McDonald’s Price Cuts Could Signal a Recession (Here’s Why)

0:00 Non -edible food, McDonald's. McDonald's is making a major move to win back budget -conscious customers by cutting prices on popular, sorry, popular combo meals starting this week. The new, quote, extra value meals, featuring classics like the Big Mac, the McCrispy, or Egg McMuffin, with fries, any drink will cost about 15 % less than ordering the items separately. To kick things off McDonald's is offering a Big Mac meal for just eight dollars and a sausage McMuffin meal for just five dollars in most areas though prices will now be one dollar higher and places like California and Hawaii kind of makes sense. This comes as McDonald's. faces a drop in traffic from a lower income customers, especially those making under $45 ,000 a year. The CEO does admit that many no longer see McDonald's as a good value, a big problem when your brand is built on affordability. Other fast food chains are likely watching this closely and will and could be. seeing the start of a broader fast food price war as inflation weary customers push back on rising costs. And this is something that I also find very interesting because about three months ago for my MBA program, I actually had to do

1:32 a whole analysis on McDonald's, like who their customers were, what was their like kind of segmentation that they were focused on. And they have always been historically trying to be one of the cheapest fast food companies. And they kind of broke away from that. So what do you think, Alex? So there's there's two pieces that I find interesting about this. And I did watch his CNBC interview where he was talking about this big new initiative of theirs to drop the prices. Right. Two things, and he mentions lower income customers dropping off specifically those under $45 ,000 a year. There's another quote from that clip that I really, really liked where he very correctly identified that right now there are two different economies, right? There's an economy of everybody making under $100 ,000 a year and an economy of everybody making over $100 ,000 a year. And if you pull those people separately, they are seeing the economy in very different ways right now. and I think he's 100 % right. And the problem is, is that their core demo, as you so interestingly pointed out, is that under $100 ,000 a year demo.

2:41 And the other piece that I saw in some of the commentary on this, I think Breaking Point said something on this earlier today, was that part of the reason McDonald's and everybody started getting so expensive is, They stopped doing the things that everybody criticized them for. They actually increased the quality of their freaking hamburger meat. They started paying people more. They started doing other things to get themselves out of the bad reputation they had for being absolute garbage, right? They started experimenting more and changing their menu and doing a lot of stuff. And that increased the price of their stuff, right? and so again as a child of the 80s and 90s who remembers when a quarter pound of a cheese meal with fries and a small drink was a dollar 99 literally right and i have distinct memories of it being a dollar 99 um you know it's you know it's i think he's look they got to figure this out um And it's not affordable like if I go take my kid to McDonald's man, what's a happy meal like eight nine bucks now it used to be a buck 99 like And it is a huge red flag and what what the other commentaries on this is this is the canary in the coal mine Right.

4:11 It's not the S &P. It's not the Federates It's what are people spending money on and and this is an area where people are really cutting back You know Yeah So you gotta know do you think this trick that somebody in the chat said it to franchise wars hashtag Taco Bell rising does do you think that this starts a price war I So I don't think so. Um, I it will with a couple maybe fast food chains, but overall like not a I don't know all -out or because Looking at the competition, it's got to be affecting all of them, though. Yes and no. So McDonald's took a huge hit when burger chains like five guys kind of came on the scene. It is really, really expensive, but they took a demographic of people that didn't mind waiting a little bit longer, didn't. Mind paying a little bit extra for that little jump in quality. Yeah a little jump in quality and McDonald's did take a little bit of a hit there and you kind of mentioned it where they McDonald's started to try to Experiment with you know, what can we do? Should we do higher quality? Another thing that people hated about McDonald's was their customer service sucked

5:42 and that kind of correlates with the price or the salary that you're offering the employees. You're not getting high quality employees like now. There's no customer service. Every McDonald's I've been into in the last two years. I'm ordering on a fucking touch pad. Right. Oh, yeah. And I barely have any interactions with the employees. Yeah, definitely. But yeah, I it will with some, but some I don't know, some fast food places, they're just they're not They're in the same market, right? Fast food burgers. But they're going after different segmentations of customers.

6:27 And I think they will get it, especially now. And with all the talk of the tariffs, we're seeing prices starting to go up on things. There's this freak out of AI people getting laid off from jobs. Yeah, I think people are going there's a not everyone there's a group of people out there. They're going to be looking at what can I what is the best value? Like when I'm rushing home with the kids from soccer practice Do I want to have to go into a store or into like a shop like five guys? Probably not. I want to do fast food Do I want to spend the money for Chick -fil -a? No, I want something. Is it Sunday?

