McDonald's and Optimal Pricing Strategies | Hacker News Reader

McDonald's and Optimal Pricing Strategies

livingstingy.blogspot.com

44 pointsCHB040308548276 comments

I think the title is a little strange - nothing in the article actually talks about optimal pricing strategies.

> [Graph] - The most efficient merchant charges the optimal price for each customer - the highest each customer is willing to pay.

The graph doesn't show that - it actually shows how to maximise revenue while offering a single price point for all customers.

In reality, this isn't the optimum way to pick a price though - because you probably want to optimise for profit rather than revenue (and these price points aren't likely to be the same).

> [There are multiple items at different price points, and...] It struck me, though, that this was an excellent example of optimal pricing

I wouldn't call this pricing actually - I would call this ranging.

Pricing is the exact pounds and pence put against an item, while ranging is the idea of offering different products and services to meet different segments. Mr Monopoly Man might not want a $1 hamburger, but might settle for an ultra-mcdonalds-premium-delux, so ranging that higher-end product helps the company appeal to wider demographics.

But 'having different products and making them different prices' isn't usually considered a pricing strategy.

The article is all over the place.

"Of course, it still is cheaper to make food at home. A chicken patty, a bun, and some lettuce and mayonnaise cost maybe a dollar or so overall. A small handful of frozen fries, far less than a buck. You just have to take the time to put it all together, which we usually do."

really not sure where you can buy those items for a dollar, and if you can find them, not sure you should eat them.

I just bought 1kg of chicken breast in the UK for £6 from a local supermarket. I'm pretty sure it's cheaper in the US.

And that's real chicken, not reconstituted shit.

A kilogram of fries is like £1.

From what I understand, British supermarkets are insanely cheap when it comes to food. You can't usually get even remotely similar prices in the US.

That hasn’t been my experience. Something were cheaper (converting GBP to USD) but it was usually only ~10%. Other things were more expensive.

Which store?

I was just window shopping in a few towns in the UK. Local stores and places like Sainsbury. Comparing staple items to Safeway and other US stores.

Prices may have change recently.

Sainsbury's is up to 2x the price for basic items (compared to Aldi, Lidl and Asda). Atomic Shrimp has interesting budget survival videos with 3 meals per day mostly from shopping value chain supermarkets, as well as direct comparisons between them.

Similar to Safeway in the US prices are much higher than budget grocery stores.

So, how much is the thread-starting 1kg of actual chicken breast for example?

To be absolutely fair: A chicken breast is not a breaded chicken patty and isn't really a good substitute to a fast food sandwich. Part of the appeal of fast food is the lack of thought that goes into prep. Basic warm and serve items from the grocery store - prepared patties and prepared fries(chips!) - is the comparable solution.

You'd have to likely cut, tenderize, and bread the breasts before shallow frying in a pan and heat up some oil to fry the fries/chips in. The patties and prepared chips can just go in the oven while you wait.

I literally just chucked 1kg in a dish with some oil on top and turned the oven on for a bit. I now have multiple servings.

Do what you want, but be honest about it.

price per KG (less any sale) is about double that what you paid.

and buying at small quantities can be even double that.

if you were comparing price of mcdonalds chicken burger to a plainish chicken breast, the 2 arent the same at all, which the previous poster was commenting on.

to turn that raw chicken breast to something close to McDs chicken burger requires quite a bit of time and additional ingredients.

on the fries, i agree. you can buy a KG of shoestring fries for 2-3$, with some salt are the same as mcd fries for the most part

if doing a raw ingredient comparison, buying at scale of 1KG is definitely cheaper.

The price of oil to deep fry is not cheap. Deep frying consumes a lot of oil and if you don't do it often, it is not cost effective.

And to have them taste as good as McD's, you'll at the least have to blanch and fry them twice with a freeze in between. If you cut your own fries, you should be doing this because it is awesome.

https://abcnews.go.com/Lifestyle/mcdonalds-reveals-beloved-f...

Also if you don’t go through at least some of the hassle the fries will kinda suck. I mean it won’t be bad, it’s still potato salt and oil, but “fresh cut fries” will be limp and soggy unless you do the prep work.

Why would you even want to make it into a lesser foodstuff?

It would be cheaper, not more expensive, to pad it out so that you end up with like 50g of chicken and 50g of bread or whatever.

its not a lesser food (well maybe specifically mcdonalds), its different food.

are you arguing there is no point to transformative cooking to make something diff as it would be lesser than it originally was?

thats like saying why bother trying to make an apple pie, when you can just eat apples.

also your proportions are whack, have you had a breaded chicken burger? for the most part its externally coating the chicken breast patty with a breading/seasoning mixture and frying it.

you arent padding the meat mixture like say a meatloaf.

