McDonald’s is temporarily shutting its US offices this week as it prepares for corporate layoffs. McDonald’s corporate employees were asked to work from home Monday, Tuesday and Wednesday as it makes announcements related to staffing and company restructuring. McDonalds employs some 150,000 people globally. This does not include employees of any franchisee.
Sundance over at CTH has great insight as to what is going on there.
You might remember me saying that processed food prices will increase at a much greater rate than fresh or lesser processed foods. Factually, even organic products (ie. produce) could/would end up less expensive (in relative terms) to the increase in price at your supermarket, as compared to the price increases for the more processed foods.
The reason is simple, processed food use more energy; energy prices are skyrocketing; the processing costs (packaging, transportation, freezing, sanitizing, storage, warehousing and distribution etc.), at each step of the processing cycle, in addition to higher labor costs, drive up the end result of the price.
In this energy driven inflationary environment, less processing and handling equals lower overall cost increases from field to fork. More processing, handling, distribution equals higher overall costs. This is simply a supply chain truism.
Note this is not due to disconnects in the supply chain. Many, if not most of us, have experienced price increases due such disconnects during the COVID scam. E. g., such difficulties resulted in few computer chips being available to create products that required them. This resulted in a reduced supply of such products. With many people trying to buy a specific product that was less available, the price of that product went up. This is economics 101.
The McDonalds situation is different. They are being hammered by supply side increases in food. As noted above, this is due to the inflationary nature of energy costs. And with OPEC cutting production, those costs will continue to rise.
It is important to note here, there is a natural disconnect in supply side price increases within the franchise model. The parent company must, must, negotiate the best possible contract terms with the suppliers because the increases in costs are passed directly to the franchise. The parent company doesn’t immediately feel any problem until the revenue from the franchise drops due to the forced raising of retail prices and diminished sales. There is a lag.
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The only way the parent company can offset the supply side costs to the franchisee is to lower overall operating costs. Expenses have to be cut. Advertising budgets reduced. Administration costs reduced. Administrative staffing levels reduced. Supply contracts renegotiated. Packing, warehousing, distribution and all vendor contracts renegotiated, consistently looking for better terms.
This is where McDonalds is. They must trim corporate expenses in order to keep from pricing their product out of the market. Their processed foods problem will not get any better during this administration.
But remember, there is no recession. This “non-recession situation” is the direct result of this administration’s policies.
McDonald’s Layoffs