WEBVTT - Beak Capitalism, Part 1: Chickflation 0:00:03.120 --> 0:00:09.560 Bloomberg Audio Studios, podcasts, radio news. 0:00:10.000 --> 0:00:12.920 The chicken sandwich war on Twitter has people clucking all 0:00:12.920 --> 0:00:13.800 over the country. 0:00:13.960 --> 0:00:18.200 It's chicken chaos and Milwaukee long lines outside Popeyes. If 0:00:18.200 --> 0:00:21.040 you didn't jump on that Popeyes chicken sandwich, craze your 0:00:21.079 --> 0:00:23.959 two lake. Popeyes is officially sold. 0:00:23.640 --> 0:00:28.080 Out, beatings, stabbings, and even car crashes. People behaving very 0:00:28.120 --> 0:00:31.680 badly in Los Angeles and across the country for that fact, 0:00:31.960 --> 0:00:35.280 trying to get their hands on Popeyes chicken sandwich. 0:00:35.120 --> 0:00:36.040 In LA two people. 0:00:36.080 --> 0:00:40.680 On August twelfth, twenty nineteen, Popeyes released their famous chicken sandwich. 0:00:41.080 --> 0:00:44.120 It was a humble fried chicken breast with pickles and 0:00:44.200 --> 0:00:47.600 mayo on a brioche bun, priced at a very reasonable 0:00:47.720 --> 0:00:48.720 three ninety nine. 0:00:48.920 --> 0:00:51.199 Some people called it a masterpiece, some others were just 0:00:51.320 --> 0:00:53.800 thrilled to see a delicious alternative to Chick fil A. 0:00:54.320 --> 0:00:57.200 To be honest, I can't actually remember whether I had 0:00:57.240 --> 0:01:00.320 it or not. I'll just say those are really those 0:01:00.320 --> 0:01:02.680 are really delicious. I totally get it. I get why 0:01:02.760 --> 0:01:04.000 people love all these sandwiches. 0:01:04.880 --> 0:01:08.120 I'm sure you remember what happened after this, Joe, Dozens 0:01:08.160 --> 0:01:11.640 of imitators were launched. I mean Taco Bell, of all places, 0:01:11.680 --> 0:01:15.679 even did a version a crispy chicken sandwich. Taco and 0:01:15.800 --> 0:01:18.400 Chick fil A came out swinging. They claimed that they 0:01:18.520 --> 0:01:23.360 and not Popeyes, were the original inventors of the chicken sandwich. Meanwhile, 0:01:23.400 --> 0:01:27.199 Popeye struggled to keep the sandwiches in stock. Fights broke out. 0:01:27.440 --> 0:01:30.120 There was even a lawsuit. A guy from Tennessee asked 0:01:30.160 --> 0:01:33.280 for five thousand dollars in damages after he couldn't get 0:01:33.280 --> 0:01:37.399 hold of one. The chicken sandwich craze was pure mayhem, 0:01:38.319 --> 0:01:40.320 or should I say mayhen. 0:01:40.880 --> 0:01:43.600 But what's really important about the chicken sandwich wars is 0:01:43.600 --> 0:01:46.520 that they never really ended. Okay, you weren't seeing them 0:01:46.600 --> 0:01:48.960 hit the headlines in quite the same way anymore. But 0:01:49.000 --> 0:01:51.680 on menus around the country, chicken is more popular than ever. 0:01:51.960 --> 0:01:55.040 Burger chains have been launching chicken wings, donut shops have 0:01:55.120 --> 0:01:57.320 chicken wraps. So you might have an opinion on who 0:01:57.400 --> 0:02:00.320 ultimately won the chicken sandwich battle, But the real winner 0:02:00.320 --> 0:02:02.560 of the war was the chicken itself, or maybe I 0:02:02.560 --> 0:02:04.440 should say the real winner is the American eater. 0:02:05.080 --> 0:02:08.480 Yeah, there are more chicken products on offer than ever. 0:02:08.639 --> 0:02:12.560 In fact, America's consumption of chicken continues to grow, even 0:02:12.600 --> 0:02:16.240 as appetites for other types of meat like beef have stalled. 0:02:16.639 --> 0:02:20.119 The average American consumed a whopping one hundred and sixteen 0:02:20.120 --> 0:02:23.040 pounds of chicken in twenty twenty three, and that number 0:02:23.080 --> 0:02:26.359 is only expected to grow, making chicken by far the 0:02:26.400 --> 0:02:30.000 most consumed meat in America. Each of us is eating 0:02:30.080 --> 0:02:33.520 something like twenty adorable chickens worth of white meat every year. 0:02:33.840 --> 0:02:37.120 And what's interesting is that's been happening even as poultry 0:02:37.160 --> 0:02:41.000 prices have surged. Freshole chicken used to cost about a 0:02:41.080 --> 0:02:44.600 dollar sixty per pound a decade ago. It now goes 0:02:44.639 --> 0:02:48.840 for almost two bucks. That's an almost twenty five percent increase, 0:02:49.160 --> 0:02:52.280 and higher than the jump in broader inflation, which, as 0:02:52.280 --> 0:02:55.080 we all know, has been a huge deal in recent years. 