My newsletter draws lessons from McDonald’s struggles, which owe to dealing with significant price increases in inputs such as beef, cheese, and pork, trying to hold onto its signature Dollar Menu items, and quietly raising prices elsewhere.
Consumers are adjusting accordingly (demand curves slope downwards), especially those whose interest in McDonald’s is as a low-price food option. If they have to pay more for food anyway, they are going elsewhere.
The campaign for a much higher minimum wage would impose a significant increase on another input: labor. That would help some workers, but it would negatively affect many low-wage workers. It would also harm employers and consumers.
A snippet from my newsletter:
Notice, however, it isn’t just McDonald’s (or other fast-food places) losing out. The “extremely price sensitive” customers who would prefer the lower prices are losing out as well. If higher prices are persuading them to eat at higher-priced options since that’s what they’d be paying for food anyway, that means they are having fewer meals out (or less expendable money for whatever other activity they’d prefer to do in addition to eating cheap fast food).
McDonald’s doesn’t exist to employ people or to sell Dollar Menu items. McDonald’s exists to make money. If keeping the Dollar Menu items remains McDonald’s best plan for making money, and input prices get in the way, McDonald’s will figure a way around it.
The most obvious way around it, in this “Second Machine Age,” is using automated tellers, which McDonald’s already does in Europe and which is finding a greater hold here, even at higher priced family restaurants. From an economic standpoint, a “Double the Minimum Wage” movement is effectively indistinguishable from a “Rush In Automated Cashiers Now” movement.
The Wall Street Journal writes of “fundamental changes” being discussed at McDonald’s. They include this one:
By the third quarter of next year, McDonald’s also plans to fully roll out new technology in some markets to make it easier for customers to order and pay digitally and to give people the ability to customize their orders, part of what the company terms the “McDonald’s Experience of the Future” initiative.
