The cheapest food in the world

Last night, I ate these:

Two things.
1, They didn’t look like that (bc no fast food looks like the picture).
2, They were delicious and legitimately $1 each.
I tried all the flavors.

Incidentally, if you happen to be in the market for a crunchwrap slider, I would steer clear of the BLT one. Beefy nacho and sriracha chicken were pretty good. (Anyone interested in an in-depth breakdown of the whole Taco Bell menu can email me)

Anyway, I tried all of the cruchwrap sliders. That scratched only one thing off my current list of fast food deals that are happening right now:

  • $1 crunchwrap sliders from Taco Bell
  • Pick 2 for $2 at McDonald’s
  • 5 items for $4 at Burger King
  • 2 or more pizzas for $5 each at Pizza Hut

Am I going crazy or are these deals ridiculous? I’m sure they give you tiny servings, but since when have you been able to get things for less than $1 each at Burger King? And the only $5 pizza I know of is Little Caesars’ Hot-N-Ready cardboard.

“No!!! Why?! Why?!”

The past few weeks, so many combo meal deals have been advertised that I’ve started asking, “Why?”

The idea of a combo deal isn’t new, of course.  The combo meal was first spread in the early 70s as an operational necessity for the rapidly expanding franchises of McDonald’s, Burgerking, and Castle.  Customers were taking too long to order from a list of items, so combo meals offered a pre-packaged way for customers to decide, order, and keep the line moving.

But why make them so cheap?  Usually, restaurants make their money off combos, because fries and a drink have crazy profit margins.  Now, it seems like restaurants have to be barely breaking even on these items.  In fact, franchisees are upset that the company makes them offer these deals, because the deals often lose money.

So why so cheap? And why do multiple restaurants offer similar deals at the same time?

Part of it is competition.  If McDonald’s offers a combo deal, you better believe Burger King is gonna offer something, too.  Nobody wants to lose market share.

From there, the meal deals proliferate.  Taco Bell has to keep up and stay in the public’s mind so they offer a $1 menu item.  Then Pizza Hut wants some of the action, too, so they pile on with a $5 pizza.

New Year, New Deals

Ok, but that still leaves the question of why January 2016 is special.

The answer is that 2015 was not a good year for fast food.  Companies like McDonald’s are used to more sales, more customers, and more stores every year.  The past two years, traffic was flat for fast food restaurants.

(Aside about the graph: McDonald’s sales are going down.  Basically, if the graph is above the red line, that means the company is doing better than it was doing at this point last year.  Below the red line, worse.  “Y/Y% change” means year-over-year percent change.  “Comp US store sales” means comparing a set of stores to themselves.

In practice, this means for instance that McDonald’s got the numbers from all their stores in February 2014.  In February 2015, they went back to all their stores and got the numbers again.  They then filtered out all the stores that opened and closed in the year between, so that they were just comparing the stores that were open in Feb 2014 to themselves in Feb 2015.  If you look at the graph, you’ll see that Feb 2015 shows a -4% change year-over-year in comp US store sales.  The same stores did 4% worse than the year before.)

Lucky for McDonald’s, they own Chipotle, and “fast casual” restaurants like Chipotle are the new gold standard for making profit.  “Build your own bowl” restaurants are growing while fast food stays stagnant.  In DC at least, I can think of several places that fit this “fast casual” model. Shop House (stir fry and noodle place), Noodles & Co. (noodles), Chop’t (made to order salads), and Potbelly (sandwiches) come to mind.

Fast food execs are upping the ante in 2016.  They’ve realized they can’t compete with the customization or the freshness of Chipotle, et al.  But they do have an assembly line that can produce food for cheap.  And they can beat Chipotle, et al. on price.

Price check

There are a lot of factors that contribute to the dollar menu’s low price point.  Each could be a Bulletin topic in itself.

