McDonalds and Supply vs Demand
As the largest fast food chain in the world, McDonald's pulls in a lot of revenue from its services. However, this does not mean that the companies can ignore the basic principles of maximizing sales and minimizing costs. As a result, McDonald's menu has changed multiple times in meet such principles.
In 2013, McDonald's cut one-third pound Angus burgers because the price of the burger was seen as too premium. As we learned in class, the Supply vs. Demand curve dictates that too high of a price creates a surplus due to decreased demand. In order for a company to maximize its revenue, it must minimize inefficient costs. Because of decreasing sales, McDonald's determined that the item was inefficient, thus removing it from its menu.
The McRib is another menu that has an interesting history: it has been sold periodically for short periods since its initial introduction in 1981. According to Elaine Schwartz from Econlife, she believes that this can be explained with the concept that we learned in class - marginal utility. When the McRib is first reintroduced, the excitement of it being new leads to heightened sales. However, as time goes on, every purchase of the burger is less and less exciting, which ultimately leads to decreased sales and the temporary discontinuation of the McRib.
One key take away from McDonald's menu history is the advent of change from the study of supply and demand. For instance, although the one-third pound Angus burger was removed, the Mushroom and Swiss burger - a slightly cheaper, more appealing option - took its place. In order to keep up with changing demands, companies must change the goods that they supply. This adaptation not only benefits producers but also benefits consumers, as it allows them to purchase new and appealing goods - something that I think everyone can enjoy.
Sources:
http://business.time.com/2013/05/10/mcdonalds-removes-angus-burgers-as-it-tries-to-reverse-declining-sales/
https://econlife.com/2017/04/mcrib-supply-and-demand/
In 2013, McDonald's cut one-third pound Angus burgers because the price of the burger was seen as too premium. As we learned in class, the Supply vs. Demand curve dictates that too high of a price creates a surplus due to decreased demand. In order for a company to maximize its revenue, it must minimize inefficient costs. Because of decreasing sales, McDonald's determined that the item was inefficient, thus removing it from its menu.
The McRib is another menu that has an interesting history: it has been sold periodically for short periods since its initial introduction in 1981. According to Elaine Schwartz from Econlife, she believes that this can be explained with the concept that we learned in class - marginal utility. When the McRib is first reintroduced, the excitement of it being new leads to heightened sales. However, as time goes on, every purchase of the burger is less and less exciting, which ultimately leads to decreased sales and the temporary discontinuation of the McRib.
One key take away from McDonald's menu history is the advent of change from the study of supply and demand. For instance, although the one-third pound Angus burger was removed, the Mushroom and Swiss burger - a slightly cheaper, more appealing option - took its place. In order to keep up with changing demands, companies must change the goods that they supply. This adaptation not only benefits producers but also benefits consumers, as it allows them to purchase new and appealing goods - something that I think everyone can enjoy.
Sources:
http://business.time.com/2013/05/10/mcdonalds-removes-angus-burgers-as-it-tries-to-reverse-declining-sales/
https://econlife.com/2017/04/mcrib-supply-and-demand/
This is interesting because it's a very good depiction of supply and demand. In McDonald's case, when an item is no longer efficient, they remove it from the menu and set its supply to 0. I'm wondering about the consequences of using cheaper ingredients to increase profits, as it might lead to short term benefits but can lead to less profit in the future, as consumers don't want lower quality products. McDonalds has a history of high profits but lower quality products than competitors, and I'm wondering if it can stay relevant in high income places where people don't have to worry about cost when choosing what to it.
ReplyDeleteI also find this article interesting. Building off a Joon's point, besides it being cheap, fast food is easy because it's...fast! As we learned from the Weight of the Nation, people with lower incomes are more likely to consume fast food. According to Vox News, "About 32 percent of people who earn less than 130 percent of the federal poverty line — $32,630 a year for a family of four — ate fast food daily. But 42 percent of people above 350 percent of the poverty line — $112,950 a year or more for that size family — were daily consumers." This data shows that wealthy individuals consumed fast food 10% more daily than people from the lower class. This isn't what one would expect, but a possible reason has to do with individuals not having enough time. A study done by Slate found that, "that the more hours a person worked, the more likely they were to eat fast food". People resort to fast food when they don't have time (or want) to spend time cooking.
ReplyDeleteThis article also highlights the idea of how consumers really shape our markets. Depending on what consumers are interested in and buying, companies will tailor their products to fit the demands. McDonalds and other fast food stops try their best to come up with creative and intriguing products, adapted to fit what customers want. The "race" for who creates the newest product is also an important strategy in the business world.
Source:
https://www.vox.com/the-goods/2018/10/24/18018544/fast-food-cdc-class-rich-people
I thought this article was pretty interesting, and liked how you brought up the example of the McRib to explain that each product has a certain lifetime, bringing in a certain amount of revenue before being replaced by another product. It's very similar to how many other industries work, like the game industry, where producers create many games per year, with each game being popular / featured on the store for a certain period of time before the public wants newer goods. One game that reminded of this was Game Dev Tycoon; in the game, you play as a game producer, and continually create games to fit the current demand and make a profit. Each game lasts for some time on the "game store", and rolls in revenue based on the rating of the game.
ReplyDeleteSource:
https://store.steampowered.com/app/239820/Game_Dev_Tycoon/