The Marginal Cost of the McRib

Photo: IRuocaled

McDonald’s has reintroduced its McRib sandwich. Consisting of meat that at one point belonged to a pig, it is now on yet another farewell tour, its sixth since 2004.  (Actually, the first three were called “Farewell Tour,” the last three have been called “Reintroduction.”) The website the Awl.com points out that the reintroductions of this unusual product have all coincided with downturns in the price of pork. 

Seems reasonable to me: Mickey D’s assumes there is some best price for the McRib and compares it to the marginal cost, exactly as in our introductory textbooks. When the marginal cost drops sufficiently (and presumably the price of pork is the most variable item in costs), back comes the McRib.  (HT to CVB)

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  1. greg schimkat says:

    As a livestock economist, I must point out that your analysis is only half correct. Pork prices are near the high point in history (Alltime high made in August 2011). Beef prices however are at alltime highs. I suggest that a substitution effect is occurring. The marginal cost of a hamburger relative to price is greater than for pork. Therefore McDonald’s is urging customers to consume more pork where there profitability is higher and less beef where profitability is lower.

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  2. Kevin Knight says:

    The other economic principle on display is diminishing marginal utility. McDonald’s learned sometime ago that specifically with the McRib, popularity wanes over time. Through “Reintroductions” McDonalds can take advantage of high initial demand and take the product off the market as consumers enthusiasm wanes. So there are (at least) two advantages to McDonald’s strategy with the McRib.

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  3. TM says:

    A neighbor used to be in the fast food business. Although he did not work for McDs, he did have contacts that worked there. One of those contacts told him years ago the McRib disappears after a while due to the McRib’s effect on the price of pork – McDs sells so many McRibs that the demand for pork rises, as does the price.

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    • Jeff Birschbach says:

      I run a McDonald’s franchise. I can not speak to the exact timing although I would say it is planned at least a year in advance the most significant reason the sandwich comes and goes Is the diminishing marginal utility. Over the course of the last five years the promotion has played out the same way. First few weeks we sell nearly 200 per day and near the end we may sell less than fifty per day. These quantities do not justify it’s placement as a core menu item and McDonald’s enjoys the pub and novelty of reintroducing sandwich. Sometimes the greedy nefarious corporation trying to make an easy buck isn’t that at all but just common sense business practices.

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  4. Mike says:

    Does this mean that I can at least feel confident there’s a good bit of pork in a McRib?

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  5. RGJ says:

    Interesting, as I’ve just published a paper linking steel prices to sales of Chicken McLugnuts.

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  6. Chumbodia says:

    I suggest that a substitution effect is occurring. The marginal cost of a hamburger relative to price is greater than for pork. Therefore McDonald’s is urging customers to consume more pork where there profitability is higher and less beef where profitability is lower.

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  7. RGJ says:

    I can’t even imagine the real world realities of something on the scale of Mickey D’s, but the logistics and cost of re-introducing and rebranding a product must be enormous, factoring in everything from international advertising down to training the kid on the fryer. I find it hard to believe they do this based on their short term price point being attractive at any moment in time.

    I have a better question, I think, for the entire FE community.

    Why doesn’t McDonalds sell hot dogs?

    Why doesn’t Burger King sell hot dogs?

    Why doesn’t Wendy’s sell hot dogs?

    Apparently, a long time ago, like in the Reagan presidency, it was tried by McDs. Here is what BusinessInsider said:

    “”
    “The taste of the McHotDog was acceptable to consumers, and there were no scandals behind the scenes or within the bun. But the failure of McHotDog was a branding issue. Even what seemed like a low-risk, simple product never caught on because McDonald’s consumers just didn’t equate the brand with the type of food. It made a few comebacks during the mid-1990s as a seasonal item in select mid-western US restaurants.”””

    Didn’t equate the brand with the type of food? Wha? So they put hot dogs in the archive and then tried, no joke, McLobster and McSpaghetti?

    I really don’t get this one. Where can I get me a hot dog?

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  8. Paf says:

    RGJ, in fact the mclobster is a seasonal item that is quite popular every year in Eastern Canada and New England.

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