Everyone is familiar with the fast-food restaurant, McDonald’s. If not, where have you been for the past 70 years? McDonald’s is known for their quick and cheap service. So, what exactly makes it so inexpensive? Let’s take a look, with the top 10 reasons why McDonald’s is so cheap.
Cheap, minimum-wage labor
Working at McDonald’s is a common first job for students or people who have no work experience. Why is that? It’s likely because McDonald’s tends to pay their workers minimum wage. In the United States, the average starting wage at McDonald’s was $6.25 an hour. It has gone up slightly to $7.25 an hour as the minimum wage across the United States was increased. On average, even including supervisors and managers, the hourly pay is only $8. This is because managers tend to only get a wage increase of 50 cents an hour. Normal workers tend to only get a 5 cent raise in their 6-month reviews. While this may be a good wage for students just starting out, it is not a livable wage for anyone. Similarly, McDonald’s tends to employ people on a part-time basis, trying to ensure that workers do not work 40 hours or more a week. This is so the company does not have to pay for benefits like healthcare. Keeping employee costs low is one of the biggest ways McDonald’s keeps their prices low. If they increased employee wages, rather than cutting the salaries of the higher-ups, they would in turn increase prices, as most McDonald’s restaurants in the United States only make 6 cents profit from each dollar they receive. Many staff have suggested and even gone on strike for an increase to both their wage and the minimum wage in general, but nothing has come of it yet.
Exploitation of the environment
As McDonald’s is one of the most popular, internationally recognized brands, they have a lot of customers to serve. In 2019 alone, McDonald’s made $21 billion dollars worldwide. To keep up with this demand, McDonald’s tends to cut corners when it comes to using the Earth’s resources. McDonald’s gets a lot of their resources like crops for cattle ranching and grains from poorer countries. Getting resources from poorer countries allows McDonald’s to pay less, but get more, so they can in turn charge less for their products. This is a problem because it takes away from the locals being able to use the resources and land for their own needs. One place that McDonald’s gets their resources from is the Amazon Rainforest. Some of their beef is reared on land in the Amazon, making the land unable to regenerate and produce anything else. We rely on rainforests for oxygen and yet trees are constantly being cut down for big companies like McDonald’s. The company has since recognized their environmental impact and are making efforts to change. They have promised that by the end of 2020, they will stop using packaging that contributes to the aforementioned deforestation. They are similarly trying to reduce their emittance of greenhouse gases and their overuse of freshwater. It is a slow process, but it seems like McDonald’s is taking the steps necessary to lower their impact on the environment. It is still early in their environmental journey, so it is hard to say what impact this will have on their prices in the future.
The more customers, the merrier
McDonald’s is pretty well-known for their coupons and their dollar menu featuring items for either $1, $2 or $3 dollars. How can the company make money if they’re selling things at such a low price? Selling at a lower price brings in customers they would previously have not had, so they are in turn making more sales. McDonald’s aim is to bring in as many customers as they can, no matter the cost, literally. Their hope for pricing items so low is that customers will buy a lot of the discounted products or buy other, more expensive products since they’re already in the restaurant. This marketing technique may not always work, especially if products are priced much lower than what it costs to actually make them. But, not only does McDonald’s provide heavy discounts to keep customers, they also create an environment to keep customers in the restaurant longer. The biggest example of this is the McDonald’s play place where kids can climb, go down slides and even play in the ball pit. Not every location has this, but the ones that do offer the play place for free to use if you are a customer. Having this keeps families in the restaurant longer, meaning they may buy multiple items. For example, they may have a meal, send their kids to play, then have dessert or coffees. Offering free Wi-Fi and comfortable seating is another way McDonald’s tries to make customers want to stay for longer. If students, for example, come to do work with the Wi-Fi and outlets, they may buy things throughout the day. McDonald’s motto seems to be: the more customers, the merrier.
Meat is mass-produced
McDonald’s uses 1 billion pounds of beef a year in the United States alone. To meet these needs, but to keep prices low, they exploit concentrated animal feeding operations. To be raised ethically, cows need space to grow. Grazing operations actually require 26% of the earth’s habitable land. The United States alone has over 700,000 cattle ranches, meaning cows are not getting the space they need. At the ranches, the cows graze for 8–12 months. Once the cow reaches a certain weight, they are shipped to concentrated animal feeding operations to fatten them up before they are slaughtered for their meat. This is done by pumping the cows full of corn, soybeans, and antibiotics to gain an absurd amount in only 90–100 days. This is obviously not a healthy feeding pattern for the cows, but it allows more of them to be processed in a shorter amount of time in order to meet demands for beef from companies like McDonald’s. McDonald’s is, however, working towards making their beef more sustainable. In 2016, they started a sustainability pilot project where a portion of their beef was purchased from a verified, sustainable supply chain. The project is still in its early stages, so again, it’s hard to tell what impact this will have on prices if McDonald’s decides to get all of their meat from sustainable sources.
Ingredients are bought in wholesale
Since there are over 37,000 McDonald’s restaurants in the world, they have a lot of ingredients to buy. This means that they buy all of their products and ingredients wholesale in order to meet high demands. Buying in wholesale means buying products in large quantities which normally garners a discount on said products. Think of Costco, but times a hundred. Just as products at Costco are usually cheaper because they come in bigger quantities, the suppliers that McDonald’s buys from sells their products at a lower price because McDonald’s is buying them in huge quantities. McDonald’s is actually the largest purchaser of beef, and potatoes in the United States. They are also the second-largest purchaser of chicken. Since McDonald’s tends to buy all of their products from the same suppliers, their constant business and large orders gets them a big discount. This is one of the big ways they’re able to keep their products cheap. If they don’t pay a lot for the ingredients in the first place, they can still profit off of the relatively cheap prices.