7:16 Can I not get Chick -fil -A? Very true. Is it Sunday? But yeah, so I think this is going to win back some of their customers that they lost. Because McDonald's was really, really founded on a very simple menu. And I believe when it was first founded, it used to just be you didn't have options. It was just one burger. You just got a burger. and a fry like that is it and it was just like that focus on being super simple a super simple process making it very quick very cheap very affordable and they've slowly over the years kind of got away from that so i think it's going to help mcdonald's and not necessarily everyone's going to try to lower their prices and start an all -out war so i would ask you a couple of questions right Based on the fact that you're talking about different segmentations, who do you think is McDonald's most direct competition?

8:20 Is it just Burger King? No, it's not just Burger King. They're also competing with Wendy's. They do have Taco Bell. I know they don't make burgers, but they do have Taco Bell as a competitor because again, like think think college kid right that like that is a super simple market like segmentation to think about someone who is in college who's looking for super quick super easy on the go i don't have time to be here also i don't have any money what is the cheapest thing that i can put in my mouth besides dirt right so taco bell is actually a competitor there with that market segmentation I'm trying to think of the other ones that like was listed out and in the Yeah, but I it's like Wendy's Taco Bell And I would quit like Shake Shack Shake Shack's expensive too. Yeah Shake Shack my daughter and my wife both love Shake Shack, but Shake Shack So I don't put Shake Shack and taco and five guys in with McDonald's so yeah that's that's what i'm saying is they're separate they're outside of that yeah my my immediate again i go mcdonald's burger king wendy's i almost put taco bell oh and jack of the box i'll put taco bell in its own category

9:51 because i'm like that's tacos right it's not burgers right um so those are the four i and again kind of going back to the price war again with them dropping their prices i do wonder if burger king wendy's can't really drop their prices anymore they already suck um But I wonder if Burger King does, right? Those two have always kind of like jostled and fought. So and look, the chat is going to kill me. So let's talk Seattle now in Seattle. For those of you who are watching from outside the Seattle area on YouTube, this is Dix. This is a Seattle institution. We love Dix. Here's the thing about Dix. A plain hamburger is two dollars and fifty cents, right? A plain, single, eighth of a pound grilled patty, no kind of, two bucks, right? 250, okay? Plain cheeseburger, $3, right? Fries, they only have one size. It's $3, right? Shakes, one size. It's four bucks, right? This is Dick's. And going back to what Jay was saying a few minutes ago, this is kind of what McDonald's originally was, right? Super limited menu, cheap. Fast. If you've ever been to a Dick's and say, walk up, there are no drive -thru locations, you walk up, hey, I'll take two deluxe and a thing and you're done, right?

11:13 And it is cheap, okay? It's dirt, dirt cheap. Here's the interesting thing about Dick's, right? And I actually deal with this at my job because we're talking about who compices this for labor. Dick's starts their people at $22 an hour. And it's 100 % covered health insurance. 100 % employer paid. Okay. $22 an hour and they charge $2 .50 for a burger. Okay. So companies that are not there, like they're... Look, you can pay people decently, but yes, we will talk about Dix. This is the list of locations. I love Dix. It's it's it's this That's probably the closest when you talk about the the Seattle analog I do again.

12:13 I think it's a canary in the coal mine. I think it's it's Them freaking out about this is telling me that we are if we're not in a recession now Right, and we just haven't called it one yet It's coming You know what I mean look man when you're drunk sometimes you just need a big bag of dicks And there's no shame In a big bag of dicks. We had a big bag of dicks at my wedding. We had so many bags of dicks at my wedding Right. It was just dicks everywhere Okay Big greasy bag of dicks This is this is the this is the actual issue that we have with YouTube Look man Just is what it is Um, yeah, I think that's pretty much what we got for this topic. Do you anything else there to add Jay? I'm just like scrolling through So I'm looking at the Harvard study that I had to like for the Harvard case study Yeah, here you go. Competition. McDonald's competition.

13:33 Burger King, Wendy's, Taco Bell. It does actually list Chick -fil -A as a relatively inexpensive. Yeah. That's that's it. That's their main competitors. Again, I don't put five guys in Shake Shack in the same conversation. Now, I will say this on the five guys Shake Shack discussion. I actually prefer Shake Shack now. I like their burgers better than Five Guys. I think they've got more options and I could put more good stuff on there for basically the same price.