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March 21, 2007

McDonald's Pricing

A cheeseburger at McDonald's is 99 cents. A double cheeseburger is...100 cents. I can't figure out how this is economically advantageous for McDonald's, and nor are any of my friend's explanations proving persuasive. Current theses:

  1. They're not undercharging for double cheeseburgers, they're overcharging for single cheeseburgers. They make their profit off folks who don't notice the double.
  2. People like feeling like they're getting a deal. This makes them feel that way.
  3. It's some sort of promotion.
  4. The marginal cost of producing the extra patty is so minor that a penny is actually a huge profit.
  5. I should stop thinking so much about fast food pricing schemes, particularly since I eat very little fast food.

Any better ideas?

March 21, 2007 | Permalink

Comments

With fast food, the trail always leads to the sodas and fries. That's where they make their money. So ask yourself, is there anything about selling a double cheeseburger for $1.00 (probably less than they could normally get for it) that would lead people to buy more fries and Cokes?

(Hint: Very few people order just a burger off of the value menu. Most order a full meal. But no one likes to have to get two sandwiches.)

Posted by: Joe | Mar 21, 2007 6:05:37 PM

I think this is the breakdown for each transaction:

Single cheeseburger:
employee salaries - 5 cents
bun - 2 cents
cheese - 1 cent
pickles, ketchup, mustard - 1 cent
meat - 1 cent
McDonald's advertising budget - 89 cents

Double cheeseburger:
employee salaries - 5 cents
bun - 2 cents
cheese - 1 cent
pickles, ketchup, mustard - 1 cent
meat - 2 cents
McDonald's advertising budget - 89 cents

Posted by: thehim | Mar 21, 2007 6:09:30 PM

A McDonald's double burger is fucking disgusting. A single burger is merely mediocre. Which makes the single burger a better deal. I would actually pay no less than $0.25 more for the single, which has so much less shitty pseudo-meat to make me feel queasy.

That said, Joe is 100% right.

Posted by: JRoth | Mar 21, 2007 6:09:35 PM

I don't know either but here are some anti-capitalists analyzing mcdonald's strategy on the basis of hour long cop shows:


A key change - initiated around 1998 when the company’s reform programme began -
is the prominence of breakfast items on the menu. Sales from 5am-11am in the US
amount to around 30% of a typical day’s sales. Eating breakfast out is a big
deal in US cities, much more than in Europe. It tells you a lot about the
structure of the working day on the other side of the Atlantic. Careful
watchers of US TV series like NYPD Blue will notice that suspects, when
questioned, always left their house “around 6.45am” or “7am”. Of course there
are many European workers who leave home at these early hours, but many
millions who typically start their day at 9am and leave not before 8am.

Posted by: joeo | Mar 21, 2007 6:10:19 PM

#2, plus throw in low marginal cost for the extra patty and a desire to encourage bad eating habits.

Posted by: Tyler Cowen | Mar 21, 2007 6:15:22 PM

I love McDonalds. The food is delicious. Anyone who disagrees is deluded. If it wasn't delicious, millions, check that, billions of people would not be eating it regularly. This is beyond bipartisan support. Just bite into a Big Mac. Yum. And those fries. Little bits of heaven. As for the single or double burgers off the dollar menu, those are nice to supplement your meals if you're really hungry.

Posted by: DarkWing | Mar 21, 2007 6:23:07 PM

I've thought about this before as well...is that sad?

Generally speaking, you go into a MCd and you can get a regular cheeseburger within 45 seconds give or take (assuming no line). However, assembling a double cheesburge seems to be some kind of awe inspiring challenge and so takes (by my estimation) at leat 1 to 3 times as long to ready. In fact, on occasion they'll have you pull over (if you're in the drive thru) to a spot so they can bring it out to you because of the wait.

I don't know what this means other than perhaps there is some sort of opportunity cost associated with getting a slightly smaller burger in less time than you could get a slightly bigger burger (since the fiscal costs are essentially the same).

Posted by: Mike P | Mar 21, 2007 6:58:35 PM

Sorry, DW, I'm not disparaging all McD food - but the dble burger and the 1/4er are both sickening (actually threw up a 1/4er once, at a time when I ate McD regularly). But I won't deny that the fries and Big Mac are fairly enjoyable.

Mostly, tho, I don't put a lot of stock in the food tastes of a public that allows the inventor of Fluff to walk the streets a free man.