First, the dollar menu and similar deals at Taco Bell, Burger King, Wendy’s, etc. are a loss leader.  Restaurants don’t make money on the dollar menu.  It just gets you in the door.  After that, they hope to sell you fries, drinks, ice cream, or larger items to make money.

Second, low worker wages keep overhead down.  Most restaurants also hire their employees strictly on a part-time basis, meaning they don’t have to offer benefits.  Even if these employees work 40 hours a week, they can still be qualified as part time.

Third, commodities are super cheap right now, and that brings us back to the “why now?” question.  These fast food places can afford these deals right now largely because of how cheap commodities are.  Before I wrote this, I didn’t really know what a commodity was, besides the fact that Eddie Murphy trades orange juice commodities futures in the movie Trading Places.

At their most basic, commodities are energy, metals, and grain/produce–raw materials that come from the earth.  Because oil prices are so low right now, it becomes cheaper to produce and transport grain and produce, driving those costs down, too.  On top of all that, some commodities like corn are already subsidized by the US government and aritificially cheaper because of it.

But isn’t there another side to the coin?  What are the real effects of cheap food, and can cheap food be a good thing, too?

The cheapest food in the world

Maybe this shouldn’t surprise me, but the United States has the cheapest food in the world compared to what its people make.  On average, Americans spend just 9% of their bugets on food.  This has dramatically decreased over time.  In 1960, we spent 17% on food.  In 1930? 24%.

This is by far the lowest food budget to total budget ratio in the world.  In Europe, they’re spending up to twice as much of their budgets on food.  At first, this might seem great, but some argue that the industrialization of food is detrimental to our health, environment, and society.  Here’s Michael Pollan, author of Omnivore’s Dilemma and In Defense of Food:

“Cheap food is an illusion. There is no such thing as cheap food. The real cost of the food is paid somewhere. And if it isn’t paid at the cash register, it’s charged to the environment or to the public purse in the form of subsidies. And it’s charged to your health.”

Even as we pay less an less for food, we’re paying more for fresh foods.  Here’s a graph to drive that point home:
So eating a diet of fresh foods may actually only cost you as much as what European countries are spending on food.  But we’ve become so accustomed to the low benchmark of cheap food, that it’s now not uncommon to hear people say, “It’s too expensive to buy vegetables!”

How much a dollar cost

In 2013, an article in the New York Post caused a stir when Kyle Smith asserted that the McDouble was the greatest food in human history.

For millions of people, the McDonald’s hamburger offers a predictable, affordable meal.  It’s high in protein, fiber, and calcium.  And since it’s available in over 14,000 locations in the US, it is bountiful.  In most of those locations, it costs ~$1.19.

The article got tons of critiques.  A response in the article argued the point this way, though:

Many huffy back-to-the-earth types wrote in to suggest the alternative meal of boiled lentils. Great idea. Now go open a restaurant called McBoiled Lentils and see how many customers line up.

I’m not convinced that the McDouble is the highest achievement of agricultural bounty.  I’m less convinced that the availability of food like McDonald’s, particularly for poor people, is right, but the fact is that it’s everywhere and delicious and cheap. It’s hard to argue against the logic of someone short on money and/or pressed for time eating McDonalds. In college, McDoubles and McChickens got me through many busy days.

American food culture

In many ways, the McDouble and the crunchwrap slider and the Whopper have been built to meet our American cultural values.  They’re cheap, “triumphs” of capitalism.  They’re fast for people who are busy.

Our food is a reflection of who we are.

The upsetting part to me, though, is that the foods that are iconically American–the hot dog, the hamburger–are meant to be eaten standing up and walking away.  They’re mass produced without heart.  American meals are not meals to share, and they’re not meals you savor.  We devour them, and then wonder why we’re left unsatisfied and ordering another.

Because $1 may be cheap.  But sometimes it also feels empty.

1 in 292,201,338

Hi everybody,

Not sure if this is true for you, but Powerball is huge in my social circle right now.  If you’re not familiar with what’s going on, lemme catch you up.

