Fast Food Is Collapsing As Gas Prices Hit A Breaking Point

Now that America has crossed an average of $4 a gallon, this is starting to bleed into every sector of the economy, just like I warned that it would about a week or two ago when I first started bringing this up, guys, because oil prices have absolutely skyrocketed, and unlike other types of inflation, this translates into higher prices for everything very quickly throughout the economy. In fact, right now, gas prices are absolutely crashing restaurant and particularly fast food sales. And fast food was already hurting before this whole Iran war and the problem that we're having with gas prices. And the thing is, these fast food sales are not just dropping by a little bit. Restaurant sales in general have fallen every single week in March since the beginning of the war. And at the exact same time, gas prices jumped over 30% in just a matter of weeks. Quick little side note, you guys ever seen that before? You got like the fake person inside the window. It's kind of funny. So one thing you have to understand is that the restaurant industry was already in trouble. Over the past couple of years, menu prices have gone up at least 30%, if not more, since 2019. And a typical fast food meal today is $12 to $18 per person. This is pretty much on par with what you could pay at a casual diner or something like that, where you can actually sit down and get a real meal, not just some extra fried crap. And these restaurants were already having a hard time bringing people in before the war, because after all, going out to eat is discretionary spending. More people have been learning how to cook and stay at home, try to save money on groceries that way. McDonald's has been in the spotlight when it comes to fast food sales on the decline, especially since they always used to be cheap. And then people started getting outraged when you saw Big Macs at certain McDonald's locations go up to like $15. Then they brought in the $5 meal deal and that didn't really work. But as of late, they have been able to recover until now that gas prices are shooting through the roof. Since late February, gas prices went from about $2.98 a gallon to $3.90 per gallon, which is a 32% increase in about a month. And this is one of the fastest spikes we've ever seen in gas prices since Hurricane Katrina. But think about what this does to someone's budget, guys. People were already having a hard time before, but now anybody who has to drive more than the average person, like somebody who has a long commute to work, for example, they have to now spend a bigger percentage of their income on gas. And they're also the core customers for fast food at the same time, because people who spend the most time in the car also tend to spend the most time at the drive-thru. And so if you're making just an average salary and suddenly your gas bill goes up $100 or $150 per month, that money has to come out of somewhere else, which typically means eating out or grabbing that fast food meal or going to your favorite coffee shop. Those convenience purchases get pushed to the back burner and it's the first thing to go when things like this happen. And also restaurants are getting hit on both ends of this. Not only are sales slowing down, but their supply costs are going up at the exact same time. I shared a story in another video about this Greek restaurant that I like to go to here in Miami. Think about this, guys. Last year, the Euro sandwich with a side of french fries was $12. It's always been $12 since I could remember at this place. Then at the beginning of the year, sometime in January, they raised the price to $15. I just went there yesterday for lunch. And now they just told me that the $15 is going to be the lunch price, the happy hour price. And that same meal is going to cost $19 at dinnertime. So we're talking about a 37% increase in just a few months. And that's just one restaurant and one example. Imagine how many other restaurants have to do this right now just to be able to survive. The costs for these restaurants, doesn't matter if it's fast food or not, are rising extremely fast with the food costs, energy costs, all the logistics, everything gets delivered to the restaurants. Think about it. The entire supply chain revolves around how much there's fuel costs and diesel costs are through the roof right now. So these restaurants are being squeezed from both sides. Not only are their costs going up, but their sales are slowing down. And it's showing in these companies' stock prices as well. McDonald's stock recently went down 7%, Starbucks went down 7%, Wendy's was down 10%, Chipotle was down 15%. And we're talking just within a month's timeframe. Imagine if this war drags on throughout the end of the year. They keep promising that it's going to be over in a couple of weeks. It's going to be over in a couple weeks. Reminds me of that movie, The Money Pit. Every time Tom Hanks asked the contractors how long until the house is going to be finished, two weeks. How long do you think all that'll take? Two weeks. Really? Yeah, that's tall. Any idea when you're going to be finished here? Two weeks. How long will it take to put this place together? Two weeks. I do get the permits. How long will the job take? Two weeks. Two weeks? Two weeks? Two weeks. Two weeks turns into two years. That's what we're looking at here with this. I'm not making a prediction on how long this war is going to last. I'm just saying it's already been more than two weeks. And here's another issue. Fast food historically was one of the more resilient parts of the economy. When people are struggling, they don't immediately stop eating out, especially when we're talking about the cheap stuff. But now that fast food isn't so cheap anymore, depending on what you get or where you go, people's household budgets are being squeezed by the spike in fuel prices and all the other inflation that it's going to lead to throughout the rest of the economy. There's just no money left in the budget for this without taking on more debt. And so when you think about the current state of the economy, where everyone's facing higher housing costs, everyone's facing higher insurance costs, everyone is seeing their debt payments go up, and now higher gas prices, all these things stack on top of each other and have a compounding effect. I've been talking about how this economy has been in a recession for the past few years now. And even though the official data doesn't support it, people's sentiment about where