USA- An increase in labor costs in fast-food restaurant chains has translated to an increase in fast-food prices, according to a report by CNBC.

According to the publication, Chains such as Taco Bell and Chick-Fil-A reported an increase of up to 28% in prices of limited-service meals and snacks from 2019 to 2023. 

Fast-food chains also reported a 24% increase in full-service meals and snacks over the same period. 

An overall CPI increase of 19% was also reported within the same period. 

The increased prices are partly due to the corresponding increase in commodity costs in the market. However, such costs are starting to normalize as the market adjusts. 

The increase can also be attributed to increased labor costs witnessed in many USA-based fast-food chains. 

Many fast-food chains are transferring these costs to customers, which partly explains the increase in prices.  

Chains operating in areas like California where minimum wage has increased to US$20 an hour have witnessed the greatest increase in prices. 

The pressure of such an increase in labor costs is catching up with market leaders like Yum Brands which owns Taco Bell, KFC and Pizza Hut. 

Yum’s quarterly net revenue dropped by 3% in the first quarter of 2024 to US$1.6 billion, falling short of Wall Street Estimates. The expected net revenue was US$1.7 billion.  

Although McDonalds reported a net revenue increase of 1.9% in the first quarter of 2024, Wall Street estimated a quarterly increase of 2.1%. 

These mixed results also showed many customers were changing their consumption habits in response to such an increase in prices. 

Predictions of many market economists are coming true as many fast-food customers cut back on spending in response to these higher prices. 

 This cut back in spending means there is a smaller pool of customers for fast-food players as more customers remain pickier with their money. 

The significant increase in prices means the cost of eating out has surpassed that of eating at home.  

However, there are still outliers that show some customers will still order their favorite foods despite increasing prices.  

Players like McDonalds are responding to these market dynamics through a ‘street-fighting mentality’ that involves providing added value to customers as a means of competing with the smaller customer pool.  

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