Joshua Scheer
McDonald’s used to once sold the illusion that capitalism could at least give working people something cheap, a meal for people who didn’t have much money or much time. The bargain was never exactly nutritious, but it was affordable. Today, that bargain is disappearing. A meal that once cost a few dollars can now push toward $15 or $20, while portions shrink, restaurants become increasingly sterile and automated, and customers are asked to pay more for less.
It was also notoriously unhealthy, contributing in no small part to the obesity epidemic and the rise of ultra-processed foods. Increasingly, everything—from the fries to the buns to the burgers—seems less like food and more like a science experiment engineered for maximum profit.
McDonald’s has responded to criticism by insisting that its burgers are made with real beef. What a world we live in when a corporation has to assure us that its burgers are actually real. And even if the meat is real, the question remains: what exactly are they putting in the bun?
The story behind those rising prices is bigger than inflation. McDonald’s has increasingly transformed itself from a company that sells burgers into a vast franchise, real-estate and financial operation—one that collects billions in fees and rent while returning enormous sums to shareholders through dividends and stock buybacks. The people making and serving the food, meanwhile, are left to absorb the pressure of higher costs, lower margins and an increasingly corporate-controlled system.
This investigation asks a deceptively simple question: Why does fast food suck now? The answer has less to do with the price of beef or the cost of labor than with what happens when maximizing shareholder returns becomes the central measure of success.
Edited Transcript
I came to McDonald’s for a quick, cheap, and easy meal, but McDonald’s has changed a lot since the last time I was here. $5 for a medium French fry.You pretty much can’t get anything for less than $10. My food took a lot longer than I expected. And while I waited, I noticed how boring and bland the restaurant looked.
Remember when McDonald’s used to be fun? Quarter Pounder with Cheese.
Do you think that’s really a quarter pound of beef? Only one pickle.
Honestly, it’s good. That slaps.
I’m not going to lie, this is a lot smaller than I thought it would be.
Back in 2014, these were the average prices of some popular McDonald’s menu items. And here are the prices ten years later.
Everything rose by at least 50%. The Quarter Pounder meal more than doubled in price.
Over that same decade, prices for other consumer goods only rose 31%. It’s not just McDonald’s.
All fast food prices are way outpacing inflation. And what are we getting for that increased cost?
To find out what’s really going on in the kitchens, I reached out to a former McDonald’s corporate chef.
Mike: They are willing to serve not as good of a product because they can make more money and serve more people. Make it as cheap as possible so they can get the most profit.
Sanya: Food used to be cheap, filling, and obviously fast. But not anymore. So why does fast food suck now?
Voice: Are you kidding me?
Voice: This cost me $20. Chick-fil-A done gone into shrinkflation mode. Am I going crazy? Is my burrito on Ozempic right now?
Alright, the moment of truth.
Mmmm… That is so good.
When I was a kid, fast food meant Happy Meals, characters, play palaces. It meant hitting up the drive-thru for 99-cent fries or a $1 Coke.
Back then, it felt like fast food companies were catering to those of us who didn’t have a lot to spend.
When I was growing up, there was a lot more emphasis on value menus and a 99-cent price point.
Sanya: That part is thanks to Wendy’s.
In 1989, they launched the very first 99-cent menu.
Denise: And that totally revolutionized the industry, because up to that point, yes, fast food was trying to offer lower prices. Now Wendy’s made it a signature of their brand to be known for this 99-cent price point.
Sanya: Other brands followed, running ad campaigns around a nice, round, and low number.
Five-dollar footlong.
Sanya: McDonald’s big innovation came in 1991.
The tempting taste of McDonald’s alluring Quarter Pounder with Cheese.
Sanya: A value meal was more profitable than a 99-cent item because whatever you lost on the burger, you could make up for with the soda.
Throughout the ’90s and 2000s, fast food sales were booming, and when they weren’t, they’d just relaunch a new dollar menu or value meal to pick sales back up again.
Five bucks?
Five bucks!
Sanya: But that all changed in the 2010s thanks to Five Guys. And also these guys.
Fast food restaurants were so focused on offering a lot of food for a very low price, and fast casual came in and started to offer a better experience, albeit at a higher cost.