No, I'm saying that the stuff you add makes it cheaper per gram.

A McD's burger has hardly any actual chicken. You need to compare like for like. The cheap ones are even made from mechanically recovered meat.

An apple pie is cheaper than apples.

What are we even talking about? This is just funny.

I am being honest about it. Go ahead and tell folks to just make something else with chicken. But it isn't the same thing as a breaded chicken sandwich. Which you'd also get multiple servings of.

Nobody is trying to tell you that you can't have a completely different meal for less than the cost of a McDonald's chicken sandwich.

At my local store in CA (cheapest non-bulk prices, Costco is cheaper but more awkward perhaps, also shopping there takes 3x longer) it’s $6 for 1 lb of chicken breast and $3 for 1 pound of fries. So that’s around double your prices.

Yeah. The chicken patty in particular, it is incredibly hard to find frozen chicken patties that are cheap and taste even acceptable, let alone good.

I want these under $1 tasty chicken patties.

Costco - or whatever wholesale club is near you.

Costco is a store, not a product. They sell Kirkland/own brand which aren't under $1/ea and other brands like Tyson which taste awful.

What specific PRODUCT at Costco are you saying both taste good while costing under $1/ea?

They have hot dog and bun which would average out under a Buck I think.

Or you can get it hot with a drink for $1.50.

Even the cheap ones taste good if you deep fry them.

An eight pack of buns is $1-2

Frozen pack of chicken Pattie's is cheap

Mayo

Head of lettuce is a dollar

You can't make one sandwich cheap but you can make eight cheap

Amortized cost!

And I can make 1000 even cheaper. But I don’t want 8 chicken San who he’s by the time the ingredients are going bad.

This is just one of many things wrong with this article that I had high hopes would explain how to find the optimal pricing, but really just shirks that research off.

> Then again, most successful major corporations are run by heartless conservatives. The companies run by bleeding-heart liberals all went out of business.

Ok, maybe save me the time on the article and put winners like this at the top next time.

If you live alone, I don’t know if I want to eat 8 hamburgers before those ingredients go bad.

no one forces you to consume 8 frozen patties at once. Especially since they already are frozen, why not keep them in that state until you crave burgers next time?

Ok, that is the meat… but what about the buns, the lettuce, tomato, etc?

Having a house with two small eaters we pretty much had to give up all fresh produce that we weren’t going to consume or preserve immediately because it goes bad too fast and isn’t worth the waste.

There’s something to be said for the economics of moving enough volume to enable eating fresh.

Buns can be frozen pretty easily. And regarding the fresh ingredients ... why not just buy a single medium sized tomato and consume just that one? Or buy a big lettuce (which usually isn't very expensive) and make a salad as a side dish?! (honest question: have you ever prepped food before?)

Yes, I buy and cook all the food for my family of four. However, I remember there were a lot of food items that I could never really make work for myself when I lived alone because I could never eat it fast enough to get through it before it went bad.

It is a lot easier now that I have four people to feed, although the issue now is more that our two kids are insanely picky eaters and it is so hard to find meals everyone can eat.

What you describe in your first paragraph is something I hear very often from people that always eat out and don't want to learn how to cook their own food, because for them it's not worth it, due to the reasons you mentioned. I'm really curious, what are the items that you couldn't make work living by yourself? I personally cannot remember many of these instances back when I cooked just for myself. Most of the food items I had could be frozen or turned into a dish that in the end could be frozen well.

The big reason I almost never eat bread at home is because I'd either have to throw out most of it or freeze it. Of course, I will freeze it to avoid wasting it but frozen bread is really inconvenient and the taste and texture are unappealing and it really needs to be toasted to be edible but it still tastes off.

So I end up just not buying bread for the house.

Maybe we're talking about different kinds of bread (I'm from Germany), but freezing bread here is really common (almost all the old people do that who live alone) and bread is one of the foods that freeze really well. It's similar to freezing rice, after thawing it's almost as good as fresh. (without toasting it or so, just plain bread)

In Romania, frozen chicken nuggets are about $4.2 per 300g. I'd split that in two portions.

In the US, a 20-piece Chicken Nuggets (320g) from McDonald's is around $7.25. Not a big difference.

Eddie Murphy has the definitive counter point to that argument: https://m.youtube.com/watch?v=e9nb8ffIYl0

I just looked up the prices at Walmart and the cheapest I can find is $1.30 for just chicken+bun. These are bargain basement chicken patties, probably not very tasty. Of course, this is assuming you can eat the entire package before they goes bad. You also run into the problem of not being able to buy the same amount of patties and buns due to package sizes, and when you want to add lettuce you have to buy an entire head so you'll have to plan ahead to use the rest of the lettuce.

