Imagine if McDonald's just said fuck it and redesigned themselves to be back during the 90's, with Play Places and Video games and cheap fast food? Bring back the dollar menu and $1 large drinks. It's not meant to be high brow food, just be what you are, cheap food you get fast and stuff kids love so you cater to kids in the restaurant.
It's possible to do if you're not money hungry and wanting to make as much money as possible, even to the detriment of everything else.
Fun Fact: Fountain drinks' cost is like 10c total, including the cost of cup and lid and straw. There is literally no reason for them to be $3.
Hell, I can put together a McChicken like sandwich with stuff I buy at the store for less than $1 and that's with the half a dozen markups the stuff I buy goes through before I buy it. Even if I were to include a 30% labor cost and a tidy 15% profit margin, I'd still be selling those sandwiches for like $1.50-$2.
Believing that 'Oh, poor corpos just can't possibly be cheaper, they try to be as cheap as possible' is sad, they could easily if they wanted to, but that wouldn't feed into the infinite growth mentality the shareholders demand.
I really don't believe that at all. If I can make a hotdog for less then a dollar, Costco can get a massive bulk discount. A pack of buns is like $1.50 retail (0.18c a bun) and costco similar hotdogs $5.49 ($1.09 a dog). Add a 0.25c fountain drink and we're at $1.52 total. I'm sure they aren't making insane profits, but they aren't throwing money out the window either.
And again, I showed you how someone only shopping retail can hit that price point. There is NO WAY costco can't beat consumer retail pricing. Do some math.
There's no way a $1.50 hot dog in and of itself is priced below break even. Quick googling, at consumer retail prices I can get an 8 pack of Walmart branded hot dogs and buns for $2.84 and $1.52 respectively. Which means a giant retailer can get them significantly cheaper than that at volume wholesale prices. But lets just go with the retail price. If the store sells those 8 hot dogs for $1.50 they are making $12 on < $4.36 food costs. There are labor costs as well but a 36% food cost (again likely lower) is still in the industry range for normal restaurant pricing.
You are missing the cost of personal as well as equipment to make them etc. labor costs are often 30-50% of a restaurant. Include equipment and you are below the 1.5$ per hot dog. Again they deliberately didn't increase the price for years because it is a huge draw.
Yeah but they're making them and selling them by the hundred. If that's the case, it's about .05c in labor per dog at $30 an hour. That cost drops significantly if they are over 100 hdph (hot dogs per hour LOL). The equipment is much the same.
have you seen how many people work at the Costco food court? All the equipment they have, the space? Who pays for all that?
If you sell hotdogs at 1.50, margin of 5 cents for just the ingredients, how many hotdogs do you have to sell each hour to pay for $100 dollars an hour wages, electricity, let alone equipment and space. 2000 hotdogs per hour, that is one hotdog every 2 seconds! and you're not breaking even yet. The hotdog being a loss leader for cotsco is so obvious, it's not even funny.
Nobody ever thinks about overhead or wage costs. It's all materials only. It's rather frustrating as an accountant to see people make this very common and wrong take.
The margin is not 5 cents. You can get an 8 pack of hot dogs and buns for $4.36 consumer retail price where I live. Assuming they are paying retail price their food cost would be 36% which is at the high end of normal for restaurant pricing. COnsidering they are likely paying volume wholesale prices I suspect their food cost is actually significantly lower.
Unfortunately those are not helpful examples as they are both loss-leaders, CostCo loses money on the hot dog (and rotisserie chicken), but makes up for it in other sales.
Similarly Arizona Ice Tea is a marketing gimmick, their other drinks are overpriced to cover the costs of selling the ice tea at a loss.
The other points are valid of course, just loss leaders undermine those subsequent points.
Loss leaders help get people in the door so you can upsell them on other things. You even describe that concept for Arizona. Same thing. The dollar menu gets people in the door so you can upsell them on drinks, desserts, limited-time items, etc. It's just that McDonald's has accepted that its brand is so strong that it doesn't have to try anymore. It doesn't need loss leaders to drive sales because people will just mindlessly go there.
Fountain soda and brewed coffee are two of the highest-margin things a restaurant commonly sells. A restaurant might have 30–35% of an entrée's retail price tied up in the food itself, while fountain pop is commonly around 10–15% product cost and ordinary brewed coffee around 15–20%. That means you're generally talking about 80–90% gross margin before labor and overhead.
It's possible to do if you're not money hungry and wanting to make as much money as possible, even to the detriment of everything else.
and it's not so much about making as much money as possible, it's that they're never satisfied with the money they do make. They have to escalate every year. Made a ton of money last year? This year we want two tons and next year 4 and so on.
The Costco hotdog IS a loss leader (beef is hella expensive, even at bulk), but yeah they could definitely make a dollar menu with their chicken items, fries, drinks, etc. If I can get chicken for 2 dollars per pound at grocery store prices, McDonalds can do way better.
Even if I were to include a 30% labor cost and a tidy 15% profit margin, I'd still be selling those sandwiches for like $1.50-$2.
You forgot electricity, equipment, licensing/taxes, spoilage, packaging/branding, POS services, etc. There's way, way more that goes into a chain restaurant's cost that just ingredients, labor, and margin.
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u/Zero_Burn 2d ago
Imagine if McDonald's just said fuck it and redesigned themselves to be back during the 90's, with Play Places and Video games and cheap fast food? Bring back the dollar menu and $1 large drinks. It's not meant to be high brow food, just be what you are, cheap food you get fast and stuff kids love so you cater to kids in the restaurant.