By 2013, McDonald’s sales were tanking. First, they leaned into what customers love about it.
Breakfast all day!
McDonald’s is beefing up its Dollar Menu.
Sanya: And they created their own version of Panera’s “You Pick Two” deal.
“McPick 2.” That’s kind of a mouthful.
Sanya: But that wasn’t enough.
Denise: Value menus and value items often are loss leaders. You don’t want people to be buying your 99-cent items.
You just want them to come in thinking they’re going to buy the 99-cent item, and then they end up buying the $5 or $6 thing.
Sanya: So they appointed a new CEO, Steve Easterbrook, who created a three-part comeback plan to make McDonald’s cool again.
Part one? Let’s do a makeover.
Sanya: To be just like those hip, healthy, fast-casual spots, McDonald’s reworked its entire look.
That meant bold fonts, eco-friendly packaging, cage-free eggs, kale in their salads, and a Chobani partnership to make parfaits and smoothies.
They added new menu items that sounded way too fancy to eat in your car, like this Artisan Grilled Chicken Sandwich or the Sirloin Burger.
And they brought back the Hamburglar. But for some reason, he’s hot now?
CNN: He’s kind of cute, little redhead.
The second part of the plan? Use computers for everything. Basically, they invested heavily in tech.
In 2019, McDonald’s spent hundreds of millions of dollars to buy or invest in these tech and AI companies.
Their drive-thrus now use algorithms to display different items on the digital menu boards depending on the time of day or the weather.
And to upsell you based on what you ordered, like Amazon does. Their app can use your personal data to determine what prices to show you.
And in restaurants, they added self-serve kiosks and digital menu boards that let you endlessly customize your food, while also nudging you towards certain items, and presumably cutting down on labor costs.
They launched a delivery service by partnering with Uber Eats and DoorDash.
So when you order through the McDonald’s app, you’re getting the same advanced tech and logistics as those more established apps.
All fast food brands are trying to use tech to their advantage.
Wendy’s experimented with dynamic pricing, and a bunch of brands are attempting AI drive-thru ordering.
And what will you drink with that?
Oh my God! I want a large Mountain Dew.
And to drink?
Sanya: Easterbrook’s third strategy was the stealthiest. And it cuts to the core of their identity: What kind of business they are.
You might be thinking, “McDonald’s is a burger company, duh.”
Ugh, as if!
Sanya: Actually, their latest earnings report shows that only about a third of their revenue comes from food sales. What’s the rest of it?
I’ll explain. See, McDonald’s runs their business using a franchise model. The company doesn’t own each store.
Most of them are owned and run by independent operators or franchisees. It’s been this way since the ’50s.
What this means is that nobody who works at this McDonald’s is actually employed by McDonald’s.
Denise: Large corporations, they’re much better at running hundreds of restaurants.
Whereas a local franchisee can really focus on their neighborhood and serving their customers well.
Franchisees can range from small mom-and-pops—they might own one or two restaurants—to kind of maybe more mid-size franchisees that own like 10 to 20 restaurants, to large companies that own a whole region.
Sanya: Franchisees do all the day-to-day restaurant stuff.
They hire and manage the staff, buy the equipment and ingredients, and they set the hours and often even the prices.
McDonald’s provides their recipes and kitchen systems perfected through decades of trial and error.
It also provides their multi-million-dollar marketing arm from one of the most recognizable brands in the world.
Franchisees pay a lot for these privileges. There’s the initial $45,000 franchisee fee, plus various ongoing ones: a marketing fee, a service fee, and fees to use certain equipment and software.
They even have to pay for their own Microsoft subscription.
Most big fast-food brands work this way, like Burger King and Wendy’s.
As a corporation, it’s a lot easier to run a business where other people are dealing with all of the operations, all of the, you know, boots-on-the-ground requirements.
So when Easterbrook took over in 2015, McDonald’s was about 80% franchises and 20% corporate-owned stores.
Over the next few years, he sold off nearly all the corporate stores to franchisees. That meant less money spent on making burgers, more money earned from fees.
This is extra useful in economic downturns like COVID.
McDonald’s stock crashed like everyone else’s, but it started bouncing back within days.
