American Fast Food's Perception Problem

"Why are fast food sales plummeting in the U.S.?" Our resident bookkeeping mensch, Paul Rosenblum, explores this surprising turn in the market. Rising prices and shifting consumer expectations, especially post-pandemic, have hurt major chains like McDonald's, Starbucks, and Subway. In response, some fast food companies are rebranding, offering discounts, and improving customer experiences, but Paul argues that their long-term success will depend on maintaining strong customer relationships and, you know what’s coming, a distinct "personality."

Transcript

Episode #42

Welcome to Episode 42 of this pod.  I can hardly believe that we’ve come this far, and I am so happy that more and more people are listening and coming back when new episodes are live.  So, a big thank you to every one of you! The last couple of episodes have been a bit different from previous ones, and today’s episode will also be a bit different, but timely.  And it’s related to the McDonald’s Hot Coffee case from just a couple of episodes ago.  

Before I start, as always, please check out the YouTube channel with the link below at YouTube.com/@bookkeepermensch.  It’s easy to comment on each episode and I love to read your thoughts and especially suggestions for future episodes. Also, I recently set up a Facebook page as a ‘companion to this podcast’, where you can post comments, suggestions, and your general thoughts. Start a conversation – let’s get that going!   Follow the link below to the Facebook page. And now, ‘the rest of the story” (my Paul Harvey impersonation-look him up if you have never heard him—I put a link to his 600 recorded radio shows in my favorite podcasts below).  I’m Paul Rosenblum

As I have said in the last episode, accounting is everywhere. One can push it to the back of their minds, but really can’t get away from it.  

Take the recent newsworthy “Fast Food Wars” that have been publicized very well in the last month or two. 

McDonald’s sales have plummeted.  Burger King, Starbucks and Subway sales have declined so much that they are closing stores and pulling back their international presence.  

When I was in my 20’s and 30’s, ‘fast food’ always meant fast and inexpensive.  Recently it has meant less fast and ‘almost as expensive as going to a sit-down restaurant where you get served.’

But I get it.  I get how prices over time go up, and so the $2.99 Burger King ‘Whaler’ of 1972 is going to be more money today, (and now they call it a ‘fish sandwich …so original, by the way’).  The prices go up, and the portions get smaller.  Time tends to do that. Even human beings shrink the older we get.  

In 2020, the world went through a Pandemic, and in the United States, Congress approved the ‘PPP’ (Paycheck Protection Program), and that enabled companies to keep employees on payroll with government money as many companies’ sales declined sharply or went down to zero as they were not allowed to go to the office. The program saved a lot of businesses. 

I personally saw some of my clients get up to $200,000.00 of PPP and more money through grants that did not have to be repaid, to help them get through the pandemic and keep employees, in many cases, working from home.

But as the pandemic eased in 2021 and 2022, and things started to get back to the new ‘normal’, company after company, including grocery stores, and of course suppliers of grocery stores raised prices after being bailed out. 

I remember that cat litter in 2019 was $3.99 for a bag, and in 2020 and 2021, it went up to $7.99. Same size, same company, same grocery store.  Now it’s back to $3.99, and sometimes even $2.99. Amazon prices have been lowered on many items, and Walgreens and other drug stores have announced that they are lowering prices, almost overnight.  

The fast-food industry is suffering. But why? Is it Pandemic related or something else or a combination?   Let’s look at this further and see what the individual fast-food restaurants are trying to do about it. 

  McDonald’s sales have plummeted this year. Their prices have gone up.  One can’t really eat a regular meal (sandwich, fries and a drink) for less than $10.00. 

Starbucks, although I am not a customer, has raised their prices, so that coffee alone can be around $8.00 -$10.00 to bring to the office.  

And Subway, pre-pandemic, had a $4.99- 12 inch “Footlong” sandwich which was a pretty good value. How much is that $4.99 Footlong now?  Almost $20.00.  I was going to order one several weeks ago online, and it was $22.00 for a sandwich, chips, delivery and tax.  I declined. No wonder their sales declined rapidly.  There have been newspaper articles and social media posts about people complaining about the cost of that $20.00 sandwich. 

I have been talking in recent episodes about ‘relationships’ that companies have with their customers.  (I guess I’m on a kick about that – please let me know if you get tired of me talking about this), but --- this is one major problem with the fast-food industry-- the biggest part of the relationship that these fast-food places have had with their customers have been price, apparently.  Many of their stores are open 24 hours a day, so the convenience is still there, they have kiosks, in many cases to order from in the store, so things have improved there, but the sales have still slid dramatically.  Why?  In my opinion, it’s the price.  The price of fast food has always been the draw, not necessarily the convenience, not the counter customer service, and possibly not even the quality of some of the food.  It’s quicker, since you don’t sit down and be waited on by a server, and the price has always been less than a sit-down restaurant. 

