Name a more iconic duo than McDonalds (MCD) and Coca-Cola (KO). I’ll wait.
Bert and Ernie? They didn’t team up until 1969. Buffett and Munger? Close, but Berkshire Hathaway’s (BRK.A, BRK.B) dynamic duo didn’t meet until 1959. Macca’s and Coke have been going strong together since 1955 and, let’s be honest, that’s the kind of long-term stability we need in our lives right now. It’s chaos out there! 😳 But as inflation continues to chew chunks out of our wallets, McDonald’s is starting to feel the squeeze too.
Last week, they said menu prices in the first quarter of 2022 rose 8% in the US compared with the same period the year prior, which helped to offset increases in labour and food costs. Total revenues were up 11% in the quarter, but on the company’s conference call, executives noted that consumers are starting to buy down to cheaper and smaller menu items. Customers are still lovin’ it, but they’re lovin’ the smaller sizes.🍔
‘Smaller’ products were a feature of Coke’s quarterly earnings, too. The company’s sales volumes fizzed up 8% compared to the year prior as thirsty months returned after the pandemic. 🥤 But a combination of higher prices and smaller packaging helped stave off the impacts of inflation and drive a small increase in margins. It’s another example of shrinkflation in all its glory. Shrinkflation is generally horrible for consumers who get less for the same price. But for Coke, offering slimmed-down products can be a way to avoid price increases and maintain the perception of affordability on shop shelves.
And if that fails? Well, Elon has a plan to bring customers back for more…by putting the ‘coke’ back in Coca-Cola. Thanks, Elon, that’s exactly what tired parents want in their kids’ Happy Meal. 😵 Ba da ba ba bahhh.