Posted by: JRoth | Mar 21, 2007 7:15:28 PM

They're making the profit on the person ordering the single patty thinking they're somehow being healthier by doing so. In order to be more "health conscious", this person becomes less sentative to the fact they're getting hosed.

Posted by: DM | Mar 21, 2007 7:18:18 PM

Why you down on McDonalds? You can get a double cheese burg, and 2 fries for $3. Oh, and I know full well that the food is fattening.

If I get fat, I wonder if John Edwards will represent me when I sue?

I'm lovin it!

Posted by: Captain Toke | Mar 21, 2007 7:20:45 PM

The single and double are actually different creatures -- the single is assembled at the McD's and involves some actual cooking on-site. The double is pulled out of a sleeve and microwaved, bun, cheese, meat, and all. So the double is larger, worse, and involves less preparation, and is therefore about equivalent to the single.

Which is to say, you don't eat a lot of fast food. :)

Posted by: Kimmitt | Mar 21, 2007 7:24:40 PM

In KC a single cheeseburger costs $.79, while the double cheese burger is still $1.00. This is just a case of one hand not knowing what the other is doing. McD's allows regional - even franchisee specific - pricing on its menu items. However, the Dollar Menu is nationwide and requires, as per the name, prices of one dollar.

Posted by: Stephen | Mar 21, 2007 7:29:03 PM

maybe there is a kickback from astra-zeneca on each big mac sold...as it will be leading to another lifetime consumer of the little purple pill.
yum. a big mac, an order of fries and some fluff for dessert with a prilosec on top.
...soon maybe they will have prilosec and plavix dispensers next to the napkin holders at mcdonalds....

Posted by: jacqueline | Mar 21, 2007 7:29:46 PM

The profit is in the fries and softdrink, as joe sez.

For a (short) while, they were preparing food to order - as Wendy's does - and the burgers weren't too bad. But most are first fried to within an inch of their lives, then put in a holding cell, then assembled into a sandwich (with only one meat portion), and put into the sandwich holding cell, until you order. Quick response to order. Now if you want a double meat portion, it must go back to kitchen for another meat, or build a new sandwich, which takes longer. Longer wait time.

For some reason, McD's food usually tastes the way you'd expect it to if you prepared it hours before eating. Why they do this is a mystery to me.

But I have to say that occasionally I do go there and get a quarter-pounder with cheese (less vile, almost tasty with a unique, addicting flavor) than a single or double cheeseburger). But I NEVER order the full meal, thus thwarting their profit making.

Mikey D's is the American way of fast food, in the manner of the Japanese car of the post-war period when all they worried about was getting something to sell. Then some US guru taught them quality, and they beat the crap out of US companies. Mickey D has never learned that lesson, so they are making food that fits our 'productive' lifestyle - quick and cheap.

Now why the rest of the world (especially the EU) wants to eat this is another mystery.

But the store owners, worldwide, know that their profit comes from cokes and fries, not the sandwich, and certainly not the sandwich costs or taste.

Posted by: JimPortlandOR | Mar 21, 2007 7:44:44 PM

The profit is in the fries and softdrink, as joe sez.

For a (short) while, they were preparing food to order - as Wendy's does - and the burgers weren't too bad. But most are first fried to within an inch of their lives, then put in a holding cell, then assembled into a sandwich (with only one meat portion), and put into the sandwich holding cell, until you order. Quick response to order. Now if you want a double meat portion, it must go back to kitchen for another meat, or build a new sandwich, which takes longer. Longer wait time.

For some reason, McD's food usually tastes the way you'd expect it to if you prepared it hours before eating. Why they do this is a mystery to me.

But I have to say that occasionally I do go there and get a quarter-pounder with cheese (less vile, almost tasty with a unique, addicting flavor) than a single or double cheeseburger). But I NEVER order the full meal, thus thwarting their profit making.

Mikey D's is the American way of fast food, in the manner of the Japanese car of the post-war period when all they worried about was getting something to sell. Then some US guru taught them quality, and they beat the crap out of US companies. Mickey D has never learned that lesson, so they are making food that fits our 'productive' lifestyle - quick and cheap.

Now why the rest of the world (especially the EU) wants to eat this is another mystery.

But the store owners, worldwide, know that their profit comes from cokes and fries, not the sandwich, and certainly not the sandwich costs or taste.

Posted by: JimPortlandOR | Mar 21, 2007 7:45:01 PM

Perhaps the perceived bargain of the double causes people to be more likely to go to McDonald’s and order a meal in the first place. And, as has been pointed out, the profit’s really in the soda and fries, so simply getting people to the building is really the goal.

