Reconstruction of the Brothers McDonald's System of Pricing
or
"Billions and Billions Served", Going...Going...Gone.
Tony and Dawn Lafata
In Appreciation
G.D.O'Bradovich III
July, 2014
Background-
This paper is a recreation of our original work from around 2004. This research is the epitome of Occult research: something mundane ("Billions Served") that directs one to wonder why, beside a marketing gimmick, if there was a legitimate business purpose in counting hamburgers. The original paper had the dedication to Tony and Dawn, but the reason for the dedication were not indicated, and sometimes through hast or human frailty, we, at a times, do not take the time or effort to explain reasons as clearly as we should.
Part the First
The brothers McDonald (pronounced "Mac" as in "Big Mac") began their boniness in 1940. The carhop was typical for the time and the brothers heavily promoted their BBQ. When hamburger sales reached 80% of total revenues, the brothers closed their carhop and opened a "self service" business with low prices and 9 menu items. In addition to using a searchlight to promote the business, the brothers promoted the millions of hamburgers sold.
We believe and intend to provide evidence that the counting of hamburgers was more than either good marketing or inventory control. The hamburgers sold was vital to the business in a manner that belies the fact hamburgers were 80% of sales. The brothers were not formally trained as restaurant operators, so we would expect their knowledge is limited to the experience of running their carhop BBQ drive in. When they reopened as a hamburger stand, we propose their menu pricing was as novel as firing the carhops and focusing on the volume of hamburgers sold.
A major premise of this paper is that the brothers were either wholly ignorant of the accepted manner of restaurant pricing or they disregarded it as irrelevant to their experience and unique concept. Coupled with the focus on high volume and inexpensive prices, we submit the brothers broke the rule of restaurant pricing, as all items were marked up by the same amount.
A major premise of this paper is that the brothers were either wholly ignorant of the accepted manner of restaurant pricing or they disregarded it as irrelevant to their experience and unique concept. Coupled with the focus on high volume and inexpensive prices, we submit the brothers broke the rule of restaurant pricing, as all items were marked up by the same amount.
II Evidence of Internal Consistency
The McDonald's portion size of patties and drinks are:
Hamburgers
1 pound of beef Soft Drinks 1 gallon of syrup |
Number per Pound
10 patties Syup to water ratio 1:4.75 |
Size
1.6 ounces Total 736 ounces |
Status
Certain Divide by 100 7.36 ounces |
If the brothers served drinks in 8 ounce cups, then it is reasonably certain that one gallon of syrup yields 100 eight ounce servings.
French Fries
If each serving of French Fries was 2.4 ounces, then the serving size multiplied by 10 equals 24 ounces or 1.5 pounds. Therefore, each basket of French Fries yielded 10 servings [not including waste]. The variance between individual servings was much smaller if one basket was cooked at a time, rather than multiple baskets being "dumped" together at the same time. A careful employee could ensure that each basket of fries would yield 10 servings.
While the monthly shake sales of 20,000 units is significant, we will not analyze the shake numbers as this does not affect our theory on unit pricing and we do not have readily available data for the gallons of milk used by the brothers.
From the evidence presented, we are reasonably certain that the yield for the shakes were either in tens (hamburgers, French Fries) or a multiple of ten (soft drinks).
While the monthly shake sales of 20,000 units is significant, we will not analyze the shake numbers as this does not affect our theory on unit pricing and we do not have readily available data for the gallons of milk used by the brothers.
From the evidence presented, we are reasonably certain that the yield for the shakes were either in tens (hamburgers, French Fries) or a multiple of ten (soft drinks).
III Wages
California and National minimum hourly wages:
California
Years Wage 1947-52 65 cents/ hour 1952-57 75 cents/ hour 1957-62 $1.00/ hour |
National
Years Wage 1945-50 40 cents/ hour 1950-56 75 cents/ hour 1956-61 $1.00/ hour |
IV Menu Pricing
We propose that when the brothers opened their hamburger stand in 1948, they took the minimum wage of 65 cents an hour and divided it by 10 and added the result of 6.5 cents was the markup on every menu item. The proposed formula is:
Food Cost of Individual Item + (Hourly wage / 10) = Menu Price
V Basic Commodity Prices
Date Item
1950 Cheese 1957 Hamburger 1953 Potatoes |
Amount
1 Pound 3 Pounds 10 Pounds |
Price
$ .45 $ .89 $ .35 |
Unit Price
1.4 cents per 1/2 ounce cheese slice 2.96 cents per 1.6 ounce patty .005 cents per 2.4 ounce serving |
The French Fry food cost can better be understood as:
10 pounds potatoes= 160 ounces
160 ounces divided by 2.4 ounce servings =66.6 servings
66.6 servings multiplied by the menu price of 10 cents= $6.66 sales
French Fry food cost is approximately 13.4%.
Even with the minimum wage increasing 53% from 1947 to 1962, the brothers did not raise their menu price, no doubt due in a large part to the high markup on French Fries alone.
10 pounds potatoes= 160 ounces
160 ounces divided by 2.4 ounce servings =66.6 servings
66.6 servings multiplied by the menu price of 10 cents= $6.66 sales
French Fry food cost is approximately 13.4%.
Even with the minimum wage increasing 53% from 1947 to 1962, the brothers did not raise their menu price, no doubt due in a large part to the high markup on French Fries alone.
Item Hamburger 2.96¢ patty+6.5¢ markup= Cheeseburger 2.96¢ patty+1.4¢ cheese slice+ 6.5¢ markup= French Fries .005¢ fries +6.5¢ markup= |
Proposed Menu Price
9.46¢ 10.86¢ 6.606¢ |
Actual
Menu Price 15¢ 19¢ 10¢ |
Difference
-37.0 % -42.8% -33.9% |
The variances range from 33.9% to 42.8% and do not support our theory of menu pricing. We will now use the minimum wage introduced in 1952 (75 cents per hour).
Hamburger Proposed Price Actual Menu Price Variance
2.96 cents per patty + paper + 7.5 cents markup= 10.46 cents 15 cents -30.2 %
Cheeseburger
2.96 cents per patty+1.4 cents cheese slice+paper
+ 7.5 cents markup= 11.86 cents 19 cents -37.6%
French Fries
.005 cents per serving+ paper+7.5 cents markup= 7.606 cents 10 cents -29.4%
The variance range from 29.4% to 37.6% and do not support our theory of menu pricing. We will use the minim wage introduced in 1957 ($1 per hour).
Hamburger Proposed Price Actual Menu Price Variance
2.96 cents per patty + paper + 10 cents markup= 12.96 cents 15 cents -13.6 %
Cheeseburger
2.96 cents per patty+1.4 cents cheese slice+paper
+ 10 cents markup= 14.36 cents 19 cents -24.4%
French Fries
.005 cents per serving+ paper+ 10 cents markup= 10.005 cents 10 cents 0%
While the variance for French Fries is effectively zero, this means the brothers were not making money on this product under our proposed menu pricing theory.
10 patties per 1 pound of meat
10 fry serving per 1 basket of 1.5 pounds (24 ounces or 2.4 ounces per serving)