I think that this was a miscalculation of the fast-food industries companies for many years, although at the beginning when Ray Kroc discovered a small burger place that had an assembly line and claimed that it was ‘the best burger he ever ate”, he saw dollar signs and a major change for the food industry in his eyes. He stole the idea from the small company that he stumbled onto and formed McDonald’s. (By the way, see the movie with Michael Keaton!) 

How is Starbucks dealing with this?  They are offering new products and discounts to attract customers back to their stores. They are also working on the ‘ambiance’ of their stores and step up the customer service to make themselves different from other coffee places. They are expanding to new markets, and expanding their mobile app to engage customers more with loyalty programs and reduced prices through the app.  

Burger King is doing much the same.  

Dairy Queen is offering free ‘Blizzards’ for two weeks.  

Wendy’s is offering free fries on Fridays until the end of this year. 

Arby’s is offering value meals. 

And McDonald’s quickly re-branded themselves months ago. They are opening up new restaurants, called “CosMc’s”.  They have a futuristic ‘space theme’, new drinks, and unique menu items.  It actually reminds me of the original ‘Back to the Future’ movie.  In the traditional McDonald’s franchise locations, they are working on improving marketing approaches, they are focusing on the traditional items such as burgers, chicken and coffee, and improving (what they call) the 3D’s – that is – Digital, Delivery, and Drive-through options, and trying to use local ingredients.

I read the other day that Subway called an ‘Emergency Board Meeting’ about declining sales.   I almost laughed at that one. A $4.99 footlong sandwich that is now almost $20.00 and people complaining about it online? Yup, I guess that is considered an emergency.  But it took declining sales for them to try and do something about it.  

It's like I have always said, if we want to really improve the airlines, for one example, all we need to do is not fly for 7 days in a row and tell the airlines why we have boycotted them for a week, and I’ll guarantee that they will improve since they would have run out of money.

It feels like it has gone in that direction with the fast-food industry.  Although no organized boycotting here, but nevertheless, a boycott of sorts. No real changes in the last 20 years, except for prices going up and portions getting smaller (that part – not all bad for our health).   And now that prices have spiked too much, and they are all losing revenue, all of the fast-food restaurants are doing their own things to try and improve their customer experience at their restaurants from drive-in’s to in-restaurant dining. 

Good for them, and good for all of us. (if they all survive). We need affordable fast food around, not to have 3 meals a day with, but once in a while with our busy lives, to be able to quickly buy breakfast, lunch or dinner for affordable prices.  

Every fast-food restaurant has cash registers that are programmed with every sandwich or burger or meal that they sell.  They know how much the cost of the goods is and how much profit they are making with every sale.  At McDonald’s how much could a frozen fish patty, a roll, a squirt of Tartar sauce, and a piece of cheese cost?  And figure in the 2 minutes of payroll, two minutes of rent, and utilities.  Maybe $3.00? (That’s a guess by the way) -- And the retail price is $8.99?  Shareholders, a net Profit of millions of dollars, and the CEO’s owning mansions and Yachts are some reasons.

So, when Subway recently announced that the prices of a footlong sandwich is going down to $6.99 for two weeks only, I almost laughed again.  It’ll add to the cash flow, but will sales decline again immediately when the two weeks are over? I predict the simple answer is yes, yes, and yes. And keep in mind, even at $6.99, they are making a profit off of each foot long sandwich they sell. 

It's all part of running a business, but when you become a large business, the rules seem to change.  You have stockholders to please, as well as Board members, and possibly even labor unions. 

Even though many companies in the hospitality and fast-food industry got PPP money and very lost cost SBA loans that they didn’t have to start paying back for 2 years (if they needed them), supply and demand still came into play. If you can charge $10.00 for two pieces of bread, and some cold cuts, lettuce, mayo, and cheese, and people will pay, then it shall be done.  But I guess in Subway’s case, the $20.00 price point, declining sales, and bad press made them panic. Subway isn’t a publicly traded company, so we really don’t know what their numbers are, but it’s interesting to see how these fast-food places are dealing with all of this.  I’ll keep watching-- for all of us. I have to say that I miss my occasional Burger King chicken sandwich, but I won’t pay $8.99 for one, when under a year ago, it was 2 for $5.00. It’s just too painful. 

Again, I will end with one word.  Personality. Human beings have personality, but small and large companies do too.  It’s harder to do since there are more people involved, but if a company is constantly nurtured, just like a newborn growing into young child, and then a  teen, growing into an adult, it can definitely happen.

Thoughts or comments?  Go to the Facebook page – the link is below.  Or YouTube.com/@bookkeepermensch 

I think I’m going to have lunch now.  I’m very hungry – (I wonder why!) –I’m  Paul Rosenblum.