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Insight of the Day: What fast food chains are getting wrong about inflation

The article highlights that fast food chains are getting wrong about inflation by focusing on temporary value meals as a solution to rising prices and weakened consumer spending.

  1. Cyclical Value Orientation: The industry tends to increase prices when possible and then resort to value meals when consumers push back. This cyclical pattern is not sustainable and fails to address the root issue of rising costs.

  2. Unsustainable Everyday Low Prices:  While offering everyday low prices is ideal, it's often not feasible for fast-food chains due to the complex and multi-layered food system. This system involves various stakeholders, from growers to processors to distributors, each adding costs along the way.

  3. Neglecting Supply Chain Reform: Fast food chains need to re-evaluate and restructure their supply chains to achieve sustained value pricing. This involves going directly to growers, vertically integrating the food chain, and eliminating unnecessary costs to provide consumers with affordable and healthy options.

  4. Lack of Long-Term Investment:  Fast food chains often prioritize short-term gains over long-term investments in sustainable solutions. Rebuilding the supply chain requires significant capital investment, which many companies are hesitant to undertake.

In summary, the fast food industry's reliance on temporary value meals and neglect of fundamental supply chain reform are major missteps in addressing inflation. A more sustainable approach involves rethinking the entire food system, investing in vertical integration, and prioritizing long-term value over short-term price reductions.

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