McDonald's prices vary by location. In many ways, the chain's franchisees price their items in the same way gas stations set their prices.
The costs of their food and labor as well as rent and other overhead factor in heavily. That leads to situations where people take a menu picture in a McDonald's in an airport to show an outrageous price for a Big Mac.
Related: McDonald's menu makes a huge Happy Meal change
What those people aren't showing you is that the Starbucks next door to the McDonald's MCD also charges prices much higher than at a normal store. In many, it's like showing a picture of a rural California gas station selling gas at a price that's double (or higher) than the national average.
You see the same thing on the Las Vegas Strip, where inflated rents, high labor costs and the difficulty of getting inventory trucked and flown to the location lead to higher prices. An $8 latte isn't uncommon on the Strip, and fast-food chains generally have inflated prices as well.
That has happened to McDonald's, where social-media images of bespoke menu prices have led to customer outrage.
In addition, the chain has also seen multiple media outlets take comments that Chief Executive Chris Kempczinski made about higher prices in one specific market for a very specific reason to mean that the chain plans higher prices all around.
Image source: Shutterstock
McDonald's has a California problem
McDonald's and rivals including Burger King and Wendy's face a unique situation in California, which has passed a $20 fast-food minimum wage. That led Kempczinski to discuss the situation during his chain's third-quarter-earnings call.
"California, with the passage of the recent legislation, ... there is going to be a wage impact for our California franchisees. I don't think at this point we can say exactly how much of that is going to work its way through pricing," he said.
The McDonald's CEO said the company and its franchisees would have to address higher wages in that market and hinted at automation as a potential solution.
(About 93% of McDonald's outlets world-wide are franchise-owned.)
"Certainly, there's going to be some element of that that does need to be worked through with higher pricing. There's also going to be things that I know the franchisees and our teams there are going to be looking around productivity," he added.
Here's how McDonald's sets prices
Value remains a key part of McDonald's proposition. Chief Financial Officer Ian Borden addressed the issue on the call.
"It's clear that our customers continue to seek reasonably priced meals as rising costs persist and our markets around the world continue to respond," he said.
Kempczinski explained how his company handles pricing.
"How we do it varies by market. So I wouldn't give you a generalized statement about how we approach value. It's up to each individual market to think about how they continue to deliver the customer great value," he said.
The CEO said select price increases have been put in place, but he also outlined how McDonald's prices its menu relative to rivals like Wendy's and Burger King.
I think certainly given the inflation that the market has experienced, that we've experienced over the last year, really more than the year, we've tried to be very choiceful and disciplined on how we have executed those price increases. And the good news is we continue to lead on affordability. We continue to lead on value for money. We've seen no deterioration in our advantages there. We are holding those up.
Borden also noted that higher prices on select items have not affected McDonald's value offerings in the U.S.
"The D123 Everyday Value Menu in the U.S. takes a similar approach to affordable bundles with nationally promoted products at locally relevant price points," he said.
"The platform features products such as the McDouble or four-piece McNuggets. With a bundle offered at each day part, customers can visit McDonald's for an affordable meal no matter the time of day."
That menu offers select items at the $1, $2, and $3 price points.
"And while prices have evolved over time, the featured products have remained the same, providing customers with their familiar favorites from our core menu," he added.
"This consistency in our value offerings means customers know exactly what to expect every time they visit us, driving our strong position as the affordability leader in the market."
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