Posted by: scott | Mar 21, 2007 7:51:14 PM

Fluff is: Corn syrup, sugar syrup, vanilla flavor, and egg white.

That's really not all that bad, folks. Comparing it to a McDonald's Mcgristle patty and order of McTransfat Fries is a bit extreme.

Posted by: Stephen | Mar 21, 2007 7:59:57 PM

Maybe it's just me, but I DON'T like their doulbe-cheeseburgers, but LOVE their single cheeseburger. When I go (once a month maybe) it's 2 cheeseburgers, a large fry and a cup of coffee.

Posted by: Fred | Mar 21, 2007 8:28:54 PM

In actuality I suspect that the price of a double cheeseburger isn't much more than the price of a single - you'd think that the meat was the most expensive part of a burger, but really the most expensive part is the overall overhead for the whole operation. The difference in cost between one patty and two is probably minuscule in the big picture. I know that they've changed how the line works since I worked there, but we probably threw enough single burgers away during the course of the day to make every burger we sold over the day into a double cheeseburger anyway and those just went into the garbage. Now that they don't put the burgers together until you order them and keep the meat in their little "meat warmers", they probably don't throw as much away at the end of the day but can use those "extra" patties on the doubles instead.

I suspect that McD's finally had to give into the pressure that Wendy's has been putting on them for years and pony up with a "value menu" like Wendy's has. They looked around for burgers on their menu they could price at $1 to compete with Wendy's bacon cheeseburger and "deluxe" cheeseburger and decided to drop the price of the double to offer something comparable.

Posted by: NonyNony | Mar 21, 2007 8:29:51 PM

stephen..

when one can easily recite the contents in a jar of Fluff, then we know there are little feet around your house!

what could be better than fluff and nutella on whole wheat bread (keeping it healthy!) with a colorful rerun of "dora the explorer"...the "fastest" fast food...trip to the pantry, knife and paper towel!

Posted by: jacqueline | Mar 21, 2007 9:15:24 PM

Some ideas:

The kind of person who orders a double cheeseburger is likely to be a volume purchaser who also goes for the upsell on supersized drink and fries.

The single cheeseburger is vastly more popular, so they were able to raise the price.

It's a simple reflection of the fact that the meat is the least expensive single piece of your McDonalds meal, and that includes the bag and receipt.

Posted by: Sifu Tweety | Mar 21, 2007 9:37:02 PM

I think Stephen's probably most onto the discrepancy - in major northeastern cities, cost of labor and real estate etc pushes the "valuie menu" pricing up. I've paid 5 bucks for a meal in the suburbs that costs me 8-10 in the cities. Wendy's and BK have the same issues, so it's probably about an absolute of what the markets will bear. If anything, the socially conscious might feel better in the more expensive zone - it means that workers are making well over the minimum wage in most cases, because shortage of labor and cost of living have pulled their salaries up.

As for those who want to pronounce themselves too good for fast food, well... you still have that whole "vegetarians are effeminate" thing to deal with. Nobody says that about the guys ordering the cheeseburgers. :)

Posted by: weboy | Mar 21, 2007 9:43:54 PM

I quit eating hamburgers 22 years ago, after an e coli outbreak compelled Wendy's to cook their burgers to a state of dryness. I tried soyburgers and haven't gone back once. I make myself a double with whole wheat bun, mayonaise, pickle slice, tomato slice, onions and lettuce. Yum. I noticed I felt better generally and had colds less often.

Posted by: James Pratt | Mar 21, 2007 9:51:15 PM

I wonder how much they'd charge for a 100-patty cheeseburger?

http://supersizedmeals.com/food/article.php/20060125050438458

Of course, In 'n' Out burgers are much better quality.

Posted by: Susan | Mar 21, 2007 10:24:49 PM

This has only convinced me to continue eating stuff like Qdoba's burritos (which double as a club in case of emergency) or Taco Bueno stuff. Notably, Taco Bueno has a meal that's two small tacos, a small burrito, and a drink for 2.99. If I'm strapped for cash, I'm taking that deal. There are so many other options besides McBastards. And I say this as a Southerner at heart. It's not like I'm big on healthy and sterile food. I tend to agree with Anthony Bourdain: meat is good and people can withstand natural conditions. I think of it as oral inoculation.

Posted by: Glenn Fayard | Mar 21, 2007 10:30:10 PM

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