While this seems true and I hope these companies get a large fine and some regulatory action takes place to wipe out these third party apps, I'm kind of surprised at the corporate learned helplessness here.
Back in the day McDonald's or one of their fast food competitors would have built their own frozen potato pipeline, made a massive marketing gimmick about cheapest fries and shattered this cartel quickly. It sounds like the companies are taking a high margin and the farmers would love to sell to anyone else. But it feels like the current managers at these fast food companies have gotten so used to outsourcing every part of production they lack the knowledge/remit to even try to set up a competing supply line.
It feels like only it's only efficient to focus core competencies if the people in charge of those stay smaller. Given how big companies can squeeze suppliers I see how they would end up consolidated. But if everyone is doing one thing and consolidating horizontally to negotiate better it becomes kind of red queen race.
Maybe when you have a multi-billion dollar supply chain and complex contract structure you can't just learn to do something new to solve a problem anymore.
The small players can't do much. As mentioned in the article, either potatoes and DIYing are cheaper or they aren't, but medium to large firms presumably could/should do something.
McDonald's has switched between Simplot and McCains a half dozen times in the last ten years. In Australia, they even use both. They have their own pipelines that they require the company matches, already, and companies compete to have them as a customer. The fast food company holds the power in that particular relationship.
McDonald's rejected Simplot's "Innate" in 2020, a GMO potato that they spent about a decade developing. Which basically turned the entire project into a loss. It's one of the main reasons that the Lanthrop plant is closing.
I believe McDonald's does have their own pipelines for various ingredients, including beef, in countries where it's necessary for uniformity, outside the US. I'd have to assume they've looked at the numbers and determined that having their own potato to french fry pipeline would not shave enough cost off a happy meal to lure enough customers from their competitors to make it worthwhile. Shattering the cartel might not be in their interest.
McDonalds doing those things in other countries doesn't necessarily show that the parts of their organization responsible for their US operations are competent enough to do the same. Assuming that whatever the corporation is doing presently must be the result of careful rational economic analysis seems like a fallacy of some sort. Just world fallacy? Optimally Run Corporation fallacy.
Upvoted, and I wish I could upvote you twice. Because I did commit a logical fallacy. I can't assume that a decision was made wisely, or informedly, just because it was made by a giant organization with information we're not privy to. People in such organizations are just as incompetent as everyone else.
It’s unlikely they are able to gouge McDonald’s and the large companies. Even the article mentioned that the big competition is for those massive contracts. It’s much more likely that McDonald’s and co can shop around, negotiate a great price, and maintain margins.
It’s the mom and pops, the regional suppliers that can’t do anything, and likely pay much higher prices than the megacorps.
Indeed, it is surprising that you would be able to pull this stunt on such a huge buyer as McDonalds.
Here's an alternative theory that will disappoint the readers of Jacobian - potatoes are a commodity and commodity prices drive inflation. A bad crop, expensive fertiliser, a ground war in one of the largest potato-exporting countries in the world (Ukraine) - all these things would cause suppliers to increase prices in lockstep.
Inflation can be good cover for price collusion, sure, but the reason why it's such good cover is that its effects are almost indistinguishable without a smoking gun. Lets see what the FTC investigation brings up.
(Another note - inflation inflates profits as well as prices.)
Just to augment what you are saying... all potatoes aren't created equally either... size, starches, variety, organic... there are places around North America where certain kinds of potatoes are grown that are completely unsuitable for french fries but might be fine for retail. Even among Russets, for example - you see smaller ones bagged up for retail, but larger ones are often sold loose as "bakers." And sometimes those same big beautiful Russets are undesirable for fries because they are inconsistent sizes, which can be problematic for processing.
> It sounds like the companies are taking a high margin
Are we really sure that's the case?
I bet that mcDonalds has much better people focused on this problem than the Jacobin, and considering how much fries they sell, they have people on it for sure.
Maybe they know more about this market than we do, and have actually found that the prices are not as unreasonable as they seem?
That's a good point, I assumed the farmers in the article were correct on getting squeezed, but individual producers rarely have a good view on the market. And McDonald's et al has been getting flack lately for the price of fries increasing. But looking at the potato price charts it's a pretty frothy market with a huge spike in 2023[0]. Maybe they've decided the suppliers are playing fair enough, at least with them. Or perhaps they are waiting to see if the frozen prices track the commodity price down before they decide to try to do something, I didn't realize the drop the article talks about was so recent.
> Back in the day McDonald's or one of their fast food competitors would have built their own...
Where does Costco, which famously went vertical to make its own hot dogs, source its fries? (Admittedly, that was for their food court. And I don't recall that they've got fries on their food court menu.)
Back in the day McDonald's or one of their fast food competitors would have built their own frozen potato pipeline, made a massive marketing gimmick about cheapest fries and shattered this cartel quickly. It sounds like the companies are taking a high margin and the farmers would love to sell to anyone else. But it feels like the current managers at these fast food companies have gotten so used to outsourcing every part of production they lack the knowledge/remit to even try to set up a competing supply line.
It feels like only it's only efficient to focus core competencies if the people in charge of those stay smaller. Given how big companies can squeeze suppliers I see how they would end up consolidated. But if everyone is doing one thing and consolidating horizontally to negotiate better it becomes kind of red queen race.
Maybe when you have a multi-billion dollar supply chain and complex contract structure you can't just learn to do something new to solve a problem anymore.
The small players can't do much. As mentioned in the article, either potatoes and DIYing are cheaper or they aren't, but medium to large firms presumably could/should do something.