the economy currently stands definitely does. But I think it's not going to be much longer now that even the official data will support the fact that we are in a recession with how bad things look right now. This spike in gas prices is probably just the final nail in the coffin for the economy. And I want to get into that more later in this video. But first, I want to talk about McDonald's in particular right now, because McDonald's has had all sorts of problems with getting customers to come back after their massive increases in prices during the pandemic. And now they're facing even more backlash because now a basic McDonald's order can easily exceed $20 once delivery fees are added. And a lot of customers are increasingly more angry about these hidden fees that come with ordering McDonald's. One thing you got to keep in mind is McDonald's incentivizes people to order through their app. They give people special discounts and coupons and things like that, and they're adding extra fees in there now too. Here's how this looks now if you want to get McDonald's delivered. You're facing delivery fees. You're facing service fees, which can be as high as 15% of the order, depending on your location and what you order. Also, there's menu markups already, meaning that they charge you a higher price when you order through any of the apps in most cases. And if you order a small order, they charge you a small order fee, which can be anywhere between $2 and $3.50 if you don't spend enough. Plus, there's the tip. Here's some real life examples for you. Here's an order for $8.99 that ended up costing over $20. Here's a $5.29 order that ended up being $12.74 after fees. And one order had $8 in fees alone. And customers are reporting that a third of the total cost is just the fees now. Now, of course, it's not just McDonald's who's doing this and who faces this problem. If you order delivery from any of the apps like DoorDash or Grubhub, Uber Eats, any of those things, you're going to be paying delivery fees and convenience fees and tips and whatever else, service charges, all the things that they add in there. But here's the thing, guys. The small order fee is one of the things that's irking people the most because that's kind of the whole point of getting a fast food order, right? When you want to get that, you're ordering it because it's the cheapest and most convenient thing that you can possibly afford, right? But then you get penalized for ordering a low amount of food and it ends up costing you just as much as the food itself. Even the McDonald's app started charging this small order fee back in 2022. So customers are forced to spend more to avoid being penalized. And then you might as well spend more because you're already going to be spending more anyways just for the fees, but you might as well actually get some extra food out of the deal. But then, of course, your service fees and your tip fees and everything else go up in relation to how much your order is. And a lot of people are extremely upset with this because now customers are saying that prices on all of the apps, including McDonald's app, they're saying that prices are higher than in store before all the fees. And then the fees stack on top of the already inflated menu prices. So yeah, convenience should cost money, right? It always has. It's not a new thing. But at a time like now, when these places are all desperate, they're charging more than ever and people are sick of it. So I would just say, well, stop ordering. If you want McDonald's, go pick it up yourself or better yet, don't eat it at all. Your body will thank you in 20 years. So it's kind of a good thing that a lot of people are seeing this more and more as a ripoff because that's exactly what it is. And if you want to continue living that convenience lifestyle, then you need to accept the fact that you're going to get ripped off. That's just how it is. Also, here's another little side note. The $3 and $5 meal deals and menu items that you can get at McDonald's conveniently, those don't apply to delivery. So if you want that, you got to go and store. At least that's what they're telling you here. I don't know if that's true or not because I don't eat at McDonald's. I mean, whoever would have thought, anybody out there old enough, which is a lot of people who watch this channel, that fast food would become a luxury one day. I mean, when I was growing up and even until just a few years ago, guys, fast food was always considered to be the bottom of the barrel of what people could afford. And you only got that if you were in a hurry or you were trying to spend as little as possible on food. And that's just not the case anymore. And if you ask me, the worst part about all of it is that the quality of this food has gone down consistently at the same time the cost of it has gone up. So let that one sink in. Now let's talk about how bad this oil shock can actually be, because it seems like there's no end in sight so far with where things are going with this war. A lot of countries, including the U.S. right now, are heavily leaning on the oil reserves. In fact, between U.S., Japan, and Germany, we plan to release about 400 million barrels of reserves. And get this, that only replaces about 20 days worth of fuel supply. That's it. So we're talking barely three weeks worth of supply here, and that's it. So you can see that every single day that this war drags on, then the situation continues to amplify exponentially. And I think a lot of the markets, especially the stock market, could be heavily underestimating how serious this actually is. Because this supply hit is already bigger than what we saw back in the 1970s. You know, the Strait of Hormuz being closed removes 20% of the global oil supply just like that. But back during the 1970s oil embargo, it only removed about 7% of the supply. This is like three times worse just by looking at the numbers. So the strategic reserves that countries are using right now is just a temporary band-aid solution to prevent gas prices just surging even higher than they already are now. That's why when I first brought this up, we talked about $200 a barrel oil and what that would do to the economy. Look what it's already doing right now, guys. That would absolutely decimate things. And the other thing that this is going to do is it greatly increases our risk of stagflation. You know, you can already argue that our economy is facing stagflation right now, which is where economic growth essentially comes to a halt while we have high