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Episode 160: McDonald’s, De-Arching and Burgereconomics

The price of McDonald’s and Burgernomics with Mak & G

SHOW NOTES

This episode, Mak & G look at how McDonald’s changes around the world, what ‘purchase price parity’ is and the ways we can use Big Macs to work out a country’s cost of living.

There is a McDonald’s in almost every country in the world, and in every McDonald’s, they sell the world-famous Big Mac.

 

This episode, Mak & G explain why McDonald’s is closing down restaurants in Russia, some of the crazy things they sell around the world, and how we can use the cost of a Big Mac to work out exchange rate differences in countries using ‘Burgernomics’…

“Selling because it feels painful isn’t always the best way to go.” G

“Many people demand US dollars so that pushes up the value of the dollar and we can buy more.” – Mak

Time Stamps:
00:50 – How inflation affects the economy.
01:20 – McDonald’s sell-off of their restaurants in Russia.
02:46 – Some of the crazy things you can get from McDonald’s around the world.
03:55 – Burgernomics and how you can use Big Macs to work out exchange rates.
05:00 – What purchase price parity is.
05:38 – The importance of exchange rates and why these change over time.

Connect with Ben Jones:

 

TRANSCRIPT

MAKWelcome back to Money with Mak & G, we’re happy you’re here.  It’s been another exciting week in the world, and for us.  We had our 8th-grade graduation ceremony!

GRANT: It was fun, and it’s hard to believe it’s all over.  We started the 6th grade here and a little over halfway into it, COVID hit, which affected our 6th, 7th and 8th grades. It will be hard to forget.

MAK:  And, VERY soon, we’ll be in high school, with new people, new memories, and new friends.

GRANT: You got that right.  Seriously looking forward to it.  There is so much new stuff to look forward to.  You know this last week, the news had some new stuff, and some of the old stuff again.

MAK:  You’re right.  COVID cases are rising… AGAIN, and I don’t want to talk about that 1 million number. Plus, gasoline is at new highs and food is costing more.

GRANT:  The stock market hasn’t been doing well either.  The S&P and NASDAQ had 7 weeks of declines and the Dow, S&P and Nasdaq are down about 15, 19, and 28% from January 1.

MAK:  We don’t see declines like that often.  But, when inflation hits, we know people buy less and interest rates go up. Companies sell less, earnings are down and that makes them less valuable.

GRANT: Investors need a good plan, which depends on your goals. Selling because it feels painful isn’t always the best way to go.  Hey, speaking of selling, did you hear what Mickey Dee’s did?

MAK:  Yep, they’re selling their restaurants in Russia.  It’s pretty big news since they were the first fast-food company to go into Russia AFTER the Soviet Union collapsed in 1991.

GRANT: It must have been a tough decision, but with the invasion of Ukraine, they said it didn’t align with their values, which sounds like their company didn’t see the invasion as being right.

MAK:  Sounds like they didn’t want to do business in Russia anymore.  Wow, that’s powerful. Coca-Cola, Pepsi, and Starbucks had also paused or closed operations in Russia as well.

GRANT: Yep, they’re trying to figure it out as well. It means about 850 stores with 62,000 employees will be sold and no longer be Mcdonald’s. It will cost them a pretty penny to get out as well.  

MAK:  I saw that.  They’ll have to “De-Arch” things, which sounds like going to each store and taking out any piece of evidence that shows those bright yellow arches everybody knows are McDonald’s.

GRANT: It’s hard to believe it will cost them about $1.3Billion.  Did you know when they temporarily shut things down, they CONTINUED to pay employees, even though they didn’t work.

MAK:  That started in March, and the new owner is supposed to hire all 62,000 employees and transform the locations into a new burger place. Sounds like some cool values for McDonald’s.

GRANT: I can’t argue with that. They have over 39,000 locations in 100 countries. Do you remember when dad traveled around the world, he said he always felt a tad better seeing the Golden Arches.

