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ShortageWatch: What Broken McDonald's Ice Cream Machines Tell Us About the Economy
Monopolists make money by forcing us to rely on over-engineered crappy machines. And those over-engineered crappy machines cause shortages.
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If you like McDonald’s ice cream, then you will know how often McDonald’s ice cream machines are broken. Employees are endlessly frustrated at how the machines randomly turn off or don’t work, as are franchise operators, and customers. Ice cream machines break down so often that staff often don’t even bother to notify McDonald’s franchise owners, who would ordinarily call technicians to fix it. McDonald’s corporate makes jokes about it, tweeting “We have a joke about our soft serve machine but are worried it won’t work," McDonald’s tweeted last year.
These problems are not just a result of normal machine wear and tear, but market power. The problem with these machines is they are bad quality and overly complicated. They are also expensive, at $18,000 apiece with costly maintenance contracts.
The firm that sells and maintains these machines is the Taylor Company, which is part of a larger conglomerate Middleby. Middleby has rolled up the food equipment space with dozens of acquisitions, and is a supplier to McDonald’s, as well as nearly every single major chain restaurant, for all sorts of equipment. It may not be an exaggeration to note that Middleby is in partnership with nearly every major franchise.
Back in April, Andy Greenberg at Wired wrote an astonishing story about a couple who offered a product that fixed this problem. They invented a gadget, called a Kytch, that connects to Taylor ice cream machines, and sends out real-time email and text alerts that helped workers prevent damage before it occurred. Taylor machines had sent out warnings phrased incomprehensibly, like “ERROR: XSndhUIF LHPR>45F 1HR LPROD too VISC;” by contrast, the Kytch would text staff or owners with warnings in plain English, so workers could intervene before the Taylor machines broke.
One would think that this story is a market success - look, a problem, and then look, a solution where some hustling firm makes money solving it. In fact, McDonald’s and the Taylor Company came out swinging. Both claimed that the Kytch caused safety problems, and McDonald’s corporate threatened franchises who used it. Why? As it turns out, it’s because the franchises have to sign lucrative repair contracts with the Taylor company to fix their machines, and the Kytch was a threat to that revenue stream. It’s possible that McDonald’s corporate gets a cut of this repair money, which means that the franchisor has a vested interest in making sure that franchises use machines that break down a lot and are expensive to repair.
As our economy struggles with shortages and inflation, it’s important to keep this story in mind. After all, this is a textbook example of a shortage - people can’t get ice cream that they want to buy, no matter the price. But it’s not a shortage due to a lack of sugar, cream, ice, vanilla flavoring, or any of the other necessary inputs, but purely a result of over-engineered fragile bottleneck systems designed to fail because someone with market power makes money from that failure. It’s similar, in many ways, to the shortage of plastic bags for making vaccines, in that it is intentionally driven by a monopolist seeking to exploit market power.
Fortunately, the right to repair movement, a broad social movement based on the idea that people should be able to repair or tinker with what they buy, has made a lot of progress in pushing policymakers. And yesterday, the Wall Street Journal broke the news that Lina Khan’s Federal Trade Commission is investigating the situation as part of their new initiative on right to repair. That’s excellent news.
It’s hard to turn around a society as big as the United States, and it’s easy to define us by our problems. But the government is beginning to stir.