The backlash began with just a photo.

Here at a rest stop off Route 95 in

Darian, Connecticut, between a Subway,

Dunkin Donuts, and Sparrow sits a

McDonald's. In 2023, a traveler passing

through was astonished by its prices.

Instead of reaching for their wallet,

they pulled out their phone to capture

the absurdity. A Big Mac meal running

nearly $18.

The picture was posted on Twitter and

accompanied by a question, and the

response was overwhelming. The meal and

its outlandish price tag went viral. It

sparked conversation across social

media. It made national news. It got so

big that even McDonald's itself got

involved, releasing a statement

accompanied by a handy graphic aimed to

bust some myths about just how expensive

McDonald's had become over the past few

years. What gave this story such staying

power was that it felt like the perfect

example of a phenomena that was bigger

than the Northeast and bigger than

McDonald's, but instead one impacting

all Americans at all fast and fast

casual food spots. That these cheap and

convenient dining options were just no

longer cheap. An $18 burger meal proved

that point anecdotally, but some further

research proved as much too. In the past

decade, overall food prices were

trending higher than the overall

consumer price index. And then prices

for food away from home have trended yet

higher again than overall food prices.

Within the category of food away from

home, more research showed price growth

at limited service restaurants or fast

and fast casual was outpacing sit-down

restaurants. Fast food wasn't just

reflecting broader rising costs for the

American consumer. It was leading the

charge. Now, accompanying the general

outrage over an $18 Big Mac meal were

the explanations as to how we got here.

Often led by industry insiders or the

industry itself, the explanations cited

things simply out of fast foods control.

Labor, for instance, had become more

expensive after CO. California had

passed a bill that was going to hike

minimum wage for fast food workers to

$20 an hour. Retail ground beef prices

had soared across the decade, too, while

supplies like paper wrapping, cups, and

packaging shot upward as well. With

trade wars, tariffs, stimulus checks,

and increasing minimum wages, fast food

chains were forced to get more expensive

and hand these prices off to the

customer. Or at least that's what they'd

like their customer base to believe.

What's lost in this broadly true but

incomplete explanation is the fact that

pricing is not just a reflection of

strictly costs and constraints, but

broader business strategy. Fast food is

not just getting more expensive because

of factors beyond the industry's

control. It's getting more expensive

because the business of fast food is

changing on the fly. Compare these two

burger joints on either side of I5 in

Burbank, California. One representing

the cutting edge of fast foods change,

[music] the other an industry outlier

that simply refuses to change. These two

storefronts offer a very similar product

at a very similar price. The Double

Double at In-N-Out Burger cost $6.10 and

the Big Mac at McDonald's at $649.

Both offering a conceptually analogous

item sold at about the same price is

largely where the similarities between

these two businesses end. Their business

strategies and operations in fact are so

different that In-N-Out wants you to buy

a Double Double Burger, while

McDonald's, on the other hand, actively

hopes you don't. While a bit cheaper on

average, the consumer is going to find

the Double Double an objectively better

product. Personal preference aside, the

Double Double is made up of ingredients

that have never been frozen. The meat

was processed by In-N-Out at one of

these two locations that are both within

a day's drive, while ingredients like

buns have been contracted out to the

same company since the [music] 1950s,

ensuring freshness and consistent

quality. That superior consistency and

quality is then carried through the

process of preparing those ingredients

and interacting with the customer making

the order. as each location is laid out

in an almost identical manner while

staff is trained and expected to deliver

a highly standardized product with a

cheery welcoming attitude. Whether by

comparative Google reviews between

Burbank locations or annual rankings for

customer satisfaction, In-N-Out is going

to beat McDonald's and it has to as it's

core to the company's strategy. This

In-N-Out [music] and every In-N-Out has

a lot of staff to pay. Whereas

McDonald's can run a slow shift with 5

to 10 employees, an In-N-Out will be

staffed with 10 to 15, and during the

lunch and dinner rushes, this number can

regularly balloon to 25. And not only

are there more people to pay, but

they're getting paid better as this

Burbank location starts its staff at $22

an hour with benefits and quick

positional and pay advancement

opportunities. With industryleading pay

and staffing and a comparatively cheap

product, the chain saves through

vertical integration. The company owns

the locations rather than renting them.

It operates its own meat processing and

trucking. And it sources products from

Pink Lemonade to paperware from the same

singular companies it has for decades.

But those savings aside, to profit off a

menu built around five and $6 burgers,

this location needs to sell a lot.

Because of a combination of quality and

consistency, an In-N-Out customer will

gladly brave a 20-minute drive-through

wait or stand in line for a few minutes

without the privilege of ordering ahead

or through an app. And because of this

loyalty to the product, an average

location does annual revenue of about $6

million a year. McDonald's, on the other

hand, averages about $4 million per

location a year. More impressive still,

In-N-Out pulls in 33% more business in

15% less time as its locations are open

for an average of 14 and 1/2 hours a day

compared to McDonald's's 17.