Their operating margin is less affected by increases in prices in the market because they are extracting money from their franchisees.
Want to see how McDonald’s corporate sees their role now?
In 2024, for the first time in three decades, McDonald’s hiked up their service fee for new franchisees.
And it rebranded it as a “royalty fee.” Now, it’s less about providing services to its franchisees. They’re just a brand that’s licensing out its name to them.
But wait, there’s more.
Unlike other fast-food companies, McDonald’s is a real-estate empire, controlling most of the land and buildings their restaurants use.
And they charge their franchisees a fixed monthly rent, securing McDonald’s cash flow regardless of burger sales.
Though, of course, if sales exceed a certain threshold, McDonald’s adds an extra rent payment to take a cut of those too.
McDonald’s collects about $10 billion in rent every year.
That’s where the other 60% of McDonald’s revenue comes from: rent and fees.
So you see, McDonald’s isn’t a burger company.
They’re more like an ad agency and one of the biggest landlords in the world.
Steve Easterbrook’s comeback plan was great for the stock price, which soared.
But it was bad for smaller franchisees who couldn’t afford the costly renovations, or the thousands of dollars in new fees corporate started charging for all the upgraded tech.
That’s since gone up to over $17,000 per year. Plus, delivery apps were now taking a cut.
What has happened over time is the consolidation of franchisees.
People who have been running one or two locations, it just makes sense for them to either sell a franchise or become a part of a larger conglomerate.
Sanya: Another huge hit on franchisee profits? The beloved Dollar Menu.
Denise: It was wildly successful with customers, but it was killing franchisees who were suffering in all of the higher food costs and lower operating margins.
This left McDonald’s in a bind.
Customers want dollar menus and value meals, but the franchisees need to turn a profit on those items.
The CEOs and leaders of these large companies have an incentive to not want prices on the menus to be escalating because then they won’t be positioned as good value for a consumer.
And at the same time, franchisees are dealing with increased costs and trying to keep their prices at a certain level.
How does McDonald’s respond?
This is what I wanted to ask Chef Mike about. So, Chef, I thought we’d play a little game.
You have chicken tenders on your menu. Prices are going up for ingredients, prices are going up for labor. What do you do?
First thing we will look at is obviously the chicken source.
If I’m trying to cost optimize, maybe look at marination percent.
A cheaper cut of chicken will often get more marinade to improve flavor, tenderize the meat, and make the chicken appear bigger.
We are now also bulking it up with liquid salt.
Weighing it on a scale, you now have a bigger piece of chicken. So then that gives the perception of having more chicken per bite.
Sanya: Another thing a restaurant can do is make changes to the breading process. Couple different things we can do.
One would be, we just get as much breading as we possibly can on this of our current breading system.
Sanya: That’s flour, egg wash, and American-style breadcrumbs.
Mike: Maybe you do it twice. Maybe you press firmly on the breading to adhere more.
You know, the double pass. Maybe you switch to a batter or a flour system that, when it cooks, helps expand and kind of bulk up that chicken even more.
Sanya: This would make a more traditional fried chicken, like at Popeyes.
Another thing I could do: Japanese-style breadcrumbs, or panko, are much bigger particulates.
So when it is coated on the outside of a piece of chicken, it looks substantially bigger.
We fried up all the tenders to see which ones looked most expensive.
This tender looks bigger, right? But it’s actually the one with less chicken. The size is because it got extra breading.
While this tender looks smaller but has more chicken in it and would therefore cost more to make.
Mike: We want as much of that breading pickup as possible.
Sanya: The tender with the panko breadcrumbs looks even bigger, while this Popeyes-style tender looks the biggest. Again, mostly because of the breading.
Now, if we were a restaurant and we started with this piece of chicken one day and then I got this the next day, it is a drastically different piece.
You go to something like this where almost nobody would know the difference, you’re saving a substantial amount of money going that route.
Sanya: Chef Mike also showed me some cost-cutting techniques for burgers. One is the beef’s fat content.
This beef is leaner and more expensive. This one’s got more fat. We made 4-ounce patties and 4.2-ounce patties out of both and grilled them up.
And check this out.
This patty was made with 4.2 ounces of fattier beef, but it ended up making a smaller patty than the 4-ounce one made with leaner beef.