0:02:55.560 --> 0:02:58.359 So, speaking of inflation, egg prices have become a prime 0:02:58.400 --> 0:03:01.799 example of recent price pressure, with wholesale egg prices surging 0:03:01.840 --> 0:03:04.640 by two hundred and seven percent between twenty twenty two 0:03:04.720 --> 0:03:08.320 and twenty twenty three. Chicken farmers blamed outbreaks of bird 0:03:08.320 --> 0:03:10.359 flu for the increase, but some saw it as corporate 0:03:10.400 --> 0:03:13.799 price gouging, result of a handful of powerful companies supposedly 0:03:13.840 --> 0:03:17.240 taking advantage of consumers at a difficult time, and generally 0:03:17.400 --> 0:03:19.240 it looks like the bird flu was a big part 0:03:19.280 --> 0:03:21.080 of the story. But it did happen at a time 0:03:21.160 --> 0:03:23.800 when prices for all kinds of things were surging, so 0:03:23.880 --> 0:03:26.800 it's easy to understand why people saw it as as 0:03:26.840 --> 0:03:27.480 a macro thing. 0:03:27.919 --> 0:03:31.760 So we have to ask what exactly has been driving 0:03:31.760 --> 0:03:35.160 the price increases in eggs and that sweet, sweet chicken meat. 0:03:35.600 --> 0:03:38.120 Why has the chicken industry evolved in the way that 0:03:38.200 --> 0:03:40.880 it has, and what does it say about the nature 0:03:41.000 --> 0:03:46.920 and future direction of America's economic model. 0:03:50.360 --> 0:03:53.440 Welcome to Beat Capitalism, in which we explore some of 0:03:53.480 --> 0:03:56.360 the thorniest issues facing the US economy through the medium 0:03:56.440 --> 0:03:57.440 of chicken. 0:03:58.080 --> 0:04:00.640 In this special three part series, from All Thoughts, we 0:04:00.680 --> 0:04:02.920 are going to examine eggs. 0:04:03.040 --> 0:04:04.840 Get it so, there's going to be chicken puns. 0:04:04.880 --> 0:04:07.240 Huh, there are definitely going to be chicken puns. Get 0:04:07.360 --> 0:04:10.200 used to it. Now, we are going to examine all 0:04:10.240 --> 0:04:14.000 of these questions and more, because it turns out chicken 0:04:14.120 --> 0:04:16.960 has a lot to say about things like inflation and 0:04:17.040 --> 0:04:21.080 the relationship between workers and big companies, and it creates 0:04:21.120 --> 0:04:25.080 some big existential questions about what kind of economy. We 0:04:25.240 --> 0:04:34.080 actually want to have first up, what actually happens when 0:04:34.120 --> 0:04:36.839 the price of a chicken sandwich or an egg, or 0:04:36.880 --> 0:04:39.039 even a simple chicken wing takes fun. 0:04:49.600 --> 0:04:54.120 The Chicken Sandwich Wars were an extremely challenging time for 0:04:54.279 --> 0:04:58.200 me as a person. It was hard on my family, 0:04:58.520 --> 0:05:01.160 It was hard of my friends because every time I 0:05:01.240 --> 0:05:03.280 had read a press release about these things, I had 0:05:03.279 --> 0:05:06.040 to go buy one. I ate so many chicken sandwiches 0:05:06.120 --> 0:05:09.039 during that war. I was the real casualty. I'm the 0:05:09.080 --> 0:05:11.040 one that had it totter into my you know, drive 0:05:11.080 --> 0:05:14.279 two hours to the nearest Popeyes to go try the sandwich. 