inflation. And this basically renders the Federal Reserve powerless to make any sort of action that will help the economy. If they try to raise interest rates, borrowing will go down even more and lending activity will go down. And our entire economy is predicated on the success of that. And if they lower interest rates, well, then inflation just continues to go through the roof. And so the higher oil prices are, the higher inflation goes. And we were already in a very low growth economy before this. So imagine where it goes from here. In fact, some poorer countries are already really getting slammed with this, guys. This can be a preview of how things could look in the coming months if this war doesn't end soon. In Sri Lanka, for example, they've already gone down to a four-day work week and the government there is encouraging people to work from home and reduce their energy usage. And universities are shutting down in some countries. It's already looking like the COVID lockdown's all over again, but voluntarily because people just don't have the resources to continue life as we know it. Poorer countries are already cutting down their consumption heavily and fuel costs are forcing people to change their behavior, like traveling less and slowing down economic activity substantially. In stronger countries like Japan and South Korea and the US, for example, we have a lot of oil reserves. But poorer countries like the Philippines and Indonesia, for example, they don't have all these reserves. They rely heavily on fuel subsidies and their stock markets over there are already down substantially. So think about this. We've already been working off this house of cards economy before this war, right? Well, this could easily be the thing that really tips us into the worst case scenario that we've all been talking about. And I know people get tired of hearing about this and, oh, you've been talking about this for years and years. But listen, the reason I've been talking about it is because it was only a matter of time before something like this would happen to kind of push us over the edge, guys, because this is what happens when you live life too close to the edge, which is what we've been doing here in the US for far too long. Now, the way we've been operating in this country, we borrow far more every year than we actually bring in in taxes. And we keep doing this more and more and more each year. And then suddenly something like this happens and, oh, oh my God, people's pay hasn't been keeping up with inflation for a long time now. What did you think was going to happen? And it could have just as easily been something else. It just happened to be this, this war, gas prices going up. But this easily could have been triggered by numerous other events that were bound to happen at some point. But all these higher prices mean less spending and less spending means fewer jobs and fewer jobs means even less spending, which creates this downward spiral that we've already been in. It's just going to continue going faster now. And we really haven't seen anything yet, guys, because just wait until the entire wealth effect goes away. Once the stock market really does get hit substantially, say it goes down 20 or 30 percent or more, everybody who's been feeling rich because of the K-shaped economy is going to start tightening up their belt pretty fast too. We've already been seeing it happen with more high-income people shopping at Walmart and the dollar stores, places like that, trying to spend less. Imagine how that's going to look when people don't feel rich anymore. All this wealth effect and the high stock market has been propping up consumer spending over the past five or six years. And once that goes away, it's finished. We are going to be in the next depression. And people will always say, well, that's great, Michael. You told us about all the problems. What are we actually supposed to do about any of this? Well, there's nothing you can really do about the overall direction of where things are going. But what you can do is how you react to it. You can do what I've been telling people to do for years now, building up that emergency fund. At least six months in reserves right now, preferably a year would be great with how shaky the job market and uncertainty economy is. You can also look for different ways to cut back on your budget in any way possible, reduce discretionary spending, fast food, like we just talked about, increase your income in any way you can, as long as it's legal. I mean, it's not just people who don't have a lot of money who are preparing for a downturn now, guys. Even big companies are preparing for this. Why do you think we're seeing so many jobs being lost right now? Companies are trying to run leaner than ever and try to keep their profit margins healthy while they can. They're already seeing a slowdown in sales in many cases. So the idea is that if companies increase their profits now, then they will have more wiggle room when the economy gets worse. All you can do is be prepared and hope that you don't actually need that emergency fund. That's really all you can do, guys. You can live below your means. You can live debt-free. You can just stop buying anything that's not an essential right now. Those are the things you can do. Personally, I think that even if this war does end in two weeks, like we keep getting told, the damage is already done. We've already seen a major spike with gas prices, which is already leading to price increases with everything else in the economy. It's not just going to get reversed overnight, guys, because once all these supply chain disruptions have happened and businesses are forced to print new menus and things like that, you think they're going to be in a hurry to just lower all that stuff and put everything in reverse? Of course not, especially without any guarantee that it's not going to happen again. So the crazy thing is, is prices go up real fast, but rarely, if ever, do they come down. And if they do, it's going to take more time for the prices to come down than it took for them to go up, which is another reason that you need to be prepared and try to make any extra money you possibly can. So if you guys enjoyed this video, make sure you subscribe to the channel. Let us all know in the comments down below what you're doing to get ahead of this and be as prepared as possible. And if you don't want to wait for my next video to come out, check out this one on the screen right over here, and I'll see you in the next one.