Jon Chait finds Burger King CEO John Chidsey explaining why the bad economy is good for him -- "People who cannot afford to go to Applebee's, cannot afford to go to Chili's, we are the beneficiaries of that squeeze." I suppose the economy's really bad when takeout fast food joints start feeling the pain.
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Countercyclical
03 Apr 2008 10:45 am
Comments (33)
It's been a while since I lived in the U.S., but from what I recall, making food from scratch is not even that much cheaper than fast food, unless you put a lot of effort into it.
John Chidsey likely knows his own business better than I do, but is going out to Burger King really a something that people will substitute in place of going out to Applebee's when the latter becomes unaffordable?
I can see how Applebee's will be the choice over more expensive dining options when money is tight, but it seems to me like Burger King and Applebees fulfill different niches.
Different niches? They're both restaurants. They serve hot food and you don't have to prepare it or clean up after yourself.
Let's assume that John Chidsey does know his market, and isn't merely engaging in spin - what he is saying is that Burger King is an inferior good - which means that demand goes up when income goes down. That seems to me quite likely, that to people who would go to both Burger King and TGI Fridays or Applebees (and that does sound like a good slice of the Burger King demographic to me), when they are feeling pinched, go to Applebees less and Burger King more.
And, hey, maybe what will be bad for banks will be great for check cashing storefronts, furniture rental places, and pawn shops! Always a silver lining!
I would argue that "fast food" and sit-down restaurants occupy different niches and the goods we substitute for them are going to be different.
BK and Applebee's offer vastly different experiences. I can see how a shrinking economy would cause people to exhange Subway and Cosi in favor of Burger King, but if you want to go out to eat and can't afford Applebee's, you're not going to go to BK, you're going to go to a dinner/greasy-spoon or give up going out altogether.
When Waste Management erects turnstiles and charges to pick through their trash dumps you'll have your V-8 moment.
http://www.mcclatchydc.com/226/story/31468.html
Burger King and Disneyland provide very different experiences. BK and Applebee's provide marginally different experiences.
... if you want to go out to eat and can't afford Applebee's, you're not going to go to BK, you're going to go to a dinner/greasy-spoon or give up going out altogether.
But kids don't make the distinction between Applebee's and BK. In fact my daughter would much rather go to BK than the places we drag her to.
"but if you want to go out to eat and can't afford Applebee's, you're not going to go to BK, you're going to go to a dinner/greasy-spoon or give up going out altogether."
Big difference in cost between eating at fast food (McDs, BK, Wendys) and Applebee's or Chili's - tipping required due to table service. Also fewer locations, means you have to drive further, not so affordable on $3.50 gas.
And in many parts of the country, independent diners and greasy-spoon restaurants no longer exist. Those that still do often cost the same as Applebee's or Chili's.
And, hey, maybe what will be bad for banks will be great for check cashing storefronts, furniture rental places, and pawn shops!
Also true.
I expect that Chidsey is giving a fairly accurate analysis. Yes, for some people the difference between Applebees and Burger King is so great that they won't transfer. But for some significant chunk of the populace, the point is getting out of the house and not having to cook the food much more than it is the experience of fine dining, or even the experience of eating at Applebees.
Back in the mid-1990s when I worked at a WalMart, management said essentially the same thing about economic downturns. People who might normally be shopping at better stores would shop at WalMart when the economy was bad, while the people who normally shopped there didn't really have any place else to go: what is the next rung down the ladder below WalMart, after all?
As for cooking at home, its cost depends on what you are making and how processed your starting point is. If by "cooking at home" you mean opening a can of soup and popping a frozen dinner in the microwave, it may not be much cheaper, or at all, than fast food. If by "cooking at home" you mean making soup from the ham bone you have saved in the freezer plus some lentils and onions and carrots, it is massively cheaper. It tastes better, too. Furthermore, you can make it on Sunday afternoon and have lunches for the whole week.
Now, Im just a simple caveman (read midwesterner) but I think everyone is giving Applebee's a little too much credit on the class front.
Most people frequenting Applebee's aren't too stuffy for the King. Unless of course your Applebee's has a wine list.
And the crazy drink menu featuring souvenir glasses doesn't really count.
Turns out one of my wife's friends from college is apparently the owner (or manager) of one of these paycheck parasite places in the Fort Myers area. Not surprising, since he was a College Republican, but I had hoped after he came out he might find an inner liberal to embrace.