0:05:14.320 --> 0:05:14.640 I didn't. 0:05:14.720 --> 0:05:17.880 That's Justin McElroy. He's one third of the My Brother, 0:05:18.000 --> 0:05:21.280 My Brother and Me podcast, and the Chicken Sandwich Wars 0:05:21.400 --> 0:05:24.120 were a big deal for him. He spends part of 0:05:24.120 --> 0:05:27.600 the podcast reading out fast food press releases, and there 0:05:27.640 --> 0:05:30.359 were a lot of those flying around at this time. 0:05:30.720 --> 0:05:34.120 A lot of American fast food competition, especially during the 0:05:34.160 --> 0:05:36.799 time period this is happening, our mid to late two thousands, 0:05:37.279 --> 0:05:39.800 is really a race to the bottom of who can 0:05:39.839 --> 0:05:43.599 sort of like reorganize the ingredients in the kitchen in 0:05:43.640 --> 0:05:47.240 the most disturbing way to try to net headlines. You know, 0:05:47.320 --> 0:05:49.520 we'll put some doridos in it. Look, we found some 0:05:49.560 --> 0:05:51.279 FreeDOS lying around. We shove that in it. 0:05:51.320 --> 0:05:52.000 Do you like this? 0:05:52.240 --> 0:05:55.040 Is this anything? And a lot of it seemed pretty desperate. 0:05:55.080 --> 0:05:58.279 And I think what was so interesting about Popeye's chicken 0:05:58.320 --> 0:06:01.320 sandwich is that they had the the courage as a 0:06:01.320 --> 0:06:05.200 brand to say, what if we just made something good? 0:06:05.480 --> 0:06:08.560 And that was kind of the whole hook was it 0:06:08.600 --> 0:06:11.160 was really good to eat, and it was wild and 0:06:11.200 --> 0:06:13.640 this is just a sandwich that was It got famous 0:06:13.640 --> 0:06:15.839 for being extremely good to eat, which I think was 0:06:15.880 --> 0:06:17.640 a real breath of fresh chicken. 0:06:18.000 --> 0:06:21.680 So, as the nation's de facto chicken war correspondent, Justin 0:06:21.720 --> 0:06:24.160 has thought a lot about why this particular combo took 0:06:24.160 --> 0:06:27.160 off like it did. Sure, there was a novelty value, 0:06:27.320 --> 0:06:28.560 and they were delicious. 0:06:29.160 --> 0:06:33.320 I tend to believe that the best chicken sandwich is 0:06:33.360 --> 0:06:34.760 the one that's nearby. 0:06:35.200 --> 0:06:36.839 But chicken sandwiches were also cheap. 0:06:37.400 --> 0:06:40.800 I know, we are wild about these things as a nation. 0:06:41.480 --> 0:06:44.360 Especially one of the great things is that it's cheaper 0:06:44.400 --> 0:06:46.279 than beef. So we are just wild about that, and 0:06:46.320 --> 0:06:48.279 I think we'll continue to be as long as we 0:06:48.320 --> 0:06:50.480 got all these millions of people to feed. 0:06:51.240 --> 0:06:53.920 Chicken is still relatively cheaper than a lot of other 0:06:53.960 --> 0:06:56.680 types of meat. But that doesn't mean that prices for 0:06:56.760 --> 0:07:00.200 chicken products never went up. Today, a popeye spice see 0:07:00.240 --> 0:07:03.640 chicken sandwich costs close to six dollars in many cities. 0:07:03.960 --> 0:07:07.040 That's about a fifty percent increase from its launch price 0:07:07.160 --> 0:07:11.040 of three ninety nine, and that price went up despite 0:07:11.240 --> 0:07:14.480 that intense competition among the sandwich makers. 0:07:14.920 --> 0:07:17.760 In that respect, the chicken sandwich wars might be emblematic 0:07:17.800 --> 0:07:20.560 of some wider pricing trends. People have chicken, whether it's 0:07:20.560 --> 0:07:23.160 in sandwich form or something else. We keep buying it 0:07:23.200 --> 0:07:25.800 even as prices go up and companies keep giving us 0:07:25.880 --> 0:07:26.840 new ways to consume it. 0:07:27.360 --> 0:07:30.200 To understand that, we need to talk about my personal 0:07:30.400 --> 0:07:34.840 favorite chicken item, wings. But the demand for chicken wings 0:07:34.920 --> 0:07:39.280 is pushing the price to historic levels. So how high 0:07:39.360 --> 0:07:41.000 will the cost of eating wings go? 0:07:41.320 --> 0:07:44.280 Your Super Bowl party is going to cost about fourteen 0:07:44.400 --> 0:07:46.800 percent more than it did last year. 0:07:47.200 --> 0:07:50.280 A lot of this is the labor shortage the supply chain. 0:07:50.080 --> 0:07:53.840 Crunch Restaurants and suppliers say prices for chicken wings have 0:07:54.000 --> 0:07:55.120 gone through the roof. 0:07:55.400 --> 0:07:57.280 It's a no brainer. The wing Stop is getting in 0:07:57.320 --> 0:07:59.880 on the chicken sandwich wars, but with its own twist. 