McDonald's China has adjusted product prices for the second time in 2023.
On December 27th, McDonald's China told Interface News that it had adjusted some product prices based on recent changes in operating costs, with an average increase of about 3%. The prices have been clearly marked on various ordering channels.
Interface News: According to the McDonald's online ordering system, most hamburger snacks have seen price increases ranging from 0.5 yuan to 2 yuan. For example, in some stores, the price of the "Plate Roasted Chicken Leg Burger Set" has increased from 34 yuan to 34.5 yuan, the price of the "Maixiang Chicken Set" has increased from 25 yuan to 27 yuan, and the original price of Mai Spicy Chicken Wings is 13.5 yuan, but now it is 14 yuan. In addition, member packages such as the "Double layered Deep Sea Cod Four Piece Set" have also increased in price by 1 yuan.
McDonald's China products that have already increased in price (McDonald's ordering app)
In fact, McDonald's China has already raised prices once in early 2023. On January 5th, McDonald's "1+1 with your heart" increased from 12.9 yuan to 13.9 yuan; The brand stated at the time that due to the ongoing impact of the epidemic on various costs, the prices of some individual items and packages offered by dine in and McLehose have been adjusted.
In recent years, McDonald's has adjusted its product prices in the Chinese market almost every other year. In December 2021, McDonald's adjusted the price of "1+1 on the go" from 12 yuan to 12.9 yuan; The reason given is also due to changes in raw materials and operating costs, and the price structure will be adjusted regularly. Some meal prices have increased by 0.5-2 yuan.
However, in the recent price adjustment, many consumers have been concerned about the "poor package", which means the price of "1+1 as you please" remains unchanged.
The cost of large chain restaurants such as McDonald's is indeed constantly increasing.
One reference data is that KFC's parent company Yum! Brands China's third quarter financial report shows that the company's food and packaging costs increased by 9% year-on-year, property rent increased by 6%, and salary and employee benefits increased by 16%.
Under cost pressure, KFC has also adjusted its prices. In 2021, KFC had three price increases, ranging from 1 yuan to 2 yuan; In December 2022, it adjusted the prices of multiple products under its umbrella, including breakfast packages, French fries, and burgers, all with varying degrees of price increases of 0.5-2 yuan.
Generally speaking, the operating costs of chain restaurants include expenses such as raw materials, rent, employees, equipment, water and electricity, and losses; For example, Haidilao's financial report pointed out that the main sources of expenses are the cost of raw materials and consumables, as well as the cost of employees.
In terms of raw material costs, taking the most common chicken in McDonald's and KFC menus as an example, since the beginning of this year, the prices of Chinese white feathered chicken seedlings and broilers have skyrocketed.
The latest data from the Ministry of Agriculture and Rural Affairs of China shows that the average price of chicken in China in the first half of 2023 was 24.32 yuan per kilogram, a year-on-year increase of 6.5%. The report from Minsheng Securities also shows that the spread of avian influenza overseas has constrained the introduction of Chinese white chicken ancestors and the import of chicken, while the recovery of demand side catering consumption has driven chicken consumption. Under the tight supply and demand, chicken prices continue to rise.
In addition to Western fast food, the phenomenon of price increases under cost pressure is also widely reflected in the food and catering industry. Consumers have a more direct sense of body, with topics such as "can't afford a duck neck with a monthly salary of ten thousand" and "can't afford bread with a monthly salary of ten thousand" constantly trending on Weibo.
For example, in early 2022, Juewei Food raised the prices of some products by 5%. In July of the same year, it further adjusted the prices of certain categories such as duck feet, with an average price increase of 7% -10%. In a performance announcement released on April 13, 2023, Juewei Food stated that raw material prices are still at a high level and the future trend of changes is not yet clear.
And Huang Shanghuang's financial report for the first half of 2023 also stated that the market prices of the company's main raw materials, such as duck feet, duck wings, duck necks and other related duck by-products, have significantly increased. Among them, the highest price for duck feet has risen to 37.60 yuan/kg, duck wings to 19.80 yuan/kg, and duck necks to 27.80 yuan/kg.
Compared with companies such as Juewei Food, McDonald's China is still able to control the price increase within the range of 0.5-2 yuan, relying on its supply chain foundation. McDonald's suppliers in China are all top companies in various sub sectors, such as chicken suppliers Tyson, Cargill, and Saint Nong, and potato supplier Simplo.
