Food is inelastic because people have to consume food regardless of the price. However, the people have the right to choose what they want to consume. Logically they will target the cheaper food products. Recently, the Subway food chain will soon surpass the McDonald’s food chain of restaurants. Even though the McDonald’s budget passes Subway’s budget by billions of dollars, Subway is determine to open more locations. A strategy that McDonald’s utilizes is it has many locations internationally while Subway tries to open locations in places such as malls, stores, and gas stations to provide the option of food without crossing the street. McDonald reassures that in the long term of business it will still surpass Subway. On the hand, the popularity of Subway is growing we can start to see that consumer sovereignty is going towards healthier food options with lower prices, which represents competition for McDonald’s. Consumers are starting make better trade-offs such as buying a Subway sandwich over a 2,000 calorie meal at McDonald. Consumers will always look for their options to pursue their self-interest. McDonald and Subway must keep present that some consumers can make a decision due to the income effect and McDonald’s has a dollar menu, which is a disadvantage for Subway. Will Subway surpass McDonald’s profit in the future? Will Subway suffer economically and shut down locations giving McDonald’s the win?
By Abby Garcia
I think the trends leading towards the healthier food options is an important part of who is winning the fast food race. The rising demand for healthier, quicker food means is leading to an increase in supply of Subways. Normally, the increased demand would lead to increase in price, but seeing how a large aspect of the fast food demand is the low price, the usual rules don't apply.
ReplyDeleteI also agree with you and how McDonald's main strategy is having a location everywhere so that people will feel that going to McDonald's will always be the most convenient option. Personally, I don't think McDonalds will be dying out any time soon, but in the very very long run, Subway would come out on top if the trends continue as they are happening now.
I agree with the statement about the increased popularity of healthier foods, however I don't exactly agree that everyone will always go for the cheaper meal. Lots of people actually care about the quality more than the price, and those people might inquire that Subway has the better quality food, and choose that meal over a cheaper 1 dollar burger at McDonald's. I agree that in some cases the income effect may play a role and people will choose the cheaper meal, but even from a personal standpoint I am willing to pay a few extra dollars to buy what I feel is better quality food. I guess I'm a little biased against McDonald's because I basically boycott the fast food chain and almost always look for an alternative. For me, McDonald's is an inferior good. As long as I have enough money to buy the more expensive, (in my opinion) better quality food, I will. I believe there are many other people out there who will do the same. However, as I stated before, the healthier options are what more people are drawn to these days, and I do agree with your statement on that.
ReplyDeleteYes, the trend is inclining towards healthier foods and McDonald's might be effected because the first thing people try to avoid when eating healthy is NcDonald's. Z-man I totally agree that McDonald's will not dye out soon and it has been having profits of billions of dollars regardless of the economy's crisis. Plus, McDonald's has a reputation as besting one the best fast food chains of the entire world.
ReplyDeleteMatt, I agree with you and your comment is explaining the income effect in your situation/case. That is tyhe reason why the income effect depends individualy and impacts the choice of one to chose between all their choices depending on their desires and income.