Fast food restaurants feeling inflation pinch raise prices

Business

A customer walks in a McDonald’s restaurant, in London, Tuesday, Aug. 24, 2021. (AP Photo/Alastair Grant)

(NewsNation) — If you’ve noticed you’re paying more for your burrito or cheeseburger combo, there’s a reason for that.

Inflation has hit fast food restaurants hard, just as it has people across the country, with many companies upping prices to compensate.

McDonald’s, for instance, raised its U.S. prices by 6% last year, and in July, the Chicago-based company announced it was raising the price of its cheeseburger in the United Kingdom by 20% — the first price hike for the item in 14 years.

Chipotle announced last week plans to raise prices “in the mid to high-single digits” this month, according to Business Insider. For most markets, that means anywhere from a 50 cent to $1.10 increase per entrée. New York City customers, Business Insider said, will now be asked to pay $11.55 for a chicken burrito or bowl, which is the lowest-priced regular menu item.

Chipotle has been raising prices for the last year: in June 2021, menu costs across the board went up by 3.5% to 4%. Then, in the first quarter of 2022, they increased by 4%.

Second quarter earnings released in the past couple of weeks by restaurants show a mixed response to these price hikes by consumers.

Customers at Chipolte didn’t seem to mind paying extra: in its second quarter, the fast-casual Mexican grill saw sales increase by 10.1%, and total revenue in the second quarter increased by 17% over last year to $2.2 billion. McDonald’s saw U.S. sales earnings increase by 3.7%, and global sales by 9.7%, which the company attributed to higher menu prices and people continuing to order off its value menu.

“We are pleased with our second quarter performance during a period of inflation and consumer uncertainty,” Brian Niccol, Chairman and CEO of Chipotle said in a statement. “Our pricing power and value proposition remain strong as our culinary and food with integrity commitment continues to be a key point of differentiation.”

Niccol said one of the reasons Chipotle still had high earnings is that a majority of Chipotle consumers have relatively high household incomes: the typical customer is a white, married millennial between 25 and 34 years old, likely with a college degree and making more than $80,000 a year, Business Insider wrote.

Lower-income customers, however, pulled back, Niccol said in a July earnings call.

David Gibbs, CEO of Yum! Brands, which owns Taco Bell, Pizza Hut and KFC, also noted fewer lower-income customers, CNBC wrote.

Reuters reports that Yum Brand Inc, which missed quarterly earnings estimates on Wednesday, that the increased cost of ingredients, labor and packaging was not able to fully counter a 4% increase in overall expenses. Only Taco Bell posted a better-than-expected 8% increase. Yum attributed this to strong demand for tacos and the relaunched Mexican Pizza, Reuters said.

Meanwhile, Yum’s quarterly net income went down by 43% to $224 million.

Reuters contributed to this report.

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