Fast food isn't cheap anymore

McDonald's prices have jumped 10% each year since 2022.Photo byJeff Greenberg/Getty

• McDonald's menu costs have increased by approximately 10% this year, following a similar rise of 10% the previous year.
• Since June 2021, Chipotle has increased its prices five times.
• Even with a decrease in inflation rates, experts believe that fast-food restaurants will not reduce their menu prices.

While inflation might be decelerating, the rapid increase in fast-food prices has already caused significant harm, and there's no way to reverse it.

"Inflation has shattered the barrier of low prices at quick-service restaurants," mentioned the restaurant advisor Tim Powell, using the industry's term for "quick-service restaurants."

Over the last two years, fast-food chains like McDonald's, Chipotle, Pizza Hut, and Starbucks have hiked their menu prices to fight off the rising costs of ingredients and labor. Fast food, which has traditionally been seen as an inexpensive option for meals, is no longer considered budget-friendly for many customers.

New data from the federal government, released earlier this month, indicates that inflation is decelerating, with consumer prices stabilizing. Retailers are planning to offer significant discounts for the holiday season, but fast-food prices are still increasing, particularly at fast-food chains. The Bureau of Labor Statistics reported that fast-food prices increased by 6.2% over the last year.

Expect the sticker shock at your local fast-food joint to continue.

When franchises raise the cost of their items, they "never reduce prices," Mark Kalinowski, an experienced analyst in the restaurant industry, explained to Business Insider.

Chipotle prices before and after its most recent price increase. A steak burrito went from $10.60 to $10.85 in October 2023.Photo byNancy Luna

In October, Chipotle increased the prices on its menu by 3%, marking the fifth such increase since June 2021.

Customers in California should anticipate that Chipotle's prices will rise further in the coming year due to a new fast-food legislation set to take effect in the state. This law is expected to result in hourly wages for workers increasing by anywhere from $4 to $20.

In its latest earnings call in October, McDonald's said it expects to have raised menu prices in the US by about 10% this year. That's on top of a 10% increase in fiscal year 2022.

"When you look at the average check of not just McDonald's but the wider restaurant industry, it is significantly up over the last couple years," Kalinowski said.

Similar to Chipotle, McDonald's locations in California could experience price hikes next year due to the rise in labor costs.

"I don't think, at this point, we can say exactly how much of that is going to work its way in through pricing," McDonald's CEO, Chris Kempczinski, told investors during last month's earnings call. "Certainly, there's going to be some element of that that does need to be worked through with higher pricing."

Starbucks hasn't ruled out more price hikes either.

In a recent earnings conference, the restaurant chain disclosed that it has hiked its prices throughout the fiscal year and plans to explore further "strategic pricing" opportunities. The restaurant mentioned to Business Insider that it doesn't reveal the specifics of price hikes due to their market-to-market variability.

Even on the budget side, deals are becoming pricier.

Pizza Hut recently introduced a $7 Deal Lover's Menu. It features 17 different menu options for $7 each when consumers order two or more items. Choices include a medium one-topping pizza and eight pieces of boneless wings. The value deal used to be $5.

"As everyone in the restaurant industry has had to do, Pizza Hut took a step back to evaluate how they can offer guests great value while navigating the impacts of inflation," a chain rep told Business Insider in an email.

Remember Subway's $5 footlong deal?

The brand paused the decade-long price promotion in 2018 due to complaints from franchise owners. It came back in 2020, but customers needed to purchase two sandwiches to receive the offer.

McDonald's $1 $2 $3 Dollar Menu in Orange, California, in August shows only two items listed for $1.29. No item is offered for $1.Photo byNancy Luna

"Our franchisees set their own prices and we provide guidelines to help balance value for our guests and franchisee profitability," the company said when asked about the footlong deal.

Items priced in dollars seem to have disappeared from the $1 $2 $3 Dollar Menu at McDonald's. BI looked at menus from different regions of the country a while back, and we couldn't find any items on the value menu priced at $1.

Consumers are fuming over inflated burger prices

Shoppers, who have kept on purchasing despite rising prices, are beginning to become aware.

A number of them are angry about the dramatic increases in fast-food costs and are sharing their worries on social networks like TikTok and Reddit.

In March, a user on TikTok named @xconmedia pointed out the prices of combo meals at a McDonald's in Connecticut.

"Well, well, well. Does anybody see the prices of these combo meals? The price of a Big Mac combo meal — $16.89," he says in the video which has logged more than 560,000 views and over 5,000 comments.

Ian Borden, the worldwide head of finance at McDonald's, mentioned that franchise owners decide their own prices. Out of the company's more than 13,000 eateries, the majority are run by individual business owners. Yet, Borden mentioned to investors last month that McDonald's stands out as a top player in the market for both value and being accessible.

"We've obviously had elevated pricing levels on the back of elevated cost and inflationary pressures, that we have been able to execute that in a way that has minimized the resistance from the customer," he said during last month's earnings call.

Kalinowski, a restaurant industry analyst, noted that there are opportunities for deals through apps. He highlighted McDonald's offer of free fries every Friday, which is only accessible through the app.

Nonetheless, the average bill on mobile apps is usually higher because customers feel more comfortable ordering more items without fear of being judged by staff.