0:08:00.680 --> 0:08:03.360 Wingstop is one of the biggest wing chains in America, 0:08:03.400 --> 0:08:06.160 and even they got into the chicken sandwich game. In 0:08:06.200 --> 0:08:09.280 twenty twenty two, the company launched its own sandwich offering, 0:08:09.760 --> 0:08:13.080 introducing not just one, but a dozen different flavors of 0:08:13.200 --> 0:08:15.120 chicken and carb combos. 0:08:16.040 --> 0:08:18.280 So we saw an opportunity to do it different, to 0:08:18.280 --> 0:08:23.200 do it the Wingstop way, and the launch was pretty 0:08:23.240 --> 0:08:26.880 incredible because we planned it out. We did all of 0:08:26.920 --> 0:08:31.040 our forecasting and we were confident we had plenty of 0:08:31.080 --> 0:08:35.600 inventory when we launched to be able to meet any 0:08:35.640 --> 0:08:38.240 sort of scenarios we could come up with around demand. 0:08:38.760 --> 0:08:41.480 But the fact was we sold out in a week, 0:08:42.000 --> 0:08:45.920 which is pretty remarkable to just see. The strategy was right, 0:08:46.000 --> 0:08:48.640 the timing was right. The only thing was wrong is 0:08:48.640 --> 0:08:51.120 we didn't plan for that much volume. But we were 0:08:51.160 --> 0:08:54.360 able to take a step back, build up supply and 0:08:54.440 --> 0:08:57.080 relaunch again. And it has been a bit of a 0:08:57.120 --> 0:09:00.400 game changer for our brand because we're bringing in a 0:09:00.600 --> 0:09:04.800 record number of new guests into our brand quarter after quarter. 0:09:05.400 --> 0:09:09.720 That's Wingstop CEO Michael Skipworth and He says chicken sandwiches 0:09:09.760 --> 0:09:12.199 did a couple things for his business. They got a 0:09:12.240 --> 0:09:14.960 bunch of new customers through the door and boosted sales, 0:09:15.000 --> 0:09:17.040 of course, but there was something else too. 0:09:17.559 --> 0:09:20.679 There's also a supply chain side of the strategy. The 0:09:20.720 --> 0:09:23.600 more breastmeat that we use, which is where that chicken 0:09:23.640 --> 0:09:27.040 sandwich filet comes from, where our bonuss wings come from, 0:09:27.480 --> 0:09:30.520 the better it puts us in a position to negotiate 0:09:30.679 --> 0:09:34.600 our overall buy with these poultry companies and help us 0:09:34.679 --> 0:09:37.880 execute our supply chain strategy, which is really one that's 0:09:37.880 --> 0:09:40.080 centered around in chicken wings. 0:09:42.720 --> 0:09:44.440 And this is where we need to talk about where 0:09:44.440 --> 0:09:46.280 wings actually come from. 0:09:46.520 --> 0:09:47.320 Is it from chicken? 0:09:47.760 --> 0:09:50.160 Yes, But according to Michael, chicken wings are one of 0:09:50.200 --> 0:09:53.040 the most volatile commodities out there, and obviously they're a 0:09:53.120 --> 0:09:56.240 huge component of Wingstop's business. The company says it's the 0:09:56.240 --> 0:09:58.000 biggest customer for wings in the country. 0:09:58.679 --> 0:10:02.000 About volatility and chicken wings and what that can do 0:10:02.840 --> 0:10:07.240 to the Wingstop restaurants p and L. It could be 0:10:07.360 --> 0:10:11.600 as much as a ten percentage point swing in our 0:10:11.640 --> 0:10:17.400 food cost, which is incredible amount of fluctuation. Now, the 0:10:17.440 --> 0:10:21.920 reason you see so much volatility in the price of 0:10:21.960 --> 0:10:26.800 wings is the reality of the fact that these poultry companies, 0:10:27.400 --> 0:10:31.760 they are not growing these chickens for the wings. They're 0:10:31.880 --> 0:10:35.880 setting the size of the flock, how many birds they're 0:10:35.880 --> 0:10:39.400 going to harvest based on breast meat demand. The chicken 0:10:39.440 --> 0:10:42.559 wings themselves represent six to eight percent of the bird 0:10:42.800 --> 0:10:46.040 It's a fall off product. And so why you see 0:10:46.280 --> 0:10:50.800 so much volatility in the price of wings. It clearly 0:10:50.880 --> 0:10:54.560 is a supply and demand dynamic, but the demand is 0:10:54.600 --> 0:10:58.000 not what's driving the supply. It's really centered around the 0:10:58.040 --> 0:11:01.400 overall market for breast meat, and so that's what's created 0:11:01.440 --> 0:11:05.400 a lot of volatility in that commodity. And there can 0:11:05.440 --> 0:11:09.720 be years where that spot market hits, you know, below 0:11:09.760 --> 0:11:13.200 one dollar a pound, and then take a year like 0:11:13.280 --> 0:11:17.920 twenty twenty one, after the pandemic, where every single brand 0:11:18.000 --> 0:11:20.920 out there added chicken wings to their menu, you saw 0:11:20.960 --> 0:11:23.720 that spot market hit an all time high of three 0:11:23.720 --> 0:11:25.520 dollars and twenty one cents a pound. 