why does food prices in grocery stores rise but fast food prices stay relatively the same?

Question

why does food prices in grocery stores rise but fast food prices stay relatively the same?

In: Economics

Answer 1

Because fast food restaurants buy ingredients in such enormous quantities (often at a contracted price) that cost increases are negligible.

So you buy apples for $10 a dozen. McDonalds buys them at $1 a dozen, because they buy a gazillion dozens.

If the price of apples goes up 10%, you now have to pay $11. But McDonalds has already agreed on a $1 per dozen price, so their prices don’t change.

And when the contract comes up for renegotiation, that 10% price increase means apples are now $1.10 per dozen, which means the margins don’t change too much if they keep prices the same.

The moral of this story? Buy in bulk, and buy in advance.