How fast-food chains are buffeted and buoyed by inflation
How fast-food chains are buffeted and buoyed by inflation
Subway, formerly home of the $5 footlong, did pretty well last year. The sandwich chain said Thursday that same-store sales grew 9.2% in 2022.
Inflation is putting the fast food industry in a weird spot. Chains face rising costs for labor and ingredients, which are forcing them to raise prices. But at the same time, inflation puts consumers in the mood for value meals — even if “value” is a relative term.
Jonathan Cox is a creature of habit. Twice a week around 11:30 a.m., he drives from his office in Oklahoma City to get his favorite fast food lunch at Taco Bell.
“This is gonna sound terrible,” he said. “It’s literally a Nachos BellGrande and generally two bean burritos. And I chose those options because they’re generally on the cheaper side of the menus.”
As recently as 2021, that meal cost Cox about $8 — a fair price for any twinge of shame he may have felt. But now, that meal is about $11, with no drink included.
“That’s what they want me to pay for it, and I want what they’re offering for me, so I just go on about my day,” he said.
Prices have gone up at lots of fast food outlets, but that hasn’t really slowed demand so far, according to Ben Coley at QSR magazine, which tracks the industry.
“I think what’s primarily helping with that is how other things have kind of lifted off,” Coley said.
Groceries have also become more expensive, as have traditional restaurants. While inflation has caused lower-income consumers to scale back on fast food, Coley said it’s actually helped fast food restaurants attract richer customers.
“They’re trading down,” he said. “They’re trading down from the casual dining places, they’re trading down from the fine dining places.”
While that’s helped, it’s by no means boom times for fast food, per Morningstar analyst Sean Dunlop.
“We’ve had a lot of operators navigating 20%-plus inflation in input costs,” he said. “Operators have actually seen their margins contract quite a bit over the last 12 to 18 months.”
Fast food chains also need to be careful not to raise prices to the point where customers just don’t think it’s worth it anymore.
Jonathan Cox, the Taco Bell loyalist, said his red line is $15 for his nachos and bean burritos. (Again, not including a drink.)
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