McDonald’s is a fast-food restaurant that is known for being inexpensive, and you can feed a family of four without spending a fortune.
Have you ever wondered why is McDonald’s so cheap? It’s a common question that has more than just one answer, so keep reading to learn how it’s done!
Why Is McDonald’s So Cheap?
McDonald’s is so cheap because it purchases products in bulk, and wholesale allows the company to pass savings onto the customer. The fast-food giant also relies on partnerships to get a variety of products at a reduced cost compared to other restaurants, such as Coca-Cola. Further, the company upsells cheap but popular items better than anyone else in the business to keep you adding to your order.
There are several other reasons why McDonald’s is so cheap, so read on to learn more!
1. McDonald’s Requires Franchise Owners to Pay Steep Prices
McDonald’s is so cheap in part because franchise owners have to pay significant money to the company every year, which gives McDonald’s millions in revenue yearly.
Furthermore, McDonald’s owns most of the property of the locations, which means the franchisee has to pay rent to McDonald’s to continue running the establishment.
On top of rent, McDonald’s requires that the franchisee pay at least $45,000 upfront to become a franchise operator and open a location!
Additionally, the franchisee has to pay McDonald’s 4% off all gross sales each month, which means McDonald’s is making a fortune from franchisees alone!
2. Cheap Labor
McDonald’s isn’t known for paying workers very much money, and it’s this cheap labor that allows McDonald’s to keep more profits from the food.
Most workers at McDonald’s make between $8 per hour to $11 per hour, which is on the lower end of other restaurants, and they usually hire unskilled workers they train.
On top of that, self-service ordering kiosks have eliminated some of the jobs, so McDonald’s doesn’t have to hire quite as many workers.
3. Ability to Upsell Customers
McDonald’s knows how to upsell and uses some of the cheapest food within the store to upsell at huge profit margins.
The saying “Would you like fries with that?” is known as one of the best upselling tactics around and has increased McDonald’s profits substantially.
On top of that, upselling is one of the things McDonald’s excels at, and by using cheap items as bait, it gets customers to impulse buy without thinking about it.
4. McDonald’s Buys Wholesale
McDonald’s purchases a lot of their beef, chicken, pork, and fish wholesale, which means that they spend less money on the main ingredients.
Additionally, when you buy wholesale, such as what you do at Sam’s Club or Costco, it decreases the price of each item and allows you to get more for what you paid.
McDonald’s buys more chicken than every other restaurant, except for KFC, and when you’re buying that much, you get a huge discount, which is passed to the consumer.
5. Companies Offer Discounts to McDonald’s to Build Long-Term Relationship
Since McDonald’s is the second-largest fast-food chain in the world, multiple companies line up to offer discounts to McDonald’s if they use their products.
These discounts are meant to help build a long-term relationship with McDonald’s in hopes that it will bring in huge revenue for the other company.
Further, the most well-known example of this is McDonald’s and its relationship with Coca-Cola, and Coca-Cola offers huge discounts on products for McDonald’s to use worldwide.
Coca-Cola cannot sell products to any other restaurant cheaper than the McDonald’s price, which always ensures McDonald’s is getting the best deal!
6. Massive Scale of Sales on Various Items & Customers
McDonald’s serves 68 million people per day, which is incredible and one of the biggest reasons why McDonald’s is so cheap!
The fast-food chain sells 75 hamburgers per second, which means that the sheer number of sales allows McDonald’s to maintain low prices due to such high demand.
Additionally, if the increase in the demand for a product is higher than the decreased cost of the product, it’s a sure way for a company to make money.
7. McDonald’s Sells Highly Profitable Food & Drinks
McDonald’s sells coffee for $1 up to $3 depending on what product you’re purchasing, but they get coffee for just pennies, so the markup is 2,900%.
Pop is a huge seller for McDonald’s, and they get their soda for cheap but charge the consumer a 1,150% markup
On top of that, McDonald’s also sells bottles of water which they get for almost nothing, but sell it to the customer for a huge return on their investment.
8. Kids Cost McDonald’s Less & That Increases Profits
McDonald’s is known for having the Happy Meal, which is a popular meal for kids, and kids are in love with McDonald’s fries, nuggets, and cheeseburgers.
Kids don’t eat very much and also tend to fill up on fries, which means McDonald’s doesn’t have to shell out a lot of money to feed kids, but they make huge revenue off of them.
Additionally, the food that kids are known to eat is produced for cheap but sold at higher prices, which means McDonald’s is always coming out ahead when a kid orders a meal!
9. Advertising & Promotions
McDonald’s spends over $1 billion each year on advertising and various promotions, which helps keep McDonald’s food cheap in the long run.
Further, advertising has helped McDonald’s attract new customers, keep old customers, and even entice former customers to give the food a try once again.
10. McDonald’s Distributes the Most Toys
McDonald’s is the largest distributor of toys, which, again, brings the focus back to children and uses kids to make millions in revenue.
Toys were found in 20% of sales, which shows just how powerful the Happy Meal and marketing is for McDonald’s.