Familyowned, consistent, [music]

clean, simple, In-N-Out feels like what

fast food was like at its founding in

the '50s. But that's exactly why it's so

singular, so unique from the rest, and

so small. In its home state of

California, there are only 289 locations

compared to over 1,200 McDonald's within

the state. Just within this narrow

cross-section of Burbank, McDonald's

outnumbers In-N-Out 4 to one. [music]

In-N-Out is tiny in the grand scheme of

things. And in every trend of fast food,

it's an outlier. But the very fact that

it competes with and in many cases out

competes the larger fast food chains on

price while providing equal to better

quality shows that pricing is a tool, a

choice, an extension of strategy rather

than something simply forced upon the

industry. With 14,000 locations in just

the US, but just 5% of those locations

operated by the publicly traded company,

McDonald's as a corporation just can't

maximize consistency or quality of

products like In-N-Out. [music]

nor are they really incentivized to. You

see, the transformation that shot prices

through the roof began with a pivot,

making breakfast available all day. In

the 2010s, as year-over-year sales

across US locations were either

stagnating or falling, McDonald's under

new leadership looked to counter the

rise of fast casual restaurants

encroaching on their territory. CEO

Steve Easterbrook wanted McDonald's to

be the modern, progressive burger

company. That meant better quality

chicken, fresher beef, more datadriven

decisions, and a more capable mobile

app. The first major move was that

allday breakfast extension. Customers

had always clamored for this. Surveys

called for it, but leadership

understandably had reservations. Would

it be worth the kitchen remodels and

complications? Would the move

cannibalize lunch and dinner product

performance? Rather than go off a hunch,

they modeled it, leaning on a tech

partnership with applied predictive

technologies, then rolling out a

regional trial and collecting receipt

data with the help of the NPD group. The

study showed that allday breakfast would

bring customers they had lost back while

also adding to overall receipt totals as

midday diners were showing a tendency to

toss a breakfast item like a McMuffin or

hash brown on their order. Confident

enough to push the franchise to remodel

their kitchens and take on all day

breakfast, the company began a major

turnaround and they attributed to not

just a host of breakfast items, but the

increasing importance of big tech and

big data in the company's operations. It

[music] was just the start.

Consider these three transactions. One

buying a Big Mac meal in Aztec, New

Mexico. One buying a Big Mac meal in

Newcastle, Colorado. And one buying the

same product again, this time in

Burbank, California. The difference in

prices between the three reflect what

McDonald's can't control. The

independent [music]

franchisee pricing that accounts for

labor costs and other local factors.

[music] But consider the medium through

which each transaction occurred. Two

kiosks and a phone screen. And now

McDonald's's greatest tool for business

optimization comes into focus.

Historically, a common refrain for those

in the no was that McDonald's is a real

estate company. This still holds true.

They own much of the land on which their

franchise locations sit. They count on

rent as a core income stream. But in the

last decade, McDonald's, along with its

large competitors, have increasingly

become a tech companies, too. Turning to

tech allowed McDonald's to focus on a

critical aspect of the company's

shortcomings that all day breakfast had

hinted at. Convenience. Customers wanted

shorter wait times, faster orders, and

ways to order ahead. In short, this

meant screens. In 2019, the restaurant

chain acquired a company called Dynamic

Yield to help further optimize and

personalize the ordering experience

through past user data and trends. It

was the largest acquisition by

McDonald's in 20 years, and it forever

altered the ordering process. Take again

a Big Mac. Now, really, no matter its

price, a Big Mac is either a loss leader

or only deres a tiny turn of profit for

a McDonald's location. If you were to

order one in the past, then whether in

the drive-through line or counter line,

you'd be faced with a whole host of

promotions of new products, drinks, or

all day breakfast items in the form of

physical posters and banners on the

menu. And when you went to order your

simple sandwich, you'd be asked if you'd

like to turn it into a meal, as French

fries, and especially fountain drinks

have far better margins. Perhaps you'd

be tempted to do so because McDonald's,

after all, has years of experience and

tricks in getting you to spend a little

bit more. McDonald's has a long used

meal pricing decoy strategies, for

example, to make the large meal feel so

similarly priced to the medium that you

go ahead and opt for the large. If you

were to leave with just a sandwich,

that'd be a loss for the chain. If you

were to leave with a sandwich, a drink,

and an odd-end add-on, McDonald's would

count that as a win. But now, Dynamic

Yield, the kiosks, the McDonald's app,

and drive-thru have all taken this to

the next level through far smarter, far

more personalized sales tactics.

Digitized, personalized, customized

menus means long gone are the days of

the drive-thru board listing every

possible meal item. Today, if you're

planning on ordering at the counter or

off the digital menu at the drive-thru,

you're only going to see the options the

company wants you to see. At this New

Mexico location, the only listings and

prices are for extra value meals. If

you're planning on just ordering a Big

Mac and not the meal, you're going to

have to ask. And if you want to know the

exact price before committing, you'll

have to ask for that, too. You can still

order anything off the menu, of course,

but a curated menu passively pushes your

order towards what they want to sell.