"It's been a while since I lived in the U.S., but from what I recall, making food from scratch is not even that much cheaper than fast food, unless you put a lot of effort into it."
I dunno. I made a pasta dish last night with about a fifth of a pound of pasta ($.30), a handful of grape tomatoes (probably about a tenth of a pint -- so $.40), a handful of olives (about an ounce, so call it $.30), about $.15 worth of onion, and about .$50 worth of fresh spinach. Throw in a dollop of olive oil (maybe a thirtieth of the bottle, so $.20 or so) and a few spices -- certainly not more than $.10 worth -- and that comes to a grand total of... $1.95. Which is cheaper than a meal at a fast food restaurant (call it a minimum of $2.15 for a burger and fries off of the value meal, and probably closer to $4), especially when you factor in gas costs (three miles driving, so about a tenth of a gallon, which is $.37). Cooking time was about 15 minutes, but 10 minutes of that was waiting for the water to boil).
Though the night before I did splurge -- about $.75 worth of spinach, $.65 worth of nice aged basmati rice, $1.75 for a can of tuna, about $.20 worth of olives, another $.25 of olive oil, $.05 worth of garlic, and probably $.10 worth of spices. So $3.75 total -- right about what you'd spend for an average fast food meal. But instead of a burger and fries, I had a delicious meal of salty, oily and slightly spicy tuna, garlic and spinach served over a bed of aged basmati rice. Cooking time was 40 minutes, but again, most of that was waiting for the rice to cook. The rest of it took 10 minutes.
Incidentally, I highly recommend, when travelling abroad, patronizing the McDonald's in whichever country you're visiting. Not all the time, just once as an act of ritual self-effacement, to remind yourself that you're just an American tourist, no matter how well-traveled and cosmopolitan you think you are.
To add to Joe's comment, I would imagine that preparing dinner for a family becomes more cost effective per person as the number of people increases. BK is cost going to cost roughly the same amount per person no matter how many people you're buying for. Just a guess, though.
Yeah, but anyone who produces that many hamburger buns is getting reamed by the commodities markets.
Lunch during the workweek is an area where fast casual and fast food are definite substitutes.
Portion sizes at BK (and calorie counts) are getting so large that adults SHOULD be splitting the burger.
Oh, and the night before THAT, I made a nice dish of pan fried tilapia served over a bed of cuban black beans. The frozen tilapia was about $4 a fillet, the canned beans were about $1.60, the red bell pepper was about $.75, the onion was about $.50, probably another $.50 worth of oil, another $.50 of cilantro, about $.80 worth of tomato, and then $.25 worth of spices (good bit of garlic and cumin). Total cost: $8.90 -- but it made dinner for two, and the leftover black beans were lunch a couple of days later (served over $.25 worth of generic rice). So figure about $3.05 a meal -- cheaper than an average fast food meal (but more expensive than a dirt cheap one), and again, it's frickin' pan fried tilapia served over Cuban black beans. Probably a $15 plate at the fish place up the street.
NPR had a good piece on Talk of the Nation this week on "call in if your business is doing well in this climate." Fascinating subset. Pawn shops, though a lot more people can't pay back the loan and wind up losing the stuff. Retirement planners, as people watch their planned retirement unravel. Scooter-trike company, as people want a cheaper city transit that works for going to the store. People who clean out foreclosed homes. Appraisers with a reputation for honesty--in getting shafted for not inflating their numbers, they got the credentials to be the go-to people now.
"It's been a while since I lived in the U.S., but from what I recall, making food from scratch is not even that much cheaper than fast food, unless you put a lot of effort into it."
That was one point that the BK CEO made in the interview.
"what he is saying is that Burger King is an inferior good - which means that demand goes up when income goes down."
No he isn't -- read the interview. He talks about quality improvements they are making to their equipment, and also their "barbell" strategy: more expensive "stacker" sandwiches balanced by the dollar menu items.
They really should have asked him about those great commercials with the hidden cameras, where they tell customers that their out of Whoppers.
"NPR had a good piece on Talk of the Nation this week on "call in if your business is doing well in this climate." Fascinating subset. Pawn shops, though a lot more people can't pay back the loan and wind up losing the stuff. Retirement planners, as people watch their planned retirement unravel. Scooter-trike company, as people want a cheaper city transit that works for going to the store. People who clean out foreclosed homes. Appraisers with a reputation for honesty--in getting shafted for not inflating their numbers, they got the credentials to be the go-to people now."