0:11:36.720 --> 0:11:39.240 Like a lot of things in the aftermath of the pandemic, 0:11:39.280 --> 0:11:42.040 the price of chicken wings soared after twenty twenty, jumping 0:11:42.080 --> 0:11:44.560 more than seventy percent between twenty twenty one and twenty 0:11:44.640 --> 0:11:48.080 twenty two alone. There were the usual supply chain disruptions, 0:11:48.120 --> 0:11:50.640 A lot of poultry processors had to curb production because 0:11:50.640 --> 0:11:53.800 of worker shortages. Labor costs went up, so did chipping 0:11:53.800 --> 0:11:55.440 and packaging costs. 0:11:55.080 --> 0:11:58.240 But there was higher demand too. Americans reacted to the 0:11:58.320 --> 0:12:00.959 trauma of the pandemic in what I think is a 0:12:01.120 --> 0:12:05.720 very relatable way. They ordered wings, lots of them. Demand 0:12:05.720 --> 0:12:09.240 for chicken wings jumped when we were all isolating. After all, 0:12:09.360 --> 0:12:12.880 wings are both delicious and can be transported pretty easily. 0:12:13.280 --> 0:12:16.199 Anyone who's ever ordered a couple dozen at two am 0:12:16.240 --> 0:12:19.720 because they're the fastest and most delicious thing around probably 0:12:19.840 --> 0:12:20.559 knows this well. 0:12:20.880 --> 0:12:22.800 At the height of the price bike, some restaurants were 0:12:22.800 --> 0:12:25.680 even labeling chicken wings at quote market price, you know, 0:12:25.760 --> 0:12:28.760 like lobster. Some grocery stores put limits on the amount 0:12:28.760 --> 0:12:31.319 of drums and flats you could purchase. For a company 0:12:31.360 --> 0:12:34.000 like Wingstop, the soaring cost of its primary product proved 0:12:34.000 --> 0:12:38.120 to be an opportunity as well as a challenge, and for. 0:12:38.080 --> 0:12:42.920 One analyst, chicken wings became key to understanding the entire economy. 0:12:43.400 --> 0:12:46.880 I'm Sam Rynes, and I'm a macro strategist with Wisdom Tree. 0:12:47.120 --> 0:12:49.680 Part of Sam's job is to predict winners and losers 0:12:49.720 --> 0:12:52.600 in the macroeconomy and in the years after the pandemic, 0:12:52.720 --> 0:12:55.240 if you wanted to understand who is winning, you needed 0:12:55.240 --> 0:12:56.360 to know Chicken wings. 0:12:57.040 --> 0:13:00.800 According to Sam wings are the perfect pandemic study. Of 0:13:00.840 --> 0:13:04.640 all those one off disruptions. It gave companies a reason 0:13:04.720 --> 0:13:08.920 to raise their prices, a strategy he calls price over volume. 0:13:10.880 --> 0:13:17.120 Price over volume is the idea that companies coming out 0:13:17.160 --> 0:13:23.000 of the pandemic and through the Ukraine crisis used the 0:13:23.080 --> 0:13:27.560 excuses that they had to increase prices well beyond what 0:13:27.600 --> 0:13:31.880 they would have in the pre pandemic, pre Russia invasion 0:13:31.920 --> 0:13:36.520 of Ukraine period in order to maintain their margins in 0:13:36.559 --> 0:13:39.920 that environment. That came at the expense of volumes. So 0:13:40.080 --> 0:13:42.880 the idea of price over volume is companies found it 0:13:43.000 --> 0:13:47.600 much more interesting to increase prices than to attempt to 0:13:47.679 --> 0:13:52.960 maintain their volumes over time. So your wingstops, your McDonald's, 0:13:53.000 --> 0:13:56.840 your Burger Kings, Taco Bell, KFC. A lot of these 0:13:57.520 --> 0:14:00.800 restaurants really figured out that you know, you kind of 0:14:00.800 --> 0:14:03.360 have it out there that labor's getting more expensive, that 0:14:03.480 --> 0:14:06.320 your protein is getting more expensive, so you