Opinion | Fast-food chains value menu wars are a boon to consumers

Great news, America! We finally beat greed. Those blaming inflation on money-grubbing corporations will be delighted to learn that those same money-grubbers have, amazingly, now turned altruistic.

Overall prices fell in June from a month earlier. And burger lovers may soon especially benefit from this largesse, because fast-food chains have begun mobilizing for the “value menu wars.”

In recent weeks, fast-food chains have been slashing prices left and right, first with the Burger King $5 Your Way Meal in mid-June. Then came the McDonald’s $5 Meal Deal, also available for a limited time. Not to be outdone, Taco Bell joined the fray with its $7 Luxe Cravings Box. Seemingly every chain is trying to undercut its competitors.

But Ronald McDonald, established philanthropist though he may be, did not suddenly stop caring about profits. Nor have companies been shamed into cutting prices by presidential jawboning (despite President Biden’s recent claims). These companies are just responding to changes in consumer demand.

Exactly as they did when they raised prices before, inspiring all that feverish, anti-greed jawboning to begin with.

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“Greedflation” proponents argue that corporations used inflation as a smokescreen to raise prices independent of higher operating costs. And, look, it is true that companies sometimes raised prices even more than their own input costs increased. But that’s precisely what you’d expect when consumer demand is strong.

During the pandemic, consumers were unusually flush with cash. This was a consequence of forced savings (people were stuck at home, forgoing travel and fine dining) as well as generous fiscal policy (e.g., stimulus checks from both the Trump and Biden administrations). When that high household demand collided with stuck supply chains, businesses raised prices.

That is, businesses of all types, from mom-and-pop shops to multinationals, reacted to long lines of customers combined with higher costs by raising what they charged. If they hadn’t, they’d have been left with endless empty shelves.

The aggregate amount of greed in the economy hadn’t suddenly spiked. Companies didn’t start caring about making money again. The explanation is more banal: Demand exceeded supply.

Inflation at fast-food restaurants has gotten outsize attention, in part because burgers and nuggets have traditionally been such a bargain. A TikTok bemoaning the exorbitant $16.10 price tag on a (specialty) McDonald’s meal went viral, making it all the way to the White House. McDonalds released its own McFlation fact check to convince customers its price increases were not so dramatic. Ironically, the Big Mac has had among the lowest price growth of well-known fast-food items.

Even with these supersized burger prices, customers continued to order fast food at (and eventually above) pre-pandemic levels because they had leftover money to spend. Plus, tight labor markets were putting upward pressure on wages. In turn, prices kept rising as Americans kept ordering. And ordering. And ordering.

But in recent months, consumer demand has cooled. Consumers have now spent much of their pandemic savings, federal data shows. Wage growth has slowed. And interest rates are higher, meaning it’s more expensive to buy things on credit.

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This is all especially true for lower-income households. They have always had less discretionary income to work with, but in recent years, they’ve also been hit harder by inflation. They exhausted their pandemic savings earlier than their higher-income neighbors.

All of this made consumers a little more price-sensitive and less eager to spend on nonnecessities. In fact, data from consumer analytics firm Numerator shows that spending at limited-service restaurants grew from late 2022 to around September 2023 — and then flattened out, especially for low-income customers. In fact, after adjusting for inflation, spending would actually be down.

This shift forced companies to work harder to get customers in the door. As Ian Borden, chief financial officer of McDonald’s, put it in an April earnings call: “Everybody is fighting for fewer consumers … that are certainly visiting less frequently.” In response, Borden urged the adoption of a “street-fighting mentality to win.”

The company’s not-so-secret weapon in this street fight? Value menus. And thus the ensuing race to the bottom in fast-food prices that we’re now getting a (delicious) taste of.

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It’s not just fast food, either. Big-box stores such as Walmart and Target also slashed prices this summer to lure back shoppers. The president, who apparently thinks greedflation is a winning political message, has tried to take credit for these discounts. The White House has said retailers are “answering the call” from Biden to “give families more breathing room.”

But the truth is that multinationals aren’t doing this out of the goodness of their hearts. They’re still just trying to make money.

This recent up-and-down pricing roller coaster confirms an old adage: The best cure for high prices is high prices. If inflation was caused primarily by greed or sneaky corporate behavior, prices should’ve stayed high. Instead, high prices eventually nudged customers to scale back spending, which in turn incentivized companies to offer better deals. An economics lesson, with a side of fries.

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