MAK:  Yep, it didn’t matter if it was in Paris, Tokyo, or Buenos Aires. Each place was a little different. “Mac Dough” as it’s called in France was cool because you could get a “pan o chocolate” or a beer.  

GRANT: He probably loved that its nickname has “dough” in it, and he loves those chocolate croissants.  Probably his favorite sweet food in France. I bet he just bought a beer for the heck of it. 

MAK: You know it made me look to see what other wild food you could get at McDonald’s in other countries.  Dad said he ran across some weird stuff. I wasn’t sure I believed him, but now I do.

GRANT: Let’s name a few we found?  Some may not be on the menu anymore, kind of like how the McRib bounced on and off the menu in the US for 40 years.  Here we go:

           MAK:  McLobster Roll – Canada

           GRANT: Mashed Potato Burger – China

           MAK:  McToast Chocolate – Germany YUM!

           MAK:  (More excited) Or a Sweeeeety con Nutella – Italy DOUBLE YUM!!

           GRANT: Shrimp Beef Burger – Korea

           MAK: Spicy Paneer Wrap (that’s curd cheese for vegetarians) – India

GRANT: Nice.  Not sure I want mashed potatoes on my burgers or shrimp, though.

MAK: Having vegetarian choices like the Paneer Wrap and McToast chocolate are REALLY nice.

GRANT: You got me there. Do you remember when dad lived in Switzerland and he said the Big Mac was SUPER expensive? He said he learned “Burgernomics” which is the economics of burgers.

MAK:  I do. Economics is really all about money, but I forget how burgers play into it? Does it have something to do with how much a burger in other countries like Switzerland costs?

GRANT: Sis, you’re not just a pretty face.  In 1986, a well-respected magazine called the Economist started something called the Big Mac Index, which looked at the price of Big Macs across the world.

MAK:  Is this the idea that a Big Mac should reflect the exchange rate of each country’s money?

GRANT: Once again you got it. In January of 2022, and for many years, the MOST expensive Big Mac was (drum roll please)

           GRANT/MAK: Switzerland  

I guess dad has always known when something is expensive. In the US a Big Mac averaged $5.81 while in Switzerland it’s almost $7 at $6.98. To get that number they have to use an exchange rate.

MAK:  Out of the almost 60 countries in the research we found, do you know which cost the least?

           MAK/GRANT: Russia!!

GRANT: It was $1.74. This is called Purchase Price Parity. It’s looking at the price of buying the exact same thing in a common currency like the US Dollar, throughout many countries

MAK:  The Big Mac is one of those things.  It’s the same in each country:

           MAK/GRANT: Two all-beef patties, special sauce, lettuce, cheese, pickles, onions, and a sesame seed bun.

And since McDonald’s is in over 100 countries it makes it interesting to compare.

GRANT: Here’s the thing. You exchange your currency to buy things when in a foreign country.  So, if you go to France, you exchange US dollars for Euros. Then you use Euros and buy a Big Mac.

MAK: We know that exchange rates change based on Supply and Demand.  When Russia invaded Ukraine, fewer people wanted Rubles.  So, demand dropped, and the exchange rate dropped.

GRANT: This crazy analysis is used to show that exchange rates may not always be perfect. It’s definitely a fun way to see how much a Big Mac costs all over the world. 

MAK:  Exchange rates are important for many countries. Since many activities occur in US Dollars, like oil, many people watch the exchange rate for their currency compared to the US Dollar.

GRANT: So, we’re very lucky. Many people demand US Dollars, so that pushes up the value of the dollar and we can buy more.  Currencies can also become worthless, like German money after WWI.

MAK:  After they lost the war, nobody wanted their money, and it was literally used to cook food, as they burned it in their stoves. You should see the photos. It wasn’t something they expected.

GRANT: Well, I think it’s time to say goodbye.  All this talk about Burgernomics is making me hungry.

MAK:  I feel you bro.  I’m Jonesin’ for a Paneer wrap.  

GRANT:  Good one.  We’ll see you next week for more Money with Mak & G.

GRANT/MAK:  Bye!

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