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Erlinger then set the record straight: “The average price of a Big Mac in the U.S. was $4.39 in 2019. Despite a global pandemic and historic rises in supply chain costs, wages and other inflationary pressures in the years that followed, the average cost is now $5.29. That’s an increase of 21% (not 100%).”

He added that it’s the franchisees who set menu prices for their restaurants. In the U.S., more than 95% of all McDonald’s restaurants are owned and operated by franchisees.

Still, Tankel believes that high menu prices are a major concern for the fast food industry. Commenting on Erlinger’s statement, Tankel remarked, “So what's he doing? You know, he's trying to justify, rationalize … What happened to the dollar menu? You use $5.”

To be sure, it’s still possible to eat on a budget at fast food restaurants. Erlinger noted that more than 90% of McDonald’s franchisees in the U.S. offer meal bundles for $4 or less.

The next Red Lobster?

While Tankel believes that consumers are shifting from fast food to casual dining, this doesn’t mean every casual dining restaurant in America is thriving.

Notably, Red Lobster, the popular seafood restaurant chain that has been around since 1968, recently filed for bankruptcy. The company plans to sell its business to an entity formed and controlled by its existing term lenders.

According to Tankel, Red Lobster might not be alone in its struggle.

“I can name you two or three others of the size and scope of Red Lobster that are on the verge, rumored to be next,” he said.

Tankel highlighted a dichotomy in the restaurant industry.

“There are unicorns that are still doing really well — I choose not to give them free advertising,” he said. “And then there's the bulk of the space which is struggling and it's struggling because costs are going up.”

Tankel added that restaurants have to be more creative to attract customers.

When asked about the strategies he uses at his restaurants, Tankel revealed one: Dollarita — $1 for a margarita.

“You can't drink too many Dollaritas without asking for a hamburger,” he remarked.

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Selling Applebee’s

Tankel also shared insights into the challenges of running a chain of casual dining restaurants, emphasizing that it wasn’t easy.

He used an example to illustrate the pressure that he was facing.

“Today it snows and we have no business. And we had a $2 million a week payroll. And we had another $1 million a week of food costs. So those don't change whether it snows, rains or storms,” he said. “So I always felt that I was running for my life.”

These days, Tankel shouldn’t be under as much pressure as he was before. In January 2024, it was announced that Apple-Metro had sold 21 Applebee’s restaurants in the New York City metro area to New Jersey-based Doherty Enterprises.

However, Tankel clarified that the sale wasn't due to the challenges of running the restaurants but rather because it was a strategic acquisition from the buyer.

“It wasn't just a sale. I was not in the market to sell. And I was literally chased for about a year by the buyer,” he recounted.

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Jing Pan Investment Reporter

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.

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