The short explanation is that the Powerball jackpot is $1.5 BILLION currently; that’s billion with a “B”.  That’s the highest the jackpot has been on any lottery game ever.  Most Powerball billboards on the interstate don’t have room to display anything over $999 million.

My dive into the rabbit hole of how Powerball works started with a Jimmy Fallon tweet.

The hashtag #IfIWonPowerball has been trending this week.  Here’s my favorite #IfIWonPowerball tweet:
My coworkers are talking about Powerball.  My roommates are buying tickets.  I normally don’t think about the lottery, but this week it’s unavoidable.

I started to wonder: How can an organization give away $1.5 billion dollars and still exist?

I’ve never played Powerball, so I don’t really understand what it’s like to buy a ticket until I looked it up today.  Let’s start there.

Your lucky numbers are…

The Powerball drawing has five white balls and one red ball (the powerball), for a total of six numbers you need to pick on your ticket.

The five white balls come from one big bin of 69 balls, so the numbers you pick for those five need to be somewhere in the range of 1-69.  The white balls are picked without replacement, meaning no numbers will be repeated in the five white picks.  The order of the numbers doesn’t matter; they just get listed on your ticket in numerical order.

The red powerball comes from a completely separate bin of 26 red balls, so you can pick any number 1-26 for the powerball.  Since it’s completely separate from the white balls you could pick a powerball that is a duplicate of one of your white picks.

You pay $2 for your ticket (or $3 if you want to play Powerplay, which I’ll explain later).

Then once you have your numbers, you wait until the drawing.  These happen twice a week on Wednesday and Saturday at 10:59 pm.  They look like this:

“So you’re telling me there’s a chance?”

If all your numbers match then you win the jackpot, that’s the simplest part to explain.

But you can also win lesser prizes.  Even if just a few or even 1 of your numbers matches the chosen balls you can win.  For just matching the powerball alone, you win $4, doubling your investment.  If you match 4 numbers out of the 6, you win $100.  4 white and the powerball? $50,000.  Get all 5 white correct and you win $1 million.

This is where things get interesting.  If you pay $1 more and buy a $3 ticket, you can double, triple, or 5x those lesser winnings.  These are called “powerplay” tickets, and instead of $4 for example you would make $8, $12, or $20, depending on the night and whether 2x, 3x, or 5x gets randomly chosen.

When you factor in the lesser prizes, your overall odds of winning something are 1 in 24.87.

Your odds of winning the jackpot, however? 1 in 292,201,338.

If nobody wins the jackpot, they roll over the jackpot amount plus the new tickets into the next drawing.  That rollover is how we got to $1.5 billion.

Sidebar: If you’re going to play the Powerball

  • First, don’t expect to win anything.  Remember that 96% of the time you will be throwing away $2.
  • Second, do not pick the powerplay option.  Statistically it increases your liability more than it increases your expected benefit (pay $1 more to get only ~$0.82 of expected value if it’s a 5x multiplier that night, and most of the time it’s not a 5x multiplier).
  • Third, the best time to buy a ticket is when the jackpot is between $400 million and $600 million, after that too many other people start buying tickets and the chances of your sharing the prize go up drastically.

    Still, for every $2 ticket you buy, you can only reasonably expect to win $0.85. (See below)

So what is this organization that has $1.5 billion just laying around?

Powerball is run by the Multi-state Lottery Association (MUSL), and they don’t have $1.5 billion laying around.  44 states, DC, and the Virgin Islands sell Powerball tickets and contribute to the pot of winnings.  They also get back the earnings.

But the winnings aren’t $1.5 billion handed to you in cash.  Instead, they put the winnings into an annuity that pays every year, with a 5% increase every year.  Over 30 years, this annuity is worth $1.5 billion, pre-tax.  You can ask for straight cash, but that’s at a serious markdown.  For example, this week’s cash option was worth only $930 million, pre-tax (yes, I just wrote “ONLY $930 million” seriously).