This really says more about the subset of businesspeople who listen to NPR. United Technologies, John Deere, Monsanto and other American companies are part of an exporting boom. I guess no one who works at any of those companies was listening to NPR.
Joe, while your recipes are making my mouth water, you are failing to account for the opportunity cost of your time spent shopping for the food, preparing the meal and cleaning up afterwards as compared to the time spent picking up the BK.
For working poor folks who often hold down two jobs, there simply isn't the time to make the meals or they can't afford to work one fewer hour they could spend cooking/cleaning or they are too damned tired to do that stuff and value relaxing on the couch more.
Fred, that is a good point, though an obvious one-- the self-employed and small-business owners are more likely to listen to NPR than those whose who don't.
Also, there are many thousands of such small businesses, but only a handful of large corporations that rely on the ability to export unique machinery.
There's a bit of selection-bias involved, but not much: the overall performance of the american economy is more dependent on the success of small business rather than a few highly-capitalized corporations, so a forum in which independent-operators of small businesses are more likely to participate would give a better picture of the economy than anecdotes about how a few large business outliers happen to be doing.
"Joe, while your recipes are making my mouth water, you are failing to account for the opportunity cost of your time spent shopping for the food, preparing the meal and cleaning up afterwards as compared to the time spent picking up the BK.
For working poor folks who often hold down two jobs, there simply isn't the time to make the meals or they can't afford to work one fewer hour they could spend cooking/cleaning or they are too damned tired to do that stuff and value relaxing on the couch more."
Fair enough -- I was mostly addressing the "food from scratch is more expensive than fast food" suggestion. Though I will say that shopping isn't so time-consuming (one hour once a week maybe, plus trips to farmers markets in the summer), prep time for those meals isn't extensive (the tilapia and beans took about 45 minutes due to the chopping and the need to slow cook the beans), at least compared to a hugely labor-intensive meal like curry (can't use a food processor to dice the onions and garlic because it yields too much liquid), and those meals all were one- or two- pot/pan meals, so total dirty dishes were a couple of pot/pans, a cutting board, a couple of knives, and then the plate(s) you eat off of.
As for being too tired, we really look at cooking as entertainment, rather than drudgery. I mean, where else can you take a bunch of cheap and nondescript items and transform them into a mouthwatering meal in half an hour? Though this may be backfiring with our daughter. She was screaming to be held so she could watch the cooking at a year, and now at twenty months, she gets really upset if she can't help by adding salt or stirring or the like.
I work at corporate HQ for a fast food restaurant with 1000+ restaurants in the U.S. Although an economic downturn may cause us to gain customers who have to stop going to higer-end end restaurants, we also lose some of our customers in a downturn.
Historically, our sales track most closely the employment rate (not the unemployment rate) and to a measure of expected income in the near future (i.e., people who expect to lose their jobs). Why? I dunno, but those are the facts.
Now, if you're looking for a stock to invest, Burger King and other fast food frachisors make sense right now -- first, the franchisor usually takes a royalty % of franchisee gross sales, so inflation actually helps BK's bottom line, and second, the falling dollar makes royalties paid by foreign franchisees more valuable.
But don't take investment advice from me, I'm just an anonymous blog poster.
Hiring also gets easier for fast-food places during downturns. I remember as a kid in Philadelphia in the late 70s early 80s you had to have connections to get one of those plum McDonald's jobs. When the local unemployment rate hits 20%, you can be more selective about who to give those minimum wage jobs.
John Chidsey probably wouldn't like the name that economists apply to what his company sells. In general, when incomes fall people buy less of everything. Exceptions to this rule, products for which consumption rises as incomes fall, are called "inferior goods." The classic Econ 101 example is potatoes, which people are said to buy more of when they can't afford meat as often as they formerly could. Now, according to Mr. Chidsey, they buy more Whoppers when they can't afford Fiesta Lime Chicken.
How about the (hidden) cost of putting your long-term health at risk?
Fast food is generally bad for you. Saturated fat, sugar, salt, empty calories.
Not that Applebee's is necessarily better, but cooking from scratch at home certainly can be.
Comments closed April 17, 2008.
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Heads in the Sand
I suppose the economy's really bad when takeout fast food joints start feeling the pain.
No, that would mean the economy is really good.
Posted by right | April 3, 2008 10:55 AM