McDonald's China has revealed that it purchases nearly 300 types of ingredients each year, with over two-thirds of the purchases coming from these top suppliers. They have a certain scale advantage, so their ability to resist cost changes is relatively strong.
Of course, from the perspective of consumer perception, many brands have also become "cheaper" this year.
For example, Hema, Liangpin Shop, Hefu Lo mein, Meet Small Noodles and other kinds of online red noodles. However, from a market perspective, most of these price reducing brands were born during the period of "consumer upgrading". In order to create brand tone, their costs are more reflected in store location selection, brand promotion, and other aspects. Choosing to return to the mainstream price band now is a coping strategy to adapt to changes in the consumer environment.
But for Western style chain fast food, its target audience is price sensitive.
Therefore, how to retain consumers while combating cost pressures is a challenge that brands such as McDonald's need to solve today.
At present, McDonald's China's strategy is still to "sell packages". In the past, its "1+1 on-demand" package was called a highly cost-effective "poor guy package" by consumers because it only costs 10-13 yuan to eat a hamburger and a snack.
At the same time, McDonald's China has also increased its efforts to launch such packages. The company told Interface News that there will be new promotional activities launched every month in the near future, such as limited time discounts such as "half price for the second portion" and "buy one get one free for the first bucket of gold in the new year" for designated packages.
In fact, a package is actually a bundled sales model that can increase the number of products purchased by consumers to increase the unit price; It can also help consumers place orders quickly to reduce the difficulty of ordering or reduce hesitation time, in order to prevent consumer churn; Setting up packages can also reduce consumer price sensitivity towards individual products and reduce price comparisons.
Not only McDonald's, the "Poor Man Package" has become a standard feature in large chain restaurants such as KFC, Starbucks, and Burger King.
In addition, McDonald's is also making efforts to shout in the live broadcast room.
In McDonald's live streaming rooms, its product strategy also focuses on classic product packages, and around them, it introduces 10 single product cards/coupons and packages priced around 20 yuan per person - this package is priced in line with the current mainstream fast food price range in China. On the evening of this year's Double Eleven on Taobao, McDonald's launched a 5-6 person package priced at 112 yuan, selling over 20000 copies.
Screenshots of McDonald's and KFC live rooms
Catering brands can further drive store consumption, increase user stickiness, and increase repeat purchase rates by hoarding cards with low profits and high sales. With the bundled sales model of "package/multiple card", chain catering brands can also increase the number of products purchased by consumers to increase the average order value.
The fundamental purpose of these actions is to reduce consumer price sensitivity towards individual products.
However, it is worth noting that while McDonald's prices have increased, local competitors such as Chinese style burgers such as Tustin, which have lower unit prices, are expanding at full speed. According to narrow door data, as of the end of December 2023, Tastin has 6619 stores nationwide, with nearly half of them located in third tier and below cities. The per capita consumption is 16.49 yuan, significantly lower than McDonald's package prices.
At present, both sides have arrived at each other's hinterland.
Tastin is constantly expanding into first and second tier cities, and currently has 30% of its stores in first tier and new first tier cities; McDonald's, on the other hand, continues to sink. Currently, 50% of McDonald's total stores in China are located in third - and fourth tier cities, with new stores accounting for half of each in high and low tier cities. McDonald's China CEO Zhang Jiayin previously stated that outside of first and second tier cities, the lower tier market will be a key area for McDonald's deployment.
Although McDonald's is constantly launching various promotional activities and packages while raising prices, consumers who are more price sensitive may flow towards brands such as Chinese burgers.
In fact, every price increase at McDonald's in the past has caused many netizens to question it.
Zhang Jiayin once explained that compared to many global markets of McDonald's, the cost of food inflation in the Chinese market is very well controlled, and it is best to digest inflation through scale, so the price increase is also small.
At present, McDonald's is still increasing its investment in the Chinese market. Since the beginning of this year, McDonald's China has emphasized the goal of ten thousand stores on multiple occasions. On December 6th, McDonald's CEO Chris Kempczinski mentioned again in an interview that the company plans to increase the number of restaurants in China from 6000 to 10000 by 2028.
Balancing the trend of profit and consumption downgrading in the changing economic cycle will also be a long-term challenge for brands.