I really wouldn't want to eat frozen french fries either, they are just really bad. Might as well make something more edible as a side like macaroni salad.

I guess my point is that only if you're making food for a large family or are a really big eater then the supermarket is cheaper. Otherwise, don't feel bad for "wasting" money at McDonald's. I don't have a horse in this race though, I'm a vegetarian, I don't eat this stuff.

Pre-covid, I would often go to McDonalds and order two Sausage McMuffin with Egg. If you keep your receipts and fill out the online survey, they were buy one get one free. So, $2.12 with tax for 2 English muffins, 2 sausage patties and 2 eggs.

I would write employee names on the receipt and give glowing reviews of individuals. Apparently, managers would read the reviews aloud to their teams, so I got creative.

McDonalds was surprisingly responsive to one of my surveys. I randomly thanked them for having a free EV charger at their location that I would use for a few hours but always bought a meal or coffee from them when I did. They called me up and thanked me for the kind comments and sent me a box of a coupons, lol.

Curiously I have had quite the opposite experience with them when trying to get a complaint resolved. I ordered a chicken nugget meal, but was delivered a (chicken nugget) box full of gherkins. Eventually I gave up chasing them as it really wasn't worth my time anymore.

To be fair, that’s a kind of amazing screw up. Like… do they even have gherkins at McDonalds?

Sorry, that's my bad. I mean pickles, I called them gherkins as a kid and it… stuck.

They have sliced pickles, that's about the closest thing.

Contact the store directly.

Price discrimination is a central feature of economic life. Everyone from airlines to your university to Uber does this.

The kind you are most familiar with is the quantity discount from buying a larger package size at the grocery store.

But it’s also cheaper to transport and produce larger package sizes. So it’s not purely price discrimination (I don’t know how much is).

I think the canonical example is actually coupons.

It's important to note that this isn't strictly price discrimination too - it's actually product segmentation.

Price discrimination happens when it's the same product sold at different prices (e.g. senior discount for movie tickets) - but actually there IS a difference between a $1 burger at McDonalds and one of the $7 premium ones.

I never found the app buggy. Some of the deals are pretty damn good. Free large fries with $1 minimum order...so of course you get the $1 drink and a burger off the value menu (McDouble, etc). A whole meal for $2.50...

Or if I want a tasty treat I'd get the free McCafe with any purchase and get an apple pie. $1.50 for espresso drink and a dessert?

And all those purchases add up for reward points.

Their deals change all the time and the above mentioned aren't there anymore as exactly mentioned, but there's a 6 piece Nuggets for $1 minimum purchase...

I also know I'm not the only one who does this for "optimal" pricing as one time at the drive through I hit the wrong coupon, the cashier rattled off the price before inputting my code...and had to correct himself when the price came up and looked at me dumbfounded wondering why I didn't optimize my order.

Here is another trick, if you don't like McDonald's food but are looking for a working place: Some McDonald's locations have incredible working/seating setups. They are usually the newer McDonald's. The coffee is good enough, there is some "reasonable" pastries and the management seems to tolerate working for 3/4 hours on a single coffee / pastry.

Bonus: They have fast Wifi (though I do tethering for security reasons) and power outlets.

Some of the McDonald's I have been to are fairly empty. Like maybe a customer or two in a hour. This is the US where everyone is curbside picking his fat meal. Your workplace is being essentially subsidized by these guys, since the math would not make sense for the place.

Small fries and a chicken sandwich wouldn’t count as a full meal for me, and I’m fairly skinny.

The author might be saving money, but they’re also probably going hungry.

That's 750 calories. Not the largest meal but not so small either.

Calories are useful, but satiation is may be a better metric. Because a lot of calories come from sugars (sauce, and bread), it is hard to equate two items. Protein is the most satiating, followed by fats, and then carbs.

For example:

- BigMac: 550 Cal, 30g Total Fat, 25g protein, 45g carbs

- McDouble: 400 Cal, 20g Total Fat, 22g Protein, 33g carbs

So you're saving 30% calories, while only losing 12% of protein.

620 according to McDonalds. 220 calories for small fries, and 400 for a McChicken.

https://www.mcdonalds.com/us/en-us/product/small-french-frie...

I don’t know where this person live buts here in CA there’s no way to make a chicken sandwich for “less than $1”. The chicken alone is probably $2-3. Actually fast food restaurant margins on the “entree” items are extremely low.

