while this may be fine for a student who is being financially supported by their parents, this type of wage can’t cover the everyday living costs of most people. One of the reasons McDonald’s uses to justify its low wages is the fact that the company largely hires untrained people with no work experience. They train them in a few basic skills, such as cooking the burgers or taking orders, meaning that its workers are easy to replace, and they can continue to justify the low wage. What makes this worse is that the company can afford to pay its workers a living wage. In Denmark, for example, McDonald’s pays its workers an average of $21 per hour, with 5 weeks of paid vacation. We’ll just have to wait and see how long it takes McDonald’s in America to catch up.
5. Selling Cheap Food Makes Money
While it may sound counterintuitive, selling cheap food makes McDonald’s money. A business can make more money by lowering the price of an item if the increase in demand is greater than the price decrease. That means that if you lower the price of an item by five percent, but the sales increase by ten percent, then you’re going to collect more money. When you think of all the coupons, sales, and value meals that McDonald’s offers, it’s obvious that the company uses that knowledge to its benefit. Simply said, McDonald’s will make money selling burgers for a buck if it can make the burger for less than $1 and sell lots and lots of them. Volume is the name of the game, and this is where serving so many people helps McDonald’s bottom line. It’s also why McDonald’s will do everything to get you your food as quickly as possible. They even teach their employees and shape their menu around this principle; anyone who’s worked at McDonald’s knows that you have to go as fast as you possibly can. Over the years, the company realized that having menu options that use more than ten ingredients slows down this process, so they’ve gone so far as to remove those items from the menu. Looks like they’re really dedicated to this business principle!
4. Low Prices Lure People In
Again, this one seems counterintuitive. McDonald’s is pretty well-known for their coupons and their dollar menu featuring items for either $1, $2, or $3, but how can the company continue to make so much money if they’re selling items at such a low price? Well, once again, abiding by the law of decreased price, increased sales, the reason behind their lowered prices is to lure in customers. McDonald’s aims to bring in as many customers as they can, no matter the cost, literally. Their hope for pricing items so low is that customers will buy a lot of the discounted products or buy other, more expensive products since they’re already in the restaurant. This marketing technique may not always work, especially if products are priced much lower than what it costs to make them. But, not only does McDonald’s provide heavy discounts to keep customers, but they also create an environment to keep customers in the restaurant longer. The biggest example of this is the kid’s play place, where kids can climb, play, and hide from their parents when they don’t want to leave. Having this keeps families in the restaurant longer, meaning they may buy multiple items. Offering free Wi-Fi and comfortable seating is another way McDonald’s tries to make customers want to stay for longer. If students, for example, go to Mickey D’s to do work and use the Wi-Fi and outlets, they may buy more than just one coffee throughout the day. More customers equals more sales, and more sales equals more money for the people who are running the company.
3. Mass-Produced Meat
Unsurprisingly, McDonald’s uses a lot of meat in their products. Like, a lot. Like 1 billion pounds of beef a year in the United States alone. Meat is one of McDonald’s more expensive ingredients, but the company still manages to find ways to get lower prices by profiting off of concentrated animal feeding operations. To be raised ethically, cows need space to grow. Grazing operations require 26% of the earth’s habitable land. The United States alone has over 700,000 cattle ranches, meaning cows are not getting the space they need. At these ranches, the cows graze for 8–12 months. Once the cow reaches a certain weight, they are shipped to concentrated animal feeding operations to fatten them up before they are slaughtered for their meat. This is done by pumping the cows full of corn, soybeans, and antibiotics to gain an absurd amount of weight in only about 100 days. This isn’t healthy for the cows, nor is it ethical, but it lets McDonald’s get the ingredients it needs. Thankfully, in 2016, the company started a sustainability pilot project where a portion of their beef was purchased from a verified, sustainable supply chain. The project is still in its early stages, so again, it’s hard to tell what impact this will have on prices if McDonald’s decides to get all of their meat from sustainable sources, but it’s a start.
2. Big Partnerships With Big Companies
One of the most advertised partnerships that McDonald’s has is with Monopoly. It started in 1987, and it adds a little fun for anyone who eats at McDonald’s. During the promotion, most products come with a Monopoly property sticker or coupon, which customers collect and place on a tiny Monopoly board. Certain, rare properties may be worth a prize on their own, or if a person collects all the pieces, they can get a bigger prize. Only more expensive products on the menu carry the sticker to encourage people to spend more money in the hopes that they will win something. Partnerships like this draw fans of the game (or fans of McDonald’s) into spending money that they otherwise wouldn’t have spent. More recently, McDonald’s partnered with food delivery services like UberEats and DoorDash to offer their menu on the apps for delivery to customer’s homes. This is a win-win situation, as McDonald’s charges their normal rate for food, but also a fee for the delivery and app service so that they do not have to pay the delivery companies — their customers do. This allows McDonald’s to make money off of people who cannot or do not want to drive to their local McDonald’s, who will instead pay extra for the convenience. These types of partnerships are a no-brainer, as they constantly bring in more and more customers.
1. Switch to Digital Menus
Usually, when you go to McDonald’s, you already know what you’re going to get. We’ve all got our go-to orders, but sometimes, we want to change things up a bit, so we need to consult the menu. This is one thing that has now become even easier to do. For the past few years, McDonald’s has been making the switch to digital, touch-screen menus. While this may seem like a big cost upfront, in the long run, it will help save a lot of time and money. The ever-changing menu is meant to utilize a marketing technique called dynamic yield. This means that the menu changes to display items based on things like the weather, the time of day, and how busy the restaurant is. If it’s busy, for example, the menu will display items that can be made quickly to limit wait times. Sure, you could always ask the cashier for advice, but it probably won’t be as accurate. The menu also heavily advertises an “add on” section with extras to add to your meal like fries or a drink. All of this combines to make McDonald’s save the most money it possibly can and for you, the customer, to spend even more!