And this goes both ways, too. The

company actively wants to make a sale,

too. And it's pushing options that it

proves popular. or say if it's a super

hot day, it'll push items like ice cream

and cold drinks that it assumes will be

popular. This curation also keeps things

moving quicker, too, as a massive menu

with every offering slows lines to a

crawl during rush hours. So, to optimize

the convenience factor the company leans

on, it keeps these menus simple. If you

want the full menu, you'll have to turn

to the kiosks or the app, but it's going

to be in exchange for your data, or at

least asking for your data. Your

location and your order habits are

hugely helpful for McDonald's to

optimize for efficiency. So, when you

use a kiosk, it'll ask you to log in to

your McDonald's account. And then it'll

ask again. And once in, you'll just have

to maneuver around the headline items

like the brand new refreshers and the

top ticket items like the Archburger, a

novelty luxury item with fairly good

margins to get to your sandwich of

choice. The app is going to be less

pushy to get you to log in because once

in, you stay logged in and you're

incentivized to stay through the

accumulation of points and the varying

personal promotions, whether it's a free

item on your birthday or a boilerplate

limited time free medium fry with any

order to hopefully get you in the door.

Such deals create loyalty both ways

while also allowing McDonald's to better

suggest and service items to a customer

based on their past orders. And it

provides user data that then goes on to

inform strategy and pricing companywide.

If, for example, you're consistently

ordering Big Macs when they're $6.10,

then when the price goes up to $649, you

no longer order the sandwich, or worse

yet, you no longer spend at McDonald's.

That's extremely valuable information

for the company to have, and ultimately

information that the company will act

on. While altering the quality of the

product or the products itself presents

a massive undertaking for a chain so

big, screens and big data allow

McDonald's to better alter and fine-tune

prices and offerings to best match what

the customer is willing to pay. Where

In-N-Out optimizes through what it

controls in the physical world, the big

chains optimize through the digital. In

the wake of the $18 Big Mac meal going

viral, concerns over McDonald's's

pricing strategy were voiced in an

earnings call. The company was losing

its important lowerincome customer and

the perceived value of the company's

products in relation to price was

declining. The answer came in the form

of a major value push. First, the $5

meal deal launched in mid 2024. Then,

the McVal menu the year following. Both

span breakfast and lunch items. Both

have marked a pivot in sales and broadly

have proved to work. And yet, if you

were to go to this McDonald's location

in Darian, Connecticut, a Big Mac meal

would still run you nearly $18. And

that's because the word perceived in

perceived value is doing a ton of work.

McDonald's is not in the business of

quality food or cheap food so much as

it's in the business of convenient food

at a stomachable price. That's why the

company developed the app. It's why it

revamped drive-through menus to get

average ticket times down. It needs to

provide a product at [music] pace. More

accurately, it needs to provide products

at pace. It needs to be a place where

you can grab lunch, a coffee drink, and

a bag of ice all at the same time. But a

customer will only act on such

convenience so long as they believe

they're not getting ripped off for a

fairly unspectacular product. So,

McDonald's pours over the data, tinkers

with prices, alters its value menu

offerings over and over to find the

precise price point that the customer

will tolerate. Recently, the company

launched its own line of refreshers and

they're pushing the product hard. Now,

these products simply by being drinks

have high returns, but they also create

incentive in the customer to alter

habits. Rather than going to Starbucks,

one could just hop on the McDonald's app

and order one of these along with a food

item that Starbucks can't match. At

$3.69 to $4.69, these drinks aren't

cheap, but they're comparatively

cheaper. They're cheaper than the

options at Dutch Bros, Starbucks, and

Sonic. They're just cheap enough, the

company hopes, for the customer to think

they're getting decent value for their

money and benefiting from the

convenience of being able to grab food

in the same stop that they'll change up

their typical afternoon refresher

routine and instead bring their business

over to the Golden Arches. The tech

pivot is broader than McDonald's. Taco

Bell, owned by the publicly traded Yum

Brand, has turned to a bifurcated menu

with extreme value items and high dollar

bundle items pushed through the app.

Practically every fast and fast casual

restaurant from Jimmy John's to Panera

Bread have mobile apps and digital

loyalty programs. Wendy's found itself

in hot water when it launched a digital

menu system that could potentially alter

prices of products midday. Customers

called it surge pricing and the outcry

started a larger conversation over an

accusation that no restaurant wants to

be associated with dynamic pricing. Of

course, none in the industry want to be

associated with dynamic pricing given

how much distrust the label engenders.

But the technology exists, the data, and

the data processing exists. And already

and just about every big chain, though

it doesn't happen over the course of the

day, the prices of products do change,

and the value menus shift around every

few months. It may seem too far of a

reach now, but pricing structures that

shift by the hour and by the customer

would fit the larger optimization and

efficiency pushes that fast food has

leaned [music] into the last decade.

Customers have come to stomach rising

costs. So perhaps if slowly and quietly

implemented, they'll come to embrace

dynamic ones, too.

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