Also, not everyone wants to spend 30 min extra to save $2. I guess he acknowledges this at the end but it’s only after berating dumb people for shopping poorly the whole post.

> Actually fast food restaurant margins on the “entree” items are extremely low.

Yes, the largest margin is in the drinks. Mostly municipal water.

The fries are in the middle. Potatoes are cheap; there's some prepraration that goes into the final product but it's still just one ingredient and pretty minimal labor in cooking and serving.

The sandwiches have the lowest margin. Multiple ingredients from different vendors, and the most labor to cook and assemble.

> there’s no way to make a chicken sandwich for “less than $1”. The chicken alone is probably $2-3

The McChicken patty is about 2.5oz before cooking. I see the cheapest chicken breast as $3.49/lb on Instacart, so a bit cheaper in person, but that would be $0.55 for the chicken.

The store doesn't tend to sell 2.5 oz of raw chicken at a time.

The article has:

Of course, it still is cheaper to make food at home. A chicken patty, a bun, and some lettuce and mayonnaise cost maybe a dollar or so overall. A small handful of frozen fries, far less than a buck. You just have to take the time to put it all together, which we usually do. Making food at home is the ultimate price point for stingy folks, and our default mode of operation (and one reason you can retire on a lot less than you think - my next blog entry).

There's nothing in there about needing to buy food one meal at a time, and if you're trying to live cheaply to retire sooner you're likely buying relatively large packages and freezing/refrigerating across multiple meals.

CA bay area, we usually buy chicken for $1.50-2 per lb. That's 50c per sandwich, granted it is plain, not breaded. Just picked up several tri-tips for 3.88 per lb. Buns 8 for $3

1/4 lb tri tip is a great sandwich for about $1.5

We buy chicken under $2, pork under $3, and beef under $4.

As a result, many vegetables are more expensive per lb.

Agree, I am always annoyed when something like McD is the only option because it's really expensive for what it is. And then I am always repeatedly amazed that they get away with selling that and that people choose to eat it. I am definitely not a foodie and can eat a lot of things but McDonalds or Burger King etc are awful.

"Only an idiot would sell the same product to everyone at the same price." with some good examples.

Rant totally unrelated to the article content:

Why do so many websites insist on using such small font sizes? I zoomed in to 200% to read this comfortably... It's awful having to do this all the time.

Cheaper than optimal -> not enough profit per sale, driving profit down.

More expensive than optimal -> not enough sales, driving profit down.

At the bottom of this article the author is still peddling the vaccine hoax (the scientifically discredited notion that the covid-19 vaccines did anything to stop the spread). Not a good look.

Want to really save money at McDonald's? Don't mind what employees might think?

Be us a large-ish family ordering 5 hamburgers and 2 Chicken Crips (a chicken burger). Wife gets a full meal set because she is loved. Total cost of about 1500yen, or 12usd. For an extra 70yen you can supersize the fries.

But by bit I up the number of hamburgers. I think my record is 8. I am waiting for the day they refuse my order. An individual hamburger is quick to make, but order enough and you could exhaust the stock of cooked patties. If I remember right it's ten patties per tray. With two trays in rotation. Thus a single order of 20 hamburgers could cripple the production line for 5+ minutes.

It doesn’t take that long to cook more meat as long as the grills haven’t been taken down for cleaning. During rush hour they are doing way more volume than that, it’s just the staging cabinets are in between someone who is cooking meat and someone who is assembling product. Chicken nuggets and chicken paddies are much slower to cook, 4 minutes or so rather than 30 seconds it takes to cook a run of 10 to 1 meat.

that is really cheap compared to here(canada). just for 2 chicken burgers, + 1 hamburger, its about 12USD

i have to always ask for my food made "fresh", otherwise you run risk of getting "old" food. the one closest to my house is always slow, wait 5+ minutes for old food... or wait 10-12 minutes for "fresh" (quarter of the time we still have to complain about it being old/dry).

i know plenty of people who do this always, so i guess always backing up the line. really i dont think it backs up much anything as most mcdonalds appear to be overly staffed with people doing nothing at times standing around.

In the 90s McDonald's had a 29 cent hamburger promotion on Wednesdays - most stores had a 20 burger cap per order. My friends and I would all go with about $7 and each order 20 hamburgers. There might be five of us, each ordering 20 burgers, for 100 burgers total.

They happily filled the orders. It didn't take that long at all. We would do this just about every week.

What's the money saving trick here? Ordering plain hamburgers rather than getting any of the fancy burgers (eg. big mac) or fries/drinks?

Reply on news.ycombinator.com