Burgernomics: What Egypt’s Rising Fast-Food Cost Says About Inflation

When Egypt’s McDonald’s released their updated menu prices at the beginning of July, citizens took to social media to express their indignation at the price hike – a 50 percent increase for certain products compared to the year prior.

For context, the fast-food chain’s signature Big Mac large meal jumped from EGP 59 (USD 3.12) to EGP 88 (USD 4.65). And that is excluding value-added tax and potential delivery costs. Rewinding further back, to 2019, EGP 100 (USD 5.28) was worth three Big Macs.

McDonald’s is not alone in the fast-food market’s price bump trend. Pizza Hut’s famed family box meal has gradually increased from EGP 125 (USD 6.60) in 2017 to EGP 267 (14.10) in 2022. Burger King’s Value Meal, an offer that targets budget buyers, rose from EGP 22 (USD 1.16) in 2017 to EGP 50 (USD 2.64) in 2022.

“Personally speaking, I stopped going there after I saw the new prices. It’s simply not worth it when there are cheaper competitors that offer the same quality. It’s as if you’re paying for expensive food, but it’s not expensive food,” says Mostafa Khaled, a construction engineer.

More worryingly, Egypt’s increasing fast-food costs are a telltale sign of the ongoing inflation impacting the country. What was once quick, accessible, and affordable food is now slowly transforming into a luxury commodity. Some may argue that a silver lining falls in the fact that rising fast food prices decrease unhealthy eating habits, but the matter is far more economical in nature, a reflection of the average Egyptian’s dwindling purchasing power, than simply a debate on diet.

UNDERSTANDING EGYPT’S INFLATION SITUATION

There is more than meets the eye when it comes to fast-food prices’ relation to Egypt’s inflation.

Inflation, simply meaning the rise in prices of commodities and services over a given period of time, has been plaguing Egypt since the start of the COVID-19 pandemic, and due to the Russian invasion of Ukraine.

Egypt’s Central Bank recorded a 14.6 percent annual inflation rate in June, an increase from May’s 13.3 percent. The year prior, in June 2021, that number was recorded at 5.3 percent.

As foreign reserves stay scarce, and several imports remain limited, the cost of production will naturally increase, which both limits and increases the price of the supply. Yet the demand remains as it is, further spiking product prices.

Consequently, Egypt’s government, citizens, and businesses have been grappling with the challenges of rising inflation. In McDonald’s case, their solution to Egypt’s inflation challenges was to push prices up, much to the chagrin of customers.

RISING FAST-FOOD PRICES: A REFLECTION OF EGYPT’S ECONOMY

When The Economist jokingly created the Big Mac Index (BMI) in 1986, it was intended to serve as an explainer to the theory of purchasing-power-parity between states, or in simpler terms, the idea that exchange rates should gradually move to a level that equalizes the prices of the same goods and services in both currencies.

In the newspaper’s case, the Big Mac was the reference – popular, universal, and accessible. What was a lighthearted guide is now a feature in textbooks and several academic studies. By looking at their ‘GDP-Adjusted Index’, which includes labor costs and distribution, a lot can be revealed of Egypt’s current inflation challenges.

Compared to the US Dollar, a Big Mac sandwich in Egypt cost EGP 42 in 2019 (USD 4.71 back then) at an average exchange rate of 16.87. In other words, the US price for 1 Big Mac would be worth almost 2 Big Mac’s in Egypt. In 2022, that number jumped to EGP 52 (USD 2.74) in comparison to the US’s price of USD 5.15 (EGP 97.43) at an exchange rate of 18.95, highlighting many points regarding Egypt’s inflation.

The BMI’s latest update on July 22, conducted prior to McDonald’s price increase, indicated that the sandwich should cost 23.8 percent less than its current price when adjusted to Egypt’s GDP. That percentage will be expected to increase once the price updates are taken into consideration.

Beyond the BMI and prices, the numbers indicate several trends caused by Egypt’s inflation. To start, it shows that Egypt no longer offers the cheapest Big Mac’s in the world, a fact Egyptians used to proudly claim years ago. While still undervalued compared to US prices, Egypt’s number one fast food franchise is slowly becoming less affordable to its mass.

The BMI also fails to comparatively examine more expensive products in McDonald’s, like a Big Tasty, a cost that indicates how McDonald’s is slowly becoming a luxury commodity to Egypt’s average citizen, who earns around nine thousand per month.

McDonald’s new prices further highlight the consequences of the Ukraine war and global supply chain delays on Egypt. Abdel-Aziz El-Sayed, the country’s Head of Poultry in the Chambers of Commerce, further affirmed the impact of inflation on prices, pinning the rising cost of chicken, eggs, and foods on production, distribution, and labor costs.

Egypt’s wheat crisis further exacerbates the costs on food businesses, as the world’s number one importer of wheat experienced severe shortages caused by Russia and Ukraine.

Most notably, the BMI’s statistics indicate that Egypt’s inflating costs are only beginning, as the impact is gradual and not yet fully realized. Prices are expected to continue rising, far beyond the fast-food world, as made evident in a recent increase in gas and public transportation costs.

In turn, many of the country’s middle and lower classes are forgoing a list of goods and services once available to them. With time, Egyptians will be compelled to accept the price hikes on goods and services. Whether new costs are considered worth it or not is the choice of those who can afford them.

“It feels as if McDonald’s is no longer an option for me. I don’t see myself spending that much money on something that is meant to be quick and cheap […] although I believe people will accept this new reality in three month’s time,” said Ibrahim El-Fendi, an accounting teacher.

To some, McDonald’s reflects their economic sacrifices. A once-affordable dash-and-dine, now far too expensive to many.