Starbucks and McDonald’s Both Get Hammered

By Douglas A. McIntyre Published Apr 8, 6:55AM EDT

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Starbucks and McDonald’s Both Get Hammered — © starbucks spill (CC BY 2.0) by Eric

Over the past year, Starbucks Corp. (NASDAQ: SBUX | SBUX Price Prediction) stock has decreased 17% and shares of McDonald’s Corp. (NYSE: MCD) have dropped 6%. The S&P 500 is up 27% over the same period. Since these two companies dominate the fast-food industry, what do the sell-offs mean? The answer is probably inflation.

Starbucks and McDonald’s cannot suddenly diversify their entire menus, and the costs of ingredients of many menu items have risen sharply. Among the best examples is coffee. The price fell back from a surge in 2021 and 2022. Yet, it is on a run-up again, from $154 per pound in January of this year to $213. According to the Federal Reserve of St. Louis, beef prices have also surged. The cost per pound at the start of 2021 was $4.00. It is $5.15 today. (See which coffee brands to never buy.)

Most expenses at McDonald’s and Starbucks are fixed. Minimum wages for hourly workers in much of the United States are rising. New rules in California are an example. NBC San Diego says fast-food workers make at least $16.60 an hour. The state has raised that to $20.00. However, NBC points out, “The new $20 minimum wage is just a starting point. The law creates a Fast Food Council that has the power to increase that wage each year through 2029 by 3.5% or the change in averages for the U.S. Consumer Price Index for urban wage earners and clerical workers, whichever is lower.”

Why are Starbucks and McDonald’s unattractive investments? It is not revenue. It is costs, now and in the future.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.