can raise 0:14:06.360 --> 0:14:09.760 prices and you can raise prices pretty dramatically relative to 0:14:09.800 --> 0:14:14.520 what you could previously. They learned very very quickly that 0:14:14.720 --> 0:14:19.240 it is much much cheaper to gain margin by changing 0:14:19.320 --> 0:14:22.360 a price tag than it is to invest in putting 0:14:22.360 --> 0:14:25.480 more volume out there. It flows straight to the bottom line, 0:14:25.960 --> 0:14:28.760 and you don't have to move prices down anywhere near 0:14:28.920 --> 0:14:32.200 as quickly as anticipated, if at all. 0:14:33.560 --> 0:14:35.640 At a time when there were lots of shortages and 0:14:35.720 --> 0:14:38.520 higher costs, price over volume could be a pretty compelling 0:14:38.520 --> 0:14:41.800 strategy for businesses. In twenty twenty one, as chicken wing 0:14:41.800 --> 0:14:44.040 prices were nearing their height, when we Stop said it 0:14:44.080 --> 0:14:46.320 had increased menu prices by about ten percent. 0:14:46.680 --> 0:14:48.960 You know, they talked about how their suppliers had worked 0:14:48.960 --> 0:14:51.000 with them and so their realize costs were only up 0:14:51.080 --> 0:14:55.040 like seventy percent. Still, that's you know, you sell chicken 0:14:55.080 --> 0:14:57.600 wings and they're up seventy percent in pricing, that's a 0:14:57.640 --> 0:15:01.760 pretty big deal for you. What was intriguing about that 0:15:02.120 --> 0:15:04.720 was it gave them an excuse to raise prices, right, 0:15:04.960 --> 0:15:07.840 So what did Wingstop do? Wingstop raised prices, and they 0:15:07.920 --> 0:15:09.600 raised prices significantly. 0:15:10.160 --> 0:15:14.280 Those price increases didn't necessarily mean that Wingstop was suddenly 0:15:14.320 --> 0:15:17.440 making a bucket load of chicken money, but being able 0:15:17.480 --> 0:15:20.840 to charge more did help protect their profit margins at 0:15:20.840 --> 0:15:25.120 a difficult time. As Zam points out, Wingstop wasn't unique 0:15:25.160 --> 0:15:28.320 in this respect. A bunch of other companies like Pepsi, 0:15:28.560 --> 0:15:33.080 Home Depot, even Walmart arguably did something similar for sam. 0:15:33.120 --> 0:15:35.920 What really differentiates the price over volume idea is what 0:15:35.960 --> 0:15:38.720 happened when chicken wing prices started to come down, but 0:15:38.760 --> 0:15:42.720 Wingstop's menu prices didn't suddenly drop alongside them, so. 0:15:42.640 --> 0:15:47.720 They raised prices. Where it began to show through was 0:15:47.720 --> 0:15:51.520 on the other side of the chicken wing crisis. Chicken 0:15:51.520 --> 0:15:54.520 wing prices fell and they fell back to where they 0:15:54.560 --> 0:15:57.920 had been previously, and they fell back, you know, call 0:15:57.960 --> 0:16:02.280 it from almost three dollars per pound back to around 0:16:02.480 --> 0:16:04.960 eighty five cents a pound. And those are peak to 0:16:05.200 --> 0:16:07.560 kind of trough pricing. But if you think about that, 0:16:07.560 --> 0:16:11.200 that's a pretty powerful thing. When you haven't moved your price, 0:16:11.200 --> 0:16:14.200 if your Wingstop, so you've got the chase up in price, 0:16:14.560 --> 0:16:17.160 You're not moving your price lower to kind of give 0:16:17.200 --> 0:16:20.040 back to the consumer. You're maintaining that price now. So 0:16:20.080 --> 0:16:23.560 all of a sudden, your margins have really begun to expand, 0:16:24.080 --> 0:16:26.720 and that's not going to go anywhere, anytime fast. 0:16:28.240 --> 0:16:30.440 So the price increases of the past could still be 0:16:30.440 --> 0:16:33.520 a tailwind for a business like Wingstop Today, the company 0:16:33.600 --> 0:16:36.160 says it's increasing menu prices by a smaller amount, just 0:16:36.200 --> 0:16:39.080 one to two points, which is closer to the historical average, 0:16:39.160 --> 0:16:41.520 but they're still rising and from a higher starting point too. 0:16:41.840 --> 0:16:45.560 In an economy where consumers keep spending and entire industries 0:16:45.600 --> 0:16:48.920 are raising prices all together at the same time, prices 0:16:48.960 --> 0:16:52.400 can go up and stay there even when input prices 0:16:52.640 --> 0:16:55.360 the cost of actually making the stuff start to fall. 0:16:55.760 --> 0:16:58.480 It's an added wrinkle in the way we think about prices, 0:16:58.760 --> 0:17:01.120 and one that could come back to rear its ugly 0:17:01.160 --> 0:17:03.680 head even as inflation has slowed. 