Turns out, fat cooks off on the grill.
That means if McDonald’s switched to fattier beef, your Quarter Pounder could end up being smaller, even though it technically started off as a quarter pound of beef.
The other cost-cutting strategy for burgers? Skimp on toppings.
Fluffier buns to disguise the smaller patties, fewer pickles, less sauce, shredded lettuce instead of leaves, and thinner slices of tomatoes and cheese.
Mike: For McDonald’s, that saves hundreds of thousands of dollars.
Sanya: Easterbrook’s plan didn’t just ruin McDonald’s food, it totally harshed the entire vibe. Bloated menus made wait times longer.
Installing the kiosks required removing seating from dining rooms, creating a blander, more sterile look.
And if you’re overwhelmed by all of these options and would rather just order with a human being, well, you’re out of luck.
So let’s see what the cheapest thing on the menu is.
Worst of all, nothing is $1 at McDonald’s anymore.
McChicken, $2, and then obviously drinks.
The real McValue is reserved for the shareholders.
After selling off the company’s stores, Easterbrook used the extra cash to pay $14.2 billion to shareholders in the form of dividends and stock buybacks.
Yum! Brands has also used this strategy. In this 2016 presentation to investors, they specifically said they would use cash from refranchising to pay shareholders.
In 2023 alone, the ten largest publicly traded fast-food companies spent $6.1 billion on stock buybacks.
Some Democratic senators have called out McDonald’s for its “textbook greedflation.”
McDonald’s insists they have no choice but to raise prices.
Food and packaging costs are up north of 40%. And you also have seen labor costs go up, pretty significantly across the country.
There’s significant increases in the state minimum wage.
Sanya: But as we’ve seen, the price of a Big Mac is not just about how much it costs to make it.
A 2024 Roosevelt Institute study found that McDonald’s charges their customers an 85% markup.
It doesn’t have to be that way. Look at In-N-Out.
Their prices haven’t gone up nearly as much as McDonald’s, and still, an In-N-Out store outsells a typical McDonald’s by roughly $2 million per year.
Denise: They’re pretty much serving kind of the same product. It’s, you know, a bun, a burger and some produce and condiments.
But McDonald’s is 95% franchise-owned, whereas In-N-Out is 100% company-owned.
Denise: Everyone who works at that restaurant works for In-N-Out, and is bought into the company and the systems and the brand.
Another big difference is menu diversification versus menu simplicity.
McDonald’s tries to be innovative, always introducing new menu items, new ingredients, different flavor profiles.
Sanya: Meanwhile, In-N-Out has a famously small menu, keeping operational costs down.
McDonald’s also spends a lot on ads and celebrity partnerships.
I suggest you go get a Big Mac.
What’s In-N-Out’s marketing strategy?
Denise: The long lines of cars out of their drive-thru.
Sanya: Finally, McDonald’s is publicly traded.
While In-N-Out isn’t beholden to shareholders, allowing them to stay focused on their values.
They only open restaurants that are within a day’s drive of their distribution centers.
In-N-Out has purposely chosen to limit its growth in order to provide that quality product, whereas McDonald’s has really expanded as far and as fast as they can.
Sanya: And instead of stock buybacks, In-N-Out reinvests their profits into their employees, offering higher wages and benefits.
We can’t force McDonald’s to value their workers and customers, but progressive Democrats are looking for ways to stop corporations from maximizing shareholder profits at our expense.
This bill would disincentivize stock buybacks by quadrupling the tax on them. And it would outlaw one of the sneaky ways executives profit off of them.
For better or worse, a lot of working families rely on fast food from time to time. It should make life easier for us and ideally, be fun.
Cause say what you will about McDonald’s, but they do make a delicious French fry.
Editor’s Note: At a moment when the once vaunted model of responsible journalism is overwhelmingly the play thing of self-serving billionaires and their corporate scribes, alternatives of integrity are desperately needed, and ScheerPost is one of them. Please support our independent journalism by contributing to our online donation platform, Network for Good, or send a check to our new PO Box. We can’t thank you enough, and promise to keep bringing you this kind of vital news.
You can also make a donation to our PayPal or subscribe to our Patreon.