A broken food system
The current food system in the United States thrives on cheap, unsustainable choices. Many Americans rely on cheap food options due to the weak economy and low minimum wage. McDonald’s relies on that knowledge. If their food is cheap, people who need cheap food will go there. We have already seen that McDonald’s is cheap because of unsustainable and borderline unethical practices. This means that there are not a lot, if any, sustainable, ethical, healthy, and still delicious food options available when you’re on a budget. Things like organic food or plant-based food tend to be the most expensive items to buy at grocery stores. So, people may want to eat healthier, but they cannot afford to. If our food system changed to prioritize healthy, sustainable, and ethical food, McDonald’s may not be as popular or as cheap. We are already seeing this happen with their introduction of the aforementioned sustainable meat. The sustainably sourced Angus meat is one of the most expensive options on the McDonald’s menu because McDonald’s is paying more to purchase the meat. If they changed their whole menu based on the changing food system that is moving towards healthier, sustainable, and affordable food options, McDonald’s may no longer deliver with the cheap prices like they currently do.
McDonald’s loyalty and suppliers
You may have also heard of another big company called Coca-Cola. McDonald’s partnered with Coca-Cola when the first franchise restaurant was opened in 1955. Both companies are leaders in their respective fields, so it is no surprise that they profit off each other. Their alliance helps both companies to earn big money and to market their products. Partnering with only one soft drink supplier keeps costs low as Coca-Cola not only offers heavy discounts to McDonald’s, but they also pay McDonald’s to advertise their products. They also pay for the rights to be the only soft drink beverage provider and to service the Coca-Cola machines. Coca-Cola benefits from this agreement as well, as they get part of the money earned from any Coca-Cola product sold. The relationship between the two companies is so strong and mutually beneficial that many say the Coca-Cola at McDonald’s actually tastes better because it is treated better than it is at most other restaurants. For example, most restaurants receive their syrup in plastic bags, but Coca-Cola delivers to McDonald’s in stainless steel tanks to keep the soda fresher. They prioritize having excellent Coca-Cola at McDonald’s to make sure their customers keep coming back for more.
Advertising makes products seem cheaper
This may be shocking to some, but McDonald’s actually spends over $1.8 billion dollars every year worldwide on advertising and promotions. Why would they spend so much money on advertising when McDonald’s is already so well-known? It’s because their advertising and promotions are what keep bringing in customers — new and old alike. McDonald’s has a popular “value menu” that we talked about earlier, but they also have seasonal promotions and offerings like the Shamrock Shake around St. Patrick’s Day or $1 drinks during the summer. These promotions are of course a good deal, but McDonald’s is again, banking on people buying more than just a drink and spending more money at the restaurant. Another way McDonald’s is utilizing advertising is within their own store. You may have noticed that your local McDonald’s switched to a digital menu board. While this may have been a big cost upfront, the ever-changing menu is meant to utilize a marketing technique called dynamic yield. This means that the menu changes to display items based on things like the weather, the time of day, and how busy the restaurant is. If it’s busy, for example, the menu will display items that can be made quickly to limit wait times. The menu also heavily advertises an “add on” section with extras to add to your meal like fries or a drink. This increases customer spending which in turn is what allows McDonald’s to keep items cheap and to offer heavy discounts.
Big partnerships with well-known companies
One of the best known partnerships at McDonald’s is when they run their Monopoly board game promotion which has been around since 1987. If you don’t know, it is when products like drink cups or fry containers contain a Monopoly property sticker or a coupon. Certain, rare properties may be worth a prize on their own or if a person collects all the pieces, they can get a bigger prize. Only more expensive products on the menu carry the sticker in order to encourage people to spend more money in the hopes that they will win something. Partnering with a big, well-known company like Monopoly draws in customers that are fans of the game to spend money that they likely wouldn’t have spent otherwise. More recently, McDonald’s partnered with food delivery services like UberEats and DoorDash to offer their menu on the apps for delivery to customer’s homes. This is a beneficial partnership for both companies as McDonald’s charges their normal rate for food, but also a fee for the delivery and app service so that they do not have to pay the delivery companies — their customers do. This allows McDonald’s to make money off of people who cannot or do not want to drive to their local McDonald’s, who will instead pay extra for the convenience. These big partnerships offer marketing and income to both parties, so they’re a no-brainer. They also help McDonald’s keep their prices low as they have a constant stream of business from many different avenues.
McDonald’s loves to upsell
Do you want fries with that? McDonald’s is said to have mastered the art of upselling, the process in which they ask customers if they want to upsize a drink or side or ask if customers want to add something to their meal. This may seem like a good value to both McDonald’s and their customers, but who is really winning here? Let’s look at drinks for example. McDonald’s may ask if you want to upsize your drink for a small fee, but if you are staying in the restaurant, then refills are free. Essentially, you could get a small drink for cheaper and refill it as many times as you want to equal a large drink or more. McDonald’s will advertise the upsize price, but not the fact that drinks have free refills to make it seem like you are getting a good deal. Similarly, their technique of upselling may make you buy something you would not have considered otherwise, like adding a muffin to your coffee order. Upselling allows McDonald’s to price upsizes and pairings at a lower price because at the end of the day they are still profiting. If they give a ten cent discount on the muffin paired with coffee, and you buy it when they offer, they still make money on that muffin you would not have actually ordered in the first place.