U.S. fast-food chains report fatter margins as cheese, chicken, avocado costs fall
[1/3]The McDonald’s logo is seen outside the fast-food chain McDonald’s in New York, U.S., October 22, 2019. REUTERS/Shannon Stapleton/File Photo
July 27 (Reuters) – Major U.S. restaurant chains including burger giant McDonald’s (MCD.N) saw lower ingredient costs, especially for chicken, cheese and avocado, drive profit margins in the second quarter.
Domino’s (DPZ.N), McDonald’s and Chipotle (CMG.N) said they were starting to benefit from easing costs after red-hot inflation forced them to raise menu prices a few quarters ago.
Wholesale prices have been falling sharply in recent months, according to U.S. federal data. Cost inputs for food for final demand grew at a year-over-year rate of 0.3% in June, down from a peak of 15% in late 2022.
The change could prompt some fast-food chains to lower prices later this year.
“As we head into the back half of the year … (and) as inflation begins to come down, I would certainly expect our pricing levels to also start to come down,” McDonald’s CFO Ian Borden said on a post-earnings call on Thursday.
McDonald’s sharply raised prices on its burgers and fries in 2021, pushing it up by about 6% versus 2020. That compares to an industry average of an annual 2% increase for prior years.
A Big Mac Meal now costs $10.43 at a New York location, while a chicken burrito bowl at Chipotle is priced at $10.95, and a medium cheese pizza at Domino’s costs $12.49.
Lower cheese prices helped pizza giant Domino’s (DPZ.N) to report a better-than-expected quarterly profit on Monday.
“If the current level of food basket deflation that happened in Q2 continues … we should continue to see material upside on the food basket as we go through the balance of the year,” Domino’s CFO Sandeep Reddy said on a post-earnings call on Monday.
“This makes a huge difference to profitability of our franchisee. And I think that helps repair some of the pressure that they took last year in their profitability,” Reddy said.
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