And in order to protect the organization, the winnings are calculated based on market performance, ticket sales predictions, and overhead.  The jackpot is really only about 1/3 of Powerball’s budget.  And Powerball’s budget doesn’t include the lesser winnings ($4 – $2,000,000), because those are paid by the participating states.

The lottery has a pretty sweet deal.  MUSL’s director, Chuck Strutt has been working for the organization since its founding in 1987.  I don’t blame him.  If my job were selling pieces of paper that are mostly worthless and having millions of people buy them then that seems like a good gig.

And this brings us to the part that blew me away.  Since the jackpot began building on November 7th, lottery officials estimate that Powerball sold 1.55 billion tickets!  For Wednesday’s drawing alone, they sold 371 million.  When you realize that tickets sell for $2 or $3, and the winnings are paid over 30 years, you can see that Powerball isn’t exactly struggling to get by.

This is where things get confusing, because MUSL is a non-profit.

All dat cash tho…

MUSL can’t make a profit; it’s part of the deal when you’re a nonprofit.  They also have to satisfy the states that support Powerball and their other games (normally states wouldn’t like lotteries and gambling).  So MUSL and Powerball only operate and facilitate the games.  They do not take in the assets from tickets.  They only administer the jackpot winnings and coordinate the games between all the member states.

State lotteries pay all employees and take in all revenues.  Proceeds from Powerball get returned back into state budgets after paying the costs of running the lottery in the state, pitching in for the jackpot, and contributing to MUSL’s operations costs.  About 1/3 of ticket sales is returned to state budgets. This money gets used for all kinds of things.  Most notably though, states use the money for education.

(It’s always seemed ironic to me that we have “education lotteries.” If we had better education, maybe people wouldn’t play the lottery because they’d understand probability, or so I thought, but there are other reasons to play the lottery than thinking you’ll win and I’ll talk about those in a minute.)

Here’s the breakdown of proceeds for DC, where I live:

While MUSL can’t make a profit, each state lottery can and is expected to make money.  One study in 2008 found that lotteries contributed $77.8 billion to state budgets across the country.

Here’s how that compares to other ticket sales (2014).

It’s actually kinda messed up

Originally, money made in state lotteries was supposed to supplement the state budget.  In many states, though, legislators have cut taxes and rely on lottery proceeds to replace tax revenue.  While this might seem great in theory (people who have extra money and choose to spend it on the lottery can afford to pay for public services), in practice study after study have shown that those of low socioeconomic class and racial minority are the most likely to play the lottery and play it heavily.

  • In North Carolina, the poorest counties lead the state in lottery sales.
  • On average, poor people spend 9% of their income on lottery tickets.
  • One survey found that 21% of Americans believe the lottery is the most practical way to wealth.

When we use lottery revenues to replace tax revenues, it cuts taxes on the rich while the poor and non-white foot the bill.

While it’s clearly a problem that people think the lottery is a practical way to wealth, I don’t think playing the lottery is purely about wealth.

It’s also about hope

There’s something about a lottery ticket.  Even though you know you’re probably not going to win, there’s still hope that you could.  And sometimes that hope is enough.

That’s not to mention the trash talking that you can do with your friends about how good your numbers are and how awful theirs are.  Or the rush you get when the numbers are being picked.

The lottery strikes deep in a way.  We dream about the way things could be if only we had a million dollars… or $1.5 billion.  It takes us into the realm of hopes and dreams and the ideal life.

Last night, while talking with my roommates about the lottery, we started listing the things we would do with the money.  Some things were jokes, but others were very real wishes: “I would want to travel,” “I would want to buy a boat,” “I would want fame in public and a house that’s entirely secluded.”

I realized last night that a lot of those “would wants” that we talk about in the context of winning the lottery are actually just “wants.”  Thinking about the lottery can expose something about what you want in life.  Maybe that’s the value of the lottery ticket – not the money that you almost certainly will not win – but the chance to daydream about a better life.