0:17:06.040 --> 0:17:09.120 The Meg is a twenty eighteen science fiction film about 0:17:09.119 --> 0:17:12.040 a seventy five foot megalodon, a giant shark basically that 0:17:12.200 --> 0:17:15.080 terrorizes a group of scientists working in the Pacific Ocean 0:17:15.640 --> 0:17:18.440 for Sam Ryans. Though Meg is something different that could 0:17:18.480 --> 0:17:19.399 still be pretty scary. 0:17:19.720 --> 0:17:20.760 Is it a giant chicken? 0:17:22.160 --> 0:17:22.960 No, here's Sam. 0:17:23.680 --> 0:17:27.239 What companies learned was really that consumers pay attention to 0:17:27.640 --> 0:17:31.160 the Meg right and kind of the scary shark out there, 0:17:31.640 --> 0:17:33.760 which is milk eggs and gasoline. 0:17:34.040 --> 0:17:37.320 That's the meg milk, eggs and gasoline. 0:17:37.880 --> 0:17:41.479 And when you have egg prices that are going up 0:17:41.560 --> 0:17:45.399 dramatically and doing it very quickly, you better have an 0:17:45.400 --> 0:17:49.720 excuse to you for that price to be moving, and 0:17:49.840 --> 0:17:52.240 you better be able to explain why the cost of 0:17:52.320 --> 0:17:55.800 everything that includes eggs is also going up, whether it's mayonnaise, 0:17:55.840 --> 0:17:59.919 whether it's bread, et cetera. That's really going to have 0:18:00.040 --> 0:18:03.000 an effect on the consumer psyche. But at the same 0:18:03.040 --> 0:18:06.760 time they're not necessarily going to step back from consuming it. 0:18:06.880 --> 0:18:12.880 So a lot of the companies out there, whether it's Pepsi, 0:18:13.000 --> 0:18:18.199 whether it's Craft, Hinds, ConAgra, they found that consumer demand 0:18:18.240 --> 0:18:22.679 is rather inelastic, that there is not anywhere near the 0:18:22.760 --> 0:18:27.120 sensitivity to price that they thought there was pre pandemic, 0:18:27.359 --> 0:18:28.080 pre invasion. 0:18:38.160 --> 0:18:41.480 People love chicken so much that even as prices go up, 0:18:41.640 --> 0:18:44.960 they keep buying. I gotta admit, Joe, my personal price 0:18:45.080 --> 0:18:50.200 elasticity for chicken wings is extremely anelastic. It is the 0:18:50.240 --> 0:18:54.680 opposite of a rubber band or a rubber chicken. If 0:18:54.720 --> 0:18:57.359 prices go up, I am definitely still buying. 0:18:57.760 --> 0:19:00.920 Point taken. But the idea that price and by extension 0:19:00.920 --> 0:19:04.199 inflation might act a little differently in extraordinary times. It's 0:19:04.200 --> 0:19:06.479 starting to gain some traction, and Sam isn't the only 0:19:06.520 --> 0:19:07.480 one who's thinking about this. 0:19:08.080 --> 0:19:10.359 My name is zabel A Viba. I'm an economists at 0:19:10.359 --> 0:19:13.439 the University of Massachusetts, Amhurst, and I've been working on 0:19:13.640 --> 0:19:16.600 inflation for a number of years, first in the context 0:19:16.720 --> 0:19:19.560 of China's position to a market economy, which was all 0:19:19.560 --> 0:19:22.600 about structural ruptures, and then in the context of the 0:19:22.680 --> 0:19:24.800 overlapping emergencies of recent years. 0:19:25.119 --> 0:19:27.919 The soaring price of chicken wings wasn't the result of 0:19:27.960 --> 0:19:31.320 a single thing. The events of twenty twenty clawbird supply 0:19:31.440 --> 0:19:34.960 chains and led to labor shortages. Russia invaded Ukraine in 0:19:35.040 --> 0:19:37.880 early twenty twenty two, which caused the price of grains, 0:19:38.080 --> 0:19:41.000 the basic building block of poultry feed, to go up. 0:19:41.400 --> 0:19:43.680 Then there was an outbreak of bird flu, which we'll 0:19:43.680 --> 0:19:46.960 talk more about in a second. Demand for wings spiked 0:19:47.000 --> 0:19:50.480 at that same time, and companies like Wingstop responded to 0:19:50.520 --> 0:19:53.919 that environment by raising their prices. Put it all together 0:19:54.040 --> 0:19:56.920 and you had a recipe for record wingflation. 