McDonald's Burgers Are the New Dividing Line in America

If you don’t think economic inequality is a problem in the USI mean, it’s everywhere. Consider the price of an extra value meal at McDonald’s right now. When I think about inequality, I think about private jets or, increasingly, home ownership. But you’ll never guess what the new dividing line is. It’s burgers. I’m near Casar and I like to look at the numbers behind my biggest questions, and hopefully yours too. McDonald’s executives say that they’re losing customers who make less than $45,000 a year to grocery stores because they’re priced out. They just can’t afford what the Golden Arches are selling these days. The company’s CEO calls them low Income consumers, and you’ll be shocked at how many Americans were talking about. Let’s do the math. Roughly 30% of US households have an income of $45,000 or less. And since there are 131 million households in the US, that’s about 40 million households. We’re talking about 100 million Americans. So by McDonald’s own definition of low income, nearly 1/3 of the US population can’t afford to eat there. McDonald’s, the fast food chain famous for affordable meals, the one that proudly has signs that say billions and billions served. When it opened in 1948, a burger, fries and a shake cost $0.45. That’s the equivalent of about $5.75 today. A meal at McDonald’s will set you back a lot more than that. Now just ask former President Donald Trump. During jury selection last week, his staffers racked up a bill of $700.00 at McDonald’s. In case you’re counting, that included 27 orders of fries, 27 Quarter Pounders, and a bunch of Nuggets. Obviously Trump isn’t low income, but it is impacting a lot of working Americans around the country. A guy from Idaho’s TikTok went viral when he spent $16.00 at McDonald’s for a burger, fries and a drink last year. So I get there’s a labor shortage. I get there’s wage increases and a number of other things, but $16.00 for a burger, a large fry and a drink? It’s it’s just crazy. So why is McDonald’s abandoning the third of Americans? The short answer is that it could make more money. Dumb, greedy bastards. But don’t take my word for it. Take a look at McDonald’s margins. That’s just fancy accounting window for how much money McDonald’s makes off every meal it sells. And no matter which margins you look at, McDonald’s is making bank starting from the top of the income statement and working down. The first stop is gross margin, which is essentially how much money McDonald’s makes after accounting for the cost of ingredients. And McDonald’s gross margin is skyrocketing to 58% last year from 39% in 2015. Next is EBITDA margin, which is an acronym for earnings before interest, taxes, depreciation and amortization. It basically captures most of McDonald’s expenses and it’s also way higher, up to 59% in 2023 from 34% in 2015. And finally, there’s the proverbial bottom line, AKA the profit margin, which is how much money McDonald’s makes. After taking all expenses into account, that has nearly doubled to 33% in 2023 from 18% in 2015. So no matter how you slice it, kicking 1/3 of Americans for the Curb is proving to be a money making strategy. Capitalism at its finest, and that includes the recent spike in inflation that has raised the cost of everything, including what goes into those burgers. Now here’s the part that I find most interesting. You might think that by excluding 1/3 of Americans, McDonald’s is giving up on serving more people. In business terms, that it’s trading volume for profitability, serving fewer customers but making more on each one. But that’s not what’s going on at McDonald’s. Even as margins are expanding, both its number of locations and average sales per location are at an all time high and growing. So McDonald’s is pulling off the Holy Grail of business, growing volume and margins simultaneously. And it’s doing it by serving more rich customers than it’s losing poor ones. McDonald’s isn’t alone, by the way. Profit margins for US public companies as a group have gradually swelled over the past three decades and are expected to notch a new record high next year. The race to maximize profitability is on, seemingly at all costs. For more about that, check out our video about how Americans feel about the economy. We have to acknowledge that McDonald’s is contributing to the problem it now complaints about because it doesn’t pay its workers a living wage. It’s not that companies can’t pay their workers a living wage as they’re expanding, profit margins show it’s their choice. Don’t get me wrong, McDonald’s is absolutely entitled to charge whatever the market will bear and to make as much money as it can for its owners. Let’s not forget that those owners include anyone with a 401K. And in any event, no one company can tackle a problem that relates to 1/3 of Americans. But here are a few possible solutions. Congress could enact tax incentives to nudge companies to raise wages in line with profit growth. the US could also launch a sovereign wealth fund to help full time workers who don’t earn a living wage. It could require public and private companies above a certain size to give workers a seat on their boards. Germany has done it for decades with good results. But before we get to solutions, we have to recognize the problem. And what McDonald’s is telling us is that the list of what separates the haves and the have nots is growing.