McDonald’s and other fast food chains have raised their prices for several reasons this year, namely the minimum wage hikes in California and the rising cost of living. McDonald’s has combatted these changes by reducing their workforce, shutting down underperforming locations, increasing the price of menu items, and implementing more technical solutions such as checkout kiosks.
While this might help these companies maximize their profits, it doesn’t help struggling Americans who can no longer afford fast food. Will the fast food giant be forced to leave the Golden State to remain profitable?
Minimum Wage Rises Hitting California
In April 2024, the fast food industry in California was hit with a minimum wage rise of $20. However, some workers aren’t happy about this, and as a result, they are asking for an increase to $30.
Workers are likely delighted at this news, as it means they can better cope with the rising cost of living. However, it isn’t great news for customers because the companies are raising their food prices and laying off workers to cope with the rise.
McDonald’s Free Refills Are No Longer Available
One of the main benefits customers had with McDonald’s over other fast food places was that they had free refills, meaning that customers could refill their drinks as often as they liked without having to pay for it.
The fast-food restaurant is eliminating its self-serve beverage stations to reduce costs. Instead, customers will have to go to the counter to get a refill if they require it. This has led many customers to react angrily to the news, saying that free refills should be one of the last things to go.
McDonald’s Is Overpriced
The whole point of fast food is that it is meant to be quick, cheap and simple. However, those days are long gone, as fast food is more overpriced now than ever before.
If someone were to buy an Egg McMuffin meal, including a coffee and hash browns, it would cost them $17.63. In the past, it would have cost less than $10.
Prices Have Increased by 65%
Between 2014 and 2024, McDonald’s prices increased by around 65%. This is a shocking increase in such a short amount of time, but it is unsurprising given that inflation in the fast food sector has risen by 4.8% in the last year.
However, the price of goods in the same amount of time has only risen by 31%, which has led many to question why prices have gone up by more than double the amount the price of goods has.
McDonald’s Not the Only Chain Hiking Prices
McDonald’s is far from the only chain to have raised its menu prices pretty substantially in recent years. Responding to higher operating costs, virtually every fast-food chain has raised prices in an effort to remain profitable.
Chipotle, another prominent fast-food chain, has also hiked its prices over recent years, with more price increases likely in the future.
Bigger Prices, Smaller Portions
The chain has increased its prices, it says, to keep pace with inflation as they face higher costs for materials like avocado and need to find a way to remain profitable.
Chipotle is also looking to keep its margins by offering smaller portions while charging higher prices, according to months of scathing customer feedback online.
Public Backlash
As well as customers voicing their displeasure online, Chipotle also found itself the target of a bizarre social media trend where customers filmed their servers preparing their order to try and ensure they don’t get underserved with their portion sizes.
Any fast-food chain looking to scale back on their portions as a way to deal with increased operating costs should be prepared for a similar public backlash.
Change in Eating Habits
Inflation is one of the main reasons for fast food prices rising across the U.S., with 80% of Americans now saying they can no longer afford fast food. As a result, people’s eating habits have changed.
62% of Americans are dining out less frequently due to price increases, and half of the respondents, especially those earning less than $30,000 per year, now say that they see fast food as a luxury item.
Fast Food Traffic Is Slowing
Due to the increase in food prices, fewer Americans are going to fast-food restaurants and are choosing to cook food at home instead because it is cheaper.
McDonald’s recognizes that footfall is much less in their restaurants currently, so they have introduced a $5 meal deal for customers in the hopes that it will welcome more people back into their restaurants.
Other Restaurants and Home Cooking
As people can no longer afford to eat out at fast-food restaurants, they are looking at other means of eating food and, in some cases, taking their hungry bellies elsewhere.
Many are choosing to eat only at home and don’t eat out anywhere. However, those who can find a bit of room in the budget to eat out are choosing traditional sit-down restaurants. It now seems that fast food restaurants are not just competing with each other but also with restaurants previously off their radar.
Changing Industry
The restaurant industry as a whole is certainly facing challenges as customers become far more savvy with their spending in the face of inflation and skyrocketing menu prices.
The industry might also still be feeling the effects of the pandemic, with a post-pandemic shift of customer bases responsible for reduced footfall and, consequently, the need to increase prices.
