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Breakfast At McDonald's

McDonald's earnings are surging again. And that is in spite of heavy "loss leaders" on food.

The secret of most restaurants is that they make their money on beverages, coffee and soft drinks. The food exits to draw people into the stores.

McDonald's brief foray as a "Starbucks" knock-off probably helped in this regard. Not to say that McDonald's coffee will ever become like Starbucks'. But even a brief advertising "blitz" upgraded the image of their coffee. Meaning that it could capture at least a fraction of the price differential between its own coffee and Starbucks.'

A big breakfast costs $3.28. But a big breakfast with pancakes costs $3.40, only 12 cents more. This makes breakfast (at least the latter), something of a loss leader. But coffee has been getting progressively more expensive, which means that it eats up most of the difference between a big breakfast and a $5 bill. A similar story could be told for my favorite hot chocolate, which used to cost $1 and change, and now costs $2 and change. It's the "stealth" charges on coffee and beverages that accounts for the chain's profitability.