—-

Have a good week,
-B

Raise hell, praise Dale

Hey everyone,

It was a clear day in February 2001. Tony Stewart was driving 200mph on a straightaway when a car nudged him from behind, sending Tony spinning into a wall. His car turned backward and collided head on with another speeding car, flipping high into the air, and tumbling over oncoming cars. That day in Daytona, NASCAR racer Tony Stewart’s crash took out nearly 30 cars.


I’m amazed at the destruction of the sport. The stakes are so high, and drivers risk their lives every time they race. Tony Stewart survived the crash, but three NASCAR drivers died in competition that year. Shortly after the wreck, Dale Earnhardt, NASCAR’s most respected racer, got on the radio with his crew to give one of the most haunting forewarnings in sports:

“If they don’t do something about these cars it’s gonna end up killing somebody” — Dale Earnhardt

Despite Dale’s concerns, tow trucks cleared the track and the race went on.  Dale’s premonition would come true too soon — on the final lap of that race.

I’m not a NASCAR fan, but Dale Earnhardt was a legend. And the story of his death is one of the greatest tragedies in sports.

Today in the Bulletin, I want to tell a little bit of Dale Earnhardt’s story. It’s a story of a man who was persistent, notorious, the king of NASCAR, and killed tragically.

 

The beginning of the story

Ralph Earnhardt, Dale’s father, was born in 1928 in the small town of Kannapolis, North Carolina. He grew up working in the cotton mill. In the evenings, Ralph would race his car on the dirt ovals in towns around Kannapolis. He developed a reputation as a discerning driver who kept his car in top shape despite the dirty races. Racing was his escape from the confines of the cotton mill, and it was one of the only ways out of poor wages.

Ralph started racing professionally in 1949, and by 1953 it was his full-time occupation, racing in cities across the south. In 1951, Ralph had a son: Dale.

Despite Ralph’s protests, they were a racing family, and because of Dale the family name would become known by every racing fan.

Dale Earnardt’s career took off with his start in NASCAR in 1975, and over the next 30 seasons (until 2001), Dale Earnhardt would win 97 races and finish in the top ten 503 times. In rural areas where NASCAR was most popular, Dale Earnhardt’s name and #3 became synonymous with swagger. He was the Michael Jordan of car racing, Superman on four wheels.

His aggressive driving and habit of riding rear bumpers gave him the nickname The Intimidator.

Throughout his 30 years on the track Dale Earnhardt dominated the sport.

“People used to boo Dale Earnhardt because he was winning too much”–Buddy Baker, long-time NASCAR driver and announcer

But there was one race he could never win: the Daytona 500.

200 laps around a 2.5 mi oval. Dale tried and failed to win that race 19 times, many times the race ended in heartbreak.

It eluded him for 20 years, until 1998. 13 million people tuned in to witness Dale win. When he did, grown men cried.

 

The Day He Died

Fast forward to Daytona three years later. Rmember the story I told you of Tony Stewart’s car tumbling and causing a 30-car wreck?  This was the same day. The same day Dale predicted these cars would kill somebody.

On the final lap of the race, Dale’s team held the top three positions.  His best friend, Michael Waltrip was in first.  His son, Dale, Jr., was in second.  And Dale held the third spot.

On the fourth turn of the final lap, Dale’s car made contact with another. His car veered onto the apron then back hard onto the track, only to be struck heavily on his passenger side. Dale slammed into the concrete retaining wall at an estimated speed of ~150 mph.

As his best friend and his son completed the race in 1st and 2nd place, Dale’s car came to a halt on the infield.

“This is undoubtedly one of the toughest announcements that I’ve ever personally had to make, but after the accident in turn four at the end of the Daytona 500, we’ve lost Dale Earnhardt. “ –Mike Helton, President of NASCAR

These comments on a Reddit thread tell what Dale meant to people, and maybe they say it better than I could:

——

Hope everyone had a good New Years.  Glad to be back writing the Bulletin.

As always if you have something to share, you can respond to this email.

Love you guys,

B