Within the hospitality industry, it is becoming harder and harder to keep prices low. This is due in part to many different aspects which include the price of commodities, labor and operating costs. For this post we will focus on the company McDonalds and their need to increase the price of their products to keep their business from going under.
Through out their history, McDonalds has taken pride in their ability to provide cheap and filling products. However, due to the recent rise in certain commodities, the company has decided to raise the prices in both the European markets and in the US markets. More specifically, the company cited the estimated rise in price in the wheat and meat markets.
This rise in the price of certain commodities is being felt all over though, not just within McDonalds. Due to the rise in the demand and thus the rise in price of coffee beans, Starbucks is going to have to raise the price of the their coffee or risk losing massive profits.
It will be interesting to see how the consumer reacts. By having to raise the price of their food, McDonalds is losing one of the main pillars of their marketing strategy since the food will no longer will be cheap. It will be interesting to see if consumers will stay loyal to the company or if they will instead be willing to spend the few extra dollars to go to a sit down restaurant.
http://www.business2community.com/trends-news/mcdonalds-announces-plan-to-increase-menu-prices-011661
ReplyDeleteThis is a great example of the economics of business, specifically the supply and demand aspect. Input prices have increased, which has caused the price of the product to increase. Now we must wait and see how consumers respond and where the market will reach equilibrium. Will customers decrease demand? Will, as Domenick pointed out, consumers opt to spend a few extra dollars and possibly get a sit down meal. Or, is the idea of a good meal fast still more important to consumers?
ReplyDeleteIt is also critical to point out that some of these commodities, like coffee, are used by hotels. One must wonder if this means hotels will increase the price of a cup of coffee. If so, it could make those "complementary breakfasts" even more costly to hotels.
I don't think McDonalds will lose their competitive edge of low prices because if the price of wheat and meet is going up it is rising for everyone. Compared to other restaurants McDonalds is still going to be a cheap way to get food. Similarly, I think Starbucks will be able to keep their consumers. Starbucks has an extremely loyal customer base and I don't think they are going anywhere.
ReplyDelete~Nia McCarthy
Nia, I agree with what you are saying about how McDonalds and starbucks will not lose their competitive edge. The price of food will also go up for their competitors, but they should not be affected as bad; they have enough international brand recognition to both keep their customers if prices go up, and gain new customers who chose them because they have the ability to keep their prices lower than some competitors.
ReplyDelete-Bryan Brodek