Jun 25, 2024
For many burger lovers, In-N-Out ranks as one of their top go-to spots. However, if you visit one of its locations in California, the chain’s home state, you might notice that the prices have recently increased.
The reason has to do with the minimum wage hike in the Golden State. On April 1, California raised the minimum wage for fast food workers to $20 an hour.
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The new law applies to fast food chains with 60 or more locations nationwide
In-N-Out, which has the majority of its over 400 outlets in California, implemented its price hike on the same day the new minimum wage went into effect.
“On April 1, we raised our prices incrementally to accompany a pay raise for all of the Associates working in our California restaurants. The price increase was also necessary to maintain our quality standards,” the private company said in a statement to KTVU Fox 2.
Loyal fans of the chain don’t seem to mind, though. Standing next to a long line of cars in the drive-through at In-N-Out’s Alameda location, KTVU reporter Betty Yu noted that “this is not uncommon” and “the demand for In-N-Out is strong.”
Pittsburg resident Chris Hachlica, who eats at the burger chain every other week, told the television station, “The price increase? I understand, because the economy is kind of bad.”
Elizabeth Birmingham from Alameda also understood the need for the price hike.
“I've always heard that In-N-Out treats their employees well. It seems like that's part of their branding and so we're definitely down to support that, especially in the Bay Area, when cost of living is so high,” Birmingham told KTVU.
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You know your burgers are delicious when customers sympathize with your price hikes. However, In-N-Out remains a private company, making it difficult for everyday investors to get involved.
The good news? Other fast food chains are also finding their footing in this inflationary environment. Here’s a look at three of them.
Chipotle Mexican Grill
At a time when several restaurants are facing closures and bankruptcies, Chipotle Mexican Grill (CMG) stands out: the company opened 47 new restaurants in Q1 of 2024.
It’s also a market darling, as Chipotle shares have climbed over 46% in 2024. Over the last five years, the stock has surged by 348%.
As you’d expect from this kind of share price performance, business is firing on all cylinders.
In Q1, Chipotle reported a 14.1% year over year increase in revenue to $2.7 billion, driven by new restaurant openings and a 7.0% rise in same store sales.
For full year 2024, the company plans to open 285 to 315 new restaurants and expects same store sales growth in the mid-to-high single-digit percentage.
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Note, that Chipotle has announced a 50-for-1 stock split, scheduled for June 26. Shareholders of record as of June 18, 2024 will receive 49 additional shares for each share they held, with the distribution occurring after market close on June 25.
The company’s chief financial and administrative officer Jack Hartung commented that the stock split will make the stock “more accessible to our employees as well as a broader range of investors.”
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Restaurant Brands International
Restaurant Brands International (QSR) came into existence in 2014 through the merger of Burger King and Canadian coffee chain Tim Hortons. The company expanded its portfolio by acquiring Popeyes Louisiana Kitchen in 2017 and Firehouse Subs in 2021.
Shares have had a choppy ride lately — they are down almost 10% year to date.
Despite the fluctuations in the stock market, the company's operations appear robust. In Q1 of 2024, Restaurant Brands’ revenue totaled $1.74 billion, marking a 9.4% increase year over year and beating Wall Street expectations. Same store sales grew 6.9% at Tim Hortons, 3.8% at Burger King, 5.7% at Popeyes Louisiana Kitchen and 0.3% at Firehouse Subs.
However, the company's adjusted earnings per share for the quarter were 73 cents, down from 75 cents in the prior-year period.
During the earnings conference call, CEO Josh Kobza noted a shift in consumer behavior due to heightened price sensitivity. He emphasized the need to increase customer visits to the stores, stating, “In our own data we've seen consumers become a bit more sensitive to price resulting in moderating check growth. This is why driving traffic is so important and why I'm so pleased to see our brands deliver better traffic than most of the industry this past quarter.”
McDonald’s
As the largest fast-food chain in the world, changes in McDonald’s (MCD) menu prices — such as $18 Big Macs at one location — can make headlines.
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In response to this, McDonald's USA president Joe Erlinger penned an open letter to the company’s American “fans.” He wrote that the average price of a Big Mac in the U.S. was $4.39 in 2019 and "despite a global pandemic and historic rises in supply chain costs, wages and other inflationary pressures," the average cost is now $5.29. He added that it’s the franchisees who set menu prices for their restaurants.
In Q1 of 2024, the company's revenue grew 5% year over year to $6.17 billion. Adjusted earnings per share also improved — by 2% from a year ago to $2.70. However, earnings per share and both global and U.S. same store sales growth came below Wall Street expectations.
MCD shares are down over 13% in 2024, but it can be argued that business is still heading in the right direction.
CEO Chris Kempczinski said the "consumer is certainly being very discriminating in how they spend their dollar" and the firm will be “laser-focused” on affordability as inflation puts pressure on the industry. That effort includes the launch of a new $5 meal deal for a limited time to make dining more affordable.
“We heard our fans loud and clear — they’re looking for even more great value from us, and this summer that’s exactly what they’ll get,” Erlinger said in a statement.
While the stock doesn’t seem to be a market darling at the moment, the company has been a staple for many income investors — and for good reason. Since paying its first ever dividend in 1976, McDonald’s has increased its payout every single year.
Also worth noting is that McDonald’s business doesn’t solely depend on its own restaurant sales. In the U.S., 95% of its restaurants are franchises, allowing the company to earn substantial revenue from franchise fees. Additionally, McDonald’s often owns the buildings at many of these locations, providing a steady income stream from rental payments.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