Cautious Older Customers
Coming out of the pandemic, food-industry brands were no doubt delighted to get up and running again and welcome customers keen to get back to restaurants as the world re-opened. But not everybody rushed to dine out.
Older people were far more cautious about heading back out, visiting restaurants far less often than before. Restaurants with older clientele like Cracker Barrel and Olive Garden have really felt the impact of this, and it has likely affected chains like McDonald’s also.
Rumors McDonald’s Is Leaving California
At the beginning of June 2024, rumors began circulating online regarding the possibility of McDonald’s leaving California for good due to the rise in minimum wage and fewer customers walking through its doors due to inflation.
However, there is no evidence to suggest that McDonald’s has any plans to leave the Golden State. With 1200 restaurants there, it’s unlikely the fast food giant will suddenly close shop.
Where Do the Rumors Come From?
All rumors have to start somewhere, and the rumor about McDonald’s leaving California is no different. However, it has led to some confusion as to where it originated from.
Regardless of where this rumor came from, it doesn’t seem to have come from an official source, so for the time being, it can be assumed that McDonald’s has absolutely no plans to leave California.
A Lot of Restaurants Are Ditching California
It’s possible that the rumours of McDonald’s abandoning the state of California came from the fact that this is exactly what a number of other restaurant chains have done.
Take Blaze Pizza, for example — a California brand through and through since opening its first locations in Irvine and Pasadena in 2012.
A Corporate Move for Blaze Pizza
The Pasadena, California location was Blaze Pizza’s flagship restaurant. The brand was founded in Pasadena back in 2011.
Blaze Pizza recently announced it will be relocating its corporate office to Atlanta, Georgia in a move that will see Blaze Pizza slash its state corporate tax by more than a third.
Other Businesses Making the Move
California has historically been an expensive state for businesses, and it isn’t just businesses in the fast-food industry feeling the squeeze.
Blaze Pizza joins a wave of other corporate moves out of California, with the likes of QuickFee relocating to Texas, and Neutrogena abandoning the Golden State and moving to New Jersey.
A California Fast-Food Problem
While there appears to be a national decrease in the number of Americans opting to eat at fast-food chains, the problem does seem intensified in California specifically.
This is undoubtedly due to the knock-on effects of the state’s minimum wage increase for fast-food workers to $20 per hour, signed into law by Gov. Gavin Newsom in September last year.
In-N-Out
A lot of restaurant chains in the state have been feeling the squeeze of increased costs due to this wage increase, and are looking at ways to protect their profitability. The burden of this is often felt by the customers.
In-N-Out Burger, another fast-food chain synonymous with California, announced that it was forced to raise menu prices across the Golden State in response to this wage increase for fast-food workers.
Pre-Empting the Impact
The rumours of McDonald’s leaving California may also be related to steps restaurants were planning to take before the wage increase came into effect to try and lessen its impact.
A McDonald’s franchisee operating 18 outlets in the state had considered reducing store hours and delaying planned renovations in the face of increased costs — it’s only then a short step to closing California locations entirely.
Major Implications for California Fast-Food Chains
A complete move out of California by McDonald’s may seem too drastic to be true, until you put it in the context of the current business landscape of fast-food chains in the state.
The iconic Mexican chain Rubio’s Coastal Grill recently filed for Chapter 11 bankruptcy, after having already closed 48 California locations. So while rumours of McDonald’s leaving California ultimately had no substance to them, it doesn’t seem quite so farfetched given the state of the fast-food industry in the Golden State.
McDonald’s Sales Have Gone Down
In the first three months of 2024, McDonald’s sales had been less than previously expected, a sign to the fast food giant that something needs to change.
Especially as fast food places are aimed at those on lower wages who can now no longer afford to eat there, there is some hope that fast food companies will listen and start reducing their prices so that people will go back.
Loyalty Programs for Customers
One way to help draw customers back to fast-food restaurants is to offer loyalty programs and points for whenever they buy something, whether in person or online.
While some places have seen some growth due to these programs, it’s not quite the amount they’re used to. This makes it clear that much more needs to be done before fast food restaurants, including McDonald’s, can see an increase in footfall once again.
