McDonald's: not just burgers and fries anymore
Everyone is familiar with the Golden Arches. Everyone knows exactly what they stand for. McDonald’s, the largest fast-food chain in the world, is known for fast food that is inexpensively priced. Well, over the past few years, purveyors of McDonald’s food have begun to witness a change. McDonald’s suffered its first-ever quarterly loss in 2003, the first quarterly loss since the company went public in 1965. Now, McDonald’s is beginning to target a new audience with new healthier food choices. You can purchase a California Cobb salad for $4.50 or a grilled chicken club sandwich for $3.89. With an increase in price, you might think that there would be a decrease in demand and overall consumption of McDonald’s food. However, we have seen just the opposite. McDonald’s saw the average check total increase by 5% to about $5. The company’s annual revenue has grown from $17.1 billion in 2003, to $20.5 billion in 2005. So why is McDonald’s seeing such growth? There are many factors, one may be good timing. More Americans are becoming increasingly health conscience and thus are looking for healthier food choices. The salads, along with white-meat chicken at McDonald’s seem to provide that healthier alternative to a Big Mac and fries. So even though competitor prices or substitutes, such as Wendy’s or Burger King remain low, McDonald’s is still raking in the profits.
7 comments:
Recent years, people have increasing salaries, and the increasing in salaries might be higher then the increasing in prices; therefore, people can afford them. ( Income is one of the four principal factors that shift the demand curve.)
Moreover, taste is another factor that influence individual's choices. McDonald's make more money than Burger King and Wendy's, according to you post, they offer more products to the customers, so it meets more people's taste then the other two fast-food chain.
(Personally, I prefer Burger King to McDonald's, not because it is cheaper, but the taste. :) )
You mentioned that American's are growing more health conscience these days. I believe that is the reason people are going after these healthier food options and thus increasing profit for McDonalds. It seems like there are a million different diets out there to chose from and before the healthy choices were introduced, those diets meant eliminating fast food consumption. These healthy menu options are allowing those people on diets to continue to have their fast food fix without sacrificing their diet.
I think McDonald’s strategy change leads to an exchange from inferior goods to normal goods. As we know, McDonald’s is the most popular fast-food chain in the whole world and it provides fast food at a very low price. People with lower income would like to visit McDonald’s more often than their alternatives with higher income, which means as long as people’s income increases, their demand for McDonald’s will decrease. In other words, McDonald’s food is considered inferior good since its income elasticity is negative. After they serve California Cobb salad and grilled chicken club sandwich as mentioned above, McDonald’s food has a trend to be normal goods. Even though the price is higher than before, people would like to spend more money on it because it’s much healthier than before. In other words, people with high income are willing to visit McDonald’s more often. Hence, the food there turns out to be normal goods since the income increases, the demand will increase too and the income elasticity is positive.
If you are interested in this topic you really should watch the movie "Supersize Me". This movie has changed my view on fast food. Obviously they're going to profit, because the target market for McDonalds is children and generally their mother is the one that brings them there. Women are self conscious about their bodies and will choose the healthy choice, which is more expensive than the other choices. Since she didn't have the healthy choices before, she had to settle for the unhealthy, cheap menu items.
What makes me really mad about McDonalds making a profit from their "healthy" salads is that they are basically cheating people. They advertise their new food choices as "good for you" in a weight conscious society so of course people are going to flock there who wouldn't have normally eaten there. In reality, some of the salads from McDonalds are just as bad if not worse than eating the cheese burger that a health conscious person normally wouldn't even eat.
In my opinion, to respond this phenomenon, we need to refer opportunity cost. Nowadays, most of the people eat food are no longer just in order to fill their stomach and satisfy their mouths, but with enough money in hand, value very much about whether the food they eat is good to their healthy. For example, rather than original fries which could raise the possibility of illness like cancer and fatness that happened in future, now, more people prefer healthy food like new salad. Because in this way people think that they could make their lives longer. Although when they order the food, most of the people did not notice, they in deed indirectly choose a way on which they could avoid the opportunity cost - the money that they will spend on treating illness and the probably a lifetime lost in future.
I agree with rachel. Alot of people are currently wathing what they eat and are trying new fab diets, like the Atkins diet for example. Fast food is now being substituted for healthier food. So to increase profits McDonalds was forced to widen their selection of food to satisfy their customers.
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