In July 2013, IBIS World reported that fast food sales in the United States generate an average of $191 billion per year in revenues. There are nearly 150,000 fast food restaurants in the country, employing more than 3.6 million workers. While the industry remains strong, a number of economic factors can have a significant impact on the bottom line.
Many fast food workers receive hourly rates at or slightly above the national minimum wage. Activist groups across the country are fighting to raise the minimum wage, claiming that employees cannot live on such low pay even working 40 hours a week. If a sharp increase in employee pay is mandated, this could result in a drastic hit to fast food company profits, menu prices or both.
When fuel prices rise, suppliers charge fast food restaurants higher prices for essential items to cover the increase in transportation costs. This often results in higher menu prices for customers, as restaurants need to realize a certain profit margin to cover operating expenses.
Economic downturns affect the restaurant industry, but fast food restaurants are less impacted because many people substitute fast food restaurants for more upscale choices. In 2010, "The Economist" reported that fast food chains were able to handle the 2008 recession better than pricier competitors. Many consumers opt for more affordable dining options during a recession, to better fit a smaller budget.
Price of Key Ingredients
When the price to purchase necessary ingredients to make fast food menu items rises, restaurants usually absorb the costs, as increases are often temporary. This can majorly impact bottom line profits even if high prices only last for a short period of time. However, if increases show no signs of dropping, many companies are forced to raise menu prices for customers. For example, in 2011 the "Orange County Register" reported that Southern California fast food chain In-N-Out burger was forced to raise prices for the third time since 2008 due to increasing beef prices.
- IBIS World: Fast Food Restaurants in the US - Market Research Report
- Orange County Register: Soaring Food Costs Trigger Menu Price Increases
- The Economist: The Changes Facing Fast Food - Good and Hungry
- U.S. Bureau of Labor Statistics: Food and Beverage Serving and Related Workers
- United States Department of Labor: Wage and Hour Division (WHD)
- LA Times: Impact of Fast-Food Minimum Wage Boost - Experts Face Off
- Stockbyte/Stockbyte/Getty Images