Fast-food pricing I can’t explain   

Time to talk burgers again, folks.

Two facts to start with: One, I almost never eat at fast-food restaurants, and two, I used to teach two different econ courses – Managerial Economics and Industrial Organization – in which I tried to teach students the underlying motivation for a host of different pricing strategies by sellers. The basic lesson was easy: pricing strategies are implemented because they result in higher profits. The interesting part is figuring out why the various pricing strategies could, despite surface appearances, increase a seller’s profits.

A week or so ago I went into the old building to attend a workshop in my old Department from noon to 1, and afterwards, having not managed any breakfast, I was hungry. The student centre just next door has a variety of fast-foody outlets, so, knowing I planned to be around until 5pm to attend another event, I figured I should break my usual no-fast-food habit and go get a burger.

There is an outlet there called The Fixx that sells burgers, poutine and side dishes. I went to their counter and ordered a burger and some fries to take back to my office. I was asked if I wanted a beverage, I said no. When I went to pay, the nice cashier lady looked at my slip and said ‘this is going to cost you more than if you ordered a drink, too, and made it a combo. Do you want to go back and get a drink?’

I said no thanks, seeing no good reason to be induced into consuming things I don’t want. However, assuming the cashier was correct, and she should know, I am struggling to explain this pricing by The Fixx.

I am aware that fast-food outlets love combo pricing, but I assumed that meant that if I ordered the drink with my burger and fries, combo pricing meant that the drink added less to the cost of my meal than the stand-alone price of the same drink. So long as the seller makes any revenue above the cost to them of the drink, this adds to their profits.  Fine, easy-peasy. I get it.

However, the cashier’s statement says that The Fixx makes more money from me if I don’t add the drink to my order: they get more revenue from me, and they save the cost of providing the drink.

How does this combo pricing increase their profits? That is, why do they want to induce me to add a drink to my order with a pricing scheme that earns them more profit if I don’t buy the drink?

One possibility is that this strategy is actually designed to induce me to add an order of fries to a drink-and-burger-only order. I don’t know that the price of a burger and drink is higher than the ‘combo’ price of burger, drink and fries. If not, then the combo pricing may just be targeted at burger-and-drink buyers, and if there are few burger-and-fries buyers like me, that could perhaps still be profitable for the Fixx.

Another possibility lies in the fact that, unlike many of the outlets in the Student Centre food area (e.g. Subway, Starbucks) The Fixx is a UWO-developed food outlet. According to this report from 2018,

“A concept developed in-house, The FIXX prepares burgers made from 100-per-cent Canadian seasoned ground beef – gluten-free and with no fillers, additives or hormones. Located where Harvey’s had been for 21 years, The FIXX is where customers can choose from a variety of toppings including guacamole, pico de gallo, caramelized onions, sautéed mushrooms or even a fried egg.”

So, perhaps the simple explanation is that Hospitality Services at UWO is not interested in profits; rather, they badly want people to drink more fluids. I kinda doubt that, but I have no evidence that it’s not true.

However, if profit-making fast-food outlets do the same kind of combo pricing I experienced at The Fixx, I am back to Square One in looking for an explanation. If anyone can tell me if that is so out there in the wider burger-franchise world, I would appreciate it; as I said, I don’t eat at fast-food restaurants much.

I certainly do not plan to go over to The Fixx again and order just a burger and drink to find out if my first explanation is plausible, either –  which brings me to the second thing I (re)-learned on my burger mission.

Staffing and quality

As the above-quoted Western Snooze piece notes, the burger predecessor to The Fixx in the Student Centre was a franchise outlet of Harvey’s. It, along with the other franchise operations on campus are not like the off-campus franchises in (at least) one important way. They use the company logos and offer (mostly) the same menu as off-campus outlets of each company, but are not staffed by pimply-faced young folk being paid the minimum wage.

When UWO decided many years ago to get rid of most of their own food preparation services and instead have franchises provide food in the Student Centre, they made a deal with the union that represented their own food operations workers. Specifically, that its union members would staff those franchise outlets that opened up on-campus.

So, I presume Harvey’s was paid some percentage of the profits or revenues of the on-campus outlet, along with perhaps an annual fixed fee. However, my long experience on campus indicates that staffing by relatively higher-paid union members results in lower quality food and service than one gets in an off-campus outlet of the same company. The burgers  put out by the Harvey’s on campus were lukewarm and chewy, as were the fries. The reason for this is clear – they cooked the burgers most of the way through, let them sit around in a warming pan, then threw them back on the grill briefly when you ordered one. Similarly, fries were mostly cooked, left lying about, and then thrown back into the fryer when ordered. (My first-ever job was at McDonald’s a hundred years ago, I know how this shit works.) This results in shorter wait times for your order, the need for fewer workers (important), and low-quality food.

This always raised for me the following question: was Harvey’s getting paid sufficiently by the university to compensate it for the bad press it was getting from the crappy food being sold in its student centre operation? These food outlets on campus have a local near monopoly – ‘near’ because there is The Wave, an undergrad restaurant and The Grad Club, which both sell somewhat better (non-franchise) food. However, students, faculty and staff do go out to eat with their families off-campus, and those people could not have a good impression of Harvey’s if they ever get food from the on-campus outlet. That’s like 30,000 opportunities for bad publicity for Harvey’s due to this low-quality on-campus franchise.

The explanation here may simply be that the people who might – unlike me – get a meal at an off-campus Harvey’s location understand that their experience at the on-campus location is not a reliable predictor of what it will be like to eat at an off-campus location. If so, there perhaps isn’t much of a bad reputational effect for the off-campus Harvey’s outlets, but in a market (i.e., franchised restaurants) in which it is said ‘uniformity across outlets’ is all-important, this is still a bit surprising to me.

What is not at all surprising to me is that the burger and fries I got from the in-house The Fixx last week were just as lukewarm and chewy as Harvey’s used to put out. I recognized the woman behind the grill who was mistreating my burger as having performed the same service for the Harvey’s outlet back in the day. No worry about off-campus reputational effects here, there are no off-campus Fixx outlets.

So, same poor-quality food at The Fixx as at its predecessor Harvey’s,  but only The Fixx is willing to pay me to drink pop. I think.