0:19:57.440 --> 0:19:59.800 Isabella says. The worry is that these types of inflationary 0:19:59.800 --> 0:20:03.679 e which she calls overlapping emergencies are becoming more common, 0:20:04.000 --> 0:20:06.760 and this isn't just a US phenomenon. Globally, prices for 0:20:06.800 --> 0:20:09.320 poultry are still up thirty three percent since the pandemic. 0:20:09.680 --> 0:20:12.560 When we talk about the overlapping emergencies of recent years, 0:20:12.640 --> 0:20:15.919 I would refer to a conjunction of different things that 0:20:16.000 --> 0:20:17.760 have been kind of in the making for a while, 0:20:17.800 --> 0:20:19.879 but that have been culminating in recent years and that 0:20:19.920 --> 0:20:22.960 are also not really going away. The first is, of course, 0:20:23.000 --> 0:20:26.119 climate change. It's no longer an issue that kind of 0:20:26.160 --> 0:20:29.919 will bother our children or grandchildren, but it's an issue 0:20:29.920 --> 0:20:32.800 that is relevant in the here and now. Global warming 0:20:32.880 --> 0:20:36.800 is a reality. Extreme weather events have become very frequent 0:20:37.000 --> 0:20:39.080 pretty much anywhere in the world. If you ask people, 0:20:39.200 --> 0:20:41.360 can you think of an extreme weather event, they will 0:20:41.400 --> 0:20:44.000 probably be able to name one that is not very 0:20:44.000 --> 0:20:47.200 far away from them. And on top of this situation 0:20:47.320 --> 0:20:52.119 around climate and weather, we have mounting geopolitical tensions. We 0:20:52.200 --> 0:20:55.640 have an unstable global order that is as unstable as 0:20:55.640 --> 0:20:58.600 it hasn't been in many years, if not decades, which 0:20:59.000 --> 0:21:02.520 all of these things can have implications for the stability 0:21:02.560 --> 0:21:06.600 of production networks, for the stability of distribution, and therefore 0:21:06.720 --> 0:21:11.439 ultimately for the stability of economies, societies and democracies and 0:21:11.520 --> 0:21:14.800 states and so on, which then of course has again 0:21:14.880 --> 0:21:19.080 feedback dimensions into the degradation of the natural environment, into 0:21:19.160 --> 0:21:24.280 climate change against climate change, and into the geopolitical environment. 0:21:25.520 --> 0:21:28.240 There's another thing playing out too. When all these different 0:21:28.240 --> 0:21:31.680 emergencies hit the headlines, consumers hear about it, they pay attention, 0:21:32.160 --> 0:21:34.679 and so when companies decide to respond to higher input 0:21:34.720 --> 0:21:37.800 prices by raising their prices, those price increases might seem 0:21:37.800 --> 0:21:40.439 reasonable to customers, especially if everyone is doing it at 0:21:40.440 --> 0:21:41.040 the same time. 0:21:41.920 --> 0:21:44.280 It's a different way of thinking about prices to the 0:21:44.280 --> 0:21:47.679 way we usually do in traditional economics. We tend to 0:21:47.680 --> 0:21:50.440 think about price as the result of the relationship between 0:21:50.480 --> 0:21:53.640 supply and demand. When demand is high and supply is low, 0:21:53.760 --> 0:21:57.560 prices go up, and the inverse happens too, prices go 0:21:57.680 --> 0:22:01.560 down when demand is low. Companies are supposed to compete on. 0:22:01.560 --> 0:22:04.560 Cost, But when they are all these emergencies and one 0:22:04.560 --> 0:22:07.320 off disruptions in the news, price stting starts to look 0:22:07.359 --> 0:22:10.399 a little bit more complicated. If everyone has an excuse 0:22:10.440 --> 0:22:13.320 to raise prices because there's a major emergency like a 0:22:13.359 --> 0:22:16.480 global pandemic, then maybe businesses don't really feel as much 0:22:16.480 --> 0:22:18.800 pressure to lower prices in. 0:22:18.680 --> 0:22:22.520