The Real Reason McDonald's Is So Cheap
Most people have eaten at McDonald's at least once in their lives and can attest to the restaurant's low prices. Currently, you can find about 10 food items on their $1 $2 $3 Dollar Menu at participating locations. You can also buy a Happy Meal for under four bucks.
Although prices vary from store to store, McDonald's is still considered one of the least expensive fast food restaurants in the world, with locations in more than 115 countries and territories (via Britannica).
But have you ever wondered why McDonald's is so cheap and how they manage to stay in business? Not that anyone is complaining. After all, everyone can appreciate the low price of fast food every once in a while when they're in a rush and on a budget.
How is McDonald's so cheap? The fast food chain has many ways of cutting costs, making a profit, and earning revenue.
They buy in bulk to save money on ingredients
Thanks to wholesale stores like Sam's Club and Costco, most consumers understand the benefits of buying in bulk. McDonald's buys its ingredients in bulk from nearly a dozen suppliers. Since they have more than 36,000 locations around the world, they can certainly buy a ton of ingredients at once.
While buying in bulk can be expensive up-front, you'll be saving more money per product (via U.S. News). It may not be a significant amount of savings, but it can add up over time, especially if it's a product you use frequently. Buying in bulk also helps save money in food preparation and the amount of necessary trips to the store.
The same concept applies to McDonald's when they buy in bulk, which is the world's single largest purchaser of beef, potatoes, and lettuce (via CBC News). This enables them to sell their food for low prices and still make a profit.
They sell profitable food
Since McDonald's buys their food in bulk at low prices, they easily increase their profit margins every day because they sell so much food, and demand is always high (via Macrotrends). After buying its inexpensive ingredients, the restaurant sells food and beverage items with a larger price tag to make a profit. But the price is still relatively cheap to consumers, compared to the prices of other fast food restaurants.
The ever-popular Big Mac is another example of a profitable item. When you add up the costs for those two all-beef patties, special sauce, lettuce, pickles, onions, and a sesame seed bun, you'd be looking at about $0.77 per Big Mac, but the menu price averages around $4. McDonald's sells about 550 million Big Macs in the U.S. annually, and 1.5 million Big Macs per day (via Finances Online), so that's an estimated $1.65 billion profit every year.
They keep employee wages low and make money from franchises
Fast food restaurants don't pay that much, and McDonald's is no exception. In fact, the average full-time fast food employee in the U.S. makes about $9.54 per hour (via Payscale). In response to employee complaints, McDonald's plans to raise hourly wages for its employees to $15 an hour by 2024, according to The New York Times. However, these raises only apply to McDonald's 650 company-owned restaurants. This leaves 95% of the chain's nearly 14,000 independently-owned franchises out in the dust.
McDonald's purchases low-priced restaurant spaces and leases them out to franchisees at large markups with strict franchise policies. Plus, they charge a start-up fee of $45,000 and 4% of the restaurant's sales every month (via Investopedia), leaving many franchise owners with small profits.
With all these cost-cutting, revenue-making, profit-earning tactics, McDonald's stands as one of the largest restaurants in the world (via Verdict Food Service). This has allowed them to continue keeping their food cheap, so you'll keep coming back.