The sky-high cost of certain materials, such as frying oil or packaging, is forcing small retailers and fast food giants to raise their prices significantly.
It is one of the most popular “doner kebabs” in the 18th arrondissement of Paris. Every day, dozens of people stand in line in front of the “Gemüse” to taste one of their “kebaps”. But in a few days, customers have been informed of bad news: A poster announces a marked and almost general price increase.
The restaurant explains that it can no longer collect price increases on certain materials alone, especially “200% on frying oil” (obviously widely used) or even “packaging” in cardboard. As a result, he is forced to increase his dishes, fries and formulas by a few dozen cents to “preserve” his economic model.
“We can do nothing else”, other owners of this type of restaurant indicate to our colleagues from France Bleu. Everyone had to raise their prices by a few dozen pennies to make it.
Oil, sauces, packaging
The sky-high price of sunflower oil is becoming a nightmare for this type of fast food. It is one of the many consequences of the war between Ukraine and Russia, the two countries represent 78% of the world’s exports of sunflower oil. Sold for 640 euros per tonne in mid-February, it trades for more than 1,000 euros today.
And not only does this bloat affect the frying oil, but also the sauces that are especially made with this oil.
This problem does not spare the fast food giants. Like McDonald’s. In the US, menu prices, despite the chain’s colossal footprint allowing some of this inflation to be absorbed, have risen 2.7% in the last three months, according to Gordon Haskett analysts after rising 6% in 2021.
It must be said that the sign should also agree to an average wage increase of 10% across the Atlantic.
In the US, rising at McDonald’s and Burger King
At Chipotle (Mexican food), prices have increased by 10% from year to year. The same at Burger King in North America. “We expect further price increases in 2022 and are working closely with franchisees to make the best decision for customers,” said Restaurant Brand International CEO José Cil in February last year.
More generally, fast food menu prices could still rise by 6 to 8% by 2022, according to Wedbush Securities.
In France, the trend is the same, although it is still difficult to assess, precisely because restaurants are in most cases franchised and free of their prices.
The contact, Burger King France, explains: “Today, in the face of the constant increase in raw materials, we have made some price adjustments in our restaurants, but they are still lower than the inflation we are experiencing, which relates to the vast majority of our ingredients. We make recommendations to our franchisees (85% of our restaurants are run by franchisees), but they are then free to set their own sales prices to customers “.
“We maintain (and recommend our franchisees to maintain) the prices of certain iconic products at the national level, such as the King Junior children’s menu, which is 4 euros, or our King Deal Menu (burger fries and drinks), which is 5 euros in most of our restaurants in France “, adds the group.
Contacted, McDonald’s has not yet returned our request for comment.
Asked by BFM Business, Bernard Boutboul, president of Gira Conseil (specializing in the out-of-home catering industry sector), explains that there are two “camps” among operators today.
“The former absolutely do not want to use price increases for fear of dropping attendance. The latter are looking for solutions to mitigate or circumvent these increases by reducing their costs, especially by making changes to their recipes.”
For franchisees, “some will follow the franchisor’s recommendations, others will not, they have no obligation. So there will be incomprehensible prism conditions for the consumer in the area,” the expert adds.
But in the case of McDonald’s (83% of the 1,500 restaurants are franchised), Bernard Boutboul believes the increases will be homogeneous. “Franchisees generally trust the franchisor’s recommendations”.
“We are stuck”
Problem that will be a psychological threshold that should not be exceeded. According to a survey conducted by independent analyst Mark Kalinowski among franchisees (who may or may not use the price increases recommended by the parent company), the price increase is already beginning to weigh on sales in the United States.
“Is there a turning point where customers start deciding that it’s not worth paying $ 9.50 for a burrito, that it’s not worth paying $ 7 for a burger?” said Morningstar analyst Sean Dunlop.
“We are not very far from this breaking point in France,” adds Bernard Boutboul, “we already have one of the most expensive restaurants in the world, we are stuck”. Especially since the prices of raw materials, basic products or even packaging are not reversing. “It’s not over, we can expect another outbreak in the autumn,” warns the expert.