Inflation drives up Big Mac prices

McDonald's is passing on the higher costs of beef, cheese and other ingredients to its customers

By InvestorPlace Apr 22, 2011 8:43AM

investorplace logoImage: Family eating burgers (© Bananastock/Jupiterimages)Americans are already feeling the impact of higher gas prices. But the next time they have a Big Mac attack, consumers may have to suffer the same sticker shock they now get when they pull up to the pump.


That's because McDonalds Corp.'s (MCD) is seeing inflation push up the costs of ingredients like Big Mac beef, cheeseburger cheese and McCafe coffee beans.


As a result, the world's largest fast-food chain said it will raise prices to keep up with food inflation.


The price increases won't be steep, at least not in the United States. Sensitive to the higher prices that Americans are facing at the gasoline pump, grocery store and everywhere else they have to open their wallets, McDonalds says it will absorb some of the initial costs by gradually raising prices to recoup the 4% to 4.5% cost of food increases.  

Nonetheless, the price hikes come on top of a 1% increase McDonald's added in March in the United States and Europe, and it has the king of fast food worried that customers might decide to make their own burgers.

In announcing the price increase, McDonald's chief executive Jim Skinner said customers are "pinched everywhere. They should not suffer the same fate at McDonald's."


The Golden Arches isn't alone in grappling with higher food prices. Chipotle Mexican Grill (CMG) saw higher food costs eat into margins. McDonald's admits that its strategy to raise prices gradually will sacrifice some margin growth in the short term but believes it will preserve revenue growth in the long term.

McDonald's has had an edge on other fast-food restaurants when it comes to raising prices, because it attracts a higher-income customer. That has helped the chain post seven years of positive comparable sales growth in every part of the world in which it operates. But the newest test will come during the summer, when gasoline prices are expected to average around $4.00 a gallon nationwide.


While no one is looking forward to paying more for a Big Mac or McCafe, Americans will still fare better than Asian consumers. Soaring food prices have forced families to cut back on meat and vegetables and are eating up to one-half of the household income of some poor families in Indonesia, India and China.


Americans, however, won’t be thinking of that when they decide whether or not to drive through or drive by a McDonald's drive-through.


Related Articles


Apr 22, 2011 12:28PM
The Big Mac is not all that good anyway. I will miss the McCafe offerings. Mickey D's Big Mac is already more expensive than the better burgers at Jack and B'King anyway. Mickey D has lost their way as a family fast food place, may Ronald McDonald rest in peace. Their overall prices were too high before the proposed increases.
Apr 22, 2011 2:18PM
the reason you dont like big mac, is because you dont like lettuce and such that inside  the mac. but all and all, the big mac is actually delicious.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
266 rated 2
485 rated 3
660 rated 4
586 rated 5
652 rated 6
640 rated 7
504 rated 8
289 rated 9
159 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.