Wall Street analyst explains why McDonald’s has hiked prices by 30% compared to Chipotle’s ‘low single digit’ increases

The cost of fast food has skyrocketed in recent years, but some restaurants have raised prices much faster than others.

That’s what Sara Senatore, analyst at Bank of America, says By Monday, rising labor costs had hit all chains — especially in California, which now has a minimum wage of $20 an hour.

But she said there were different fortunes among chains in terms of their ingredient costs: McDonald’s was hit hard by high beef prices, but Chipotle had benefited from cheaper avocados.

Over the past decade, fast food prices at every fast food restaurant have exceeded official inflation rates Financial buzz. It turned out that McDonald’s was the worst, with prices doubling.

In the past three years alone, Senatore – which specializes in hamburger, pizza and coffee chains – said McDonald’s menu prices have increased by 30 percent.

“Anyone exposed to beef was in a particularly difficult situation,” she says told CNBC.

Over the past decade, McDonald’s has raised prices faster than any other fast-food chain. The photo shows a customer picking up drinks at a drive-through in California in 2003

Over the past decade, the average cost of an assortment of typical menu items at McDonald’s has doubled. The photo shows the items that have increased in price the most

However, she called the increases “warranted” and noted that profit margins at individual restaurants have remained relatively flat.

“If you look at the restaurant-level margins of the franchisees, they’re not really high right now,” she added.

But she also warned that such an aggressive price increase is risky because McDonald’s targets many lower-income consumers. With consumers coming under increasing financial pressure, the coming year could be tough, she said.

“They have a lower-income consumer to think about,” she said. “This is going to be a tough year.”

McDonald’s will report its first-quarter 2024 earnings on Tuesday morning – when it will report earnings and provide guidance on any further price increases.

Senatore said that compared to McDonald’s, other restaurants like Chipotle have managed to keep prices in check.

She said recent price increases at Chipotle have been in “low single digits” percentages. She said the company triggered inflation by becoming more efficient and increasing the number of customers it serves per hour.

The Mexican food chain has also benefited from a drop in avocado prices over the past year.

Chipotle is one of the best-performing restaurant chains in the industry, surpassing Wall Street expectations last week after reporting strong quarterly sales thanks to increased traffic to its restaurants.

The stock price is currently hovering around an all-time high and was up more than 40 percent on Monday to about $3,212.

Chipotle raised the price of menu items less than many other chains last year, thanks in part to the lower price of avocados

Senatore said that despite Starbucks’ reputation, it “underpriced” the rest of the industry

Similarly, Senatore said Bank of America gave Starbucks stock a buy rating.

She said that despite the chain’s reputation for being expensive, it has been “underpricing” the rest of the fast food industry recently.

“People look at their latte or blended drink and think this is expensive,” Senatore said.

“A big part of the reason why it has risen so much is that people are choosing to adapt. Either they get bigger sizes, or they add syrup.’

A recent study mapped the cost of Starbucks coffee across the country and found that coffee drinkers in Maine pay an average of $1.30 less per drink than those in neighboring Vermont.

Finally, Senatore pointed out that Domino’s strong performance lately is due to cash-strapped consumers looking for cheap food.

“At a time when people are cutting corners, pizza is a great way to feed a family,” she said. “You really can’t do it for less than that.”

McDonald’s says prices are set by local franchises and vary by restaurant.