Americans are going out to eat again, and they have extra motivation to do so: The price of food at home has been rising notably faster than the price of food people pay for at restaurants — 13 percent versus 7.6 percent.
That people in the U.S. love to skip the cooking and head out to eat is not news. Since the late 2000s, Americans have been spending more money dining out than dining in. That rang true even during covid, when dining out took a nose-dive, but still reigned when it came to where Americans put their food dollars. And by 2021, Americans bounced back to spending at least closer to their pre-covid food money on dining out.
What’s particularly interesting at this moment in time is how inflation has hit grocery stores but, oddly, not restaurants to the same extent.
While both figures are well higher than typical pre-covid numbers, inflation at restaurants is actually undershooting the overall pace of inflation, which is currently at 8.5 percent.
Inflation overall has been at or near the highest in 40 years; it has slowed down in recent months, although the price of food people buy at grocery stores is bringing it up. In July, when overall prices did not rise at all, food prices rose 1.1 percent, and food at home rose 1.3 percent.
This dynamic has not gone unnoticed in the industry. “We track, as many of you do, food at home versus food away from home. And right now, we’re seeing a significant gap. In fact, we think, by our measure, it’s the largest gap we’ve seen in 50 years between food at home and food away from home — meaning that food at home has increased pricing significantly faster than what food away from home, McDonald’s and others in our industry, have done,” McDonald’s Chief Executive Chris Kempczinski said in a July call with investors.
How did this happen? Both restaurants and grocery stores are affected by food inflation, and the underlying causes of price hikes in both sectors are largely overlapping.
“If you look at restaurant inflation, prices really accelerated in 2022, and in 2022 there’s the war in Ukraine, of course, which has not only driven up grain and fertilizer prices, but also probably affected other areas like seafood due to import restrictions. Avian flu is hitting poultry and eggs … All of this food has to be transported, which means any of the supply issues that have affected transportation, in particular trucks, such as the chips shortage and the earlier spike in gas prices we saw this year, are also going to feed into both food and restaurant inflation,” Preston Mui, an economist at Employ America, wrote in an email to Grid.
But the way in which the wholesale price of food that growers, ranchers, slaughterhouses and distributors charge passes through to the retail customer is different between restaurants and grocery stores. The price of food is only one determinant of the prices consumers pay. One difference is that grocery store food prices change more quickly than restaurant prices, according to research by University of California, Berkeley, economists Emi Nakamura and Jón Steinsson.
This means that the prices can go up faster in response to the rising price of underlying commodities like grain.
“Restaurant price adjustment is way more sluggish than grocery price inflation,” said Mui. “While I would expect these numbers to be a bit different now (the data is from 1998-2005), if the pattern holds, it could be possible that at least some of the difference in inflation in 2022 is attributable to grocery prices just responding faster than restaurant prices. Whether or not restaurant prices will therefore eventually catch up would depend on how persistent cost pressures are.”
There may also be more efficiencies that restaurants can implement in the face of high food prices and wage bills that grocery stores cannot.
Carl Lukach, chief financial officer of Noodles and Co., said on a recent earnings call that the company is focusing its efforts on efficiency and productivity, making less of its revenue dependent on having an increasing number of workers to serve customers and prepare food.
Will grocery store food prices ever come down — or at least stop rising so quickly?
Some in the industry say it looks like while food costs are improving for shoppers, it’s not over yet. Hiring has improved, and that has helped, said Sharon McCollam, the president of the grocery chain Albertsons, on an earnings call last month.
“We are definitely still seeing supply chain disruption, and we still have categories where we are on allocation. So those issues have moderated,” said McCollam. “From a supply chain operations standpoint, we’ve been more able to find labor.”
Transporting goods is also still a fairly significant hold-up, said McCollam.
“On the transportation side, that continues to be a challenge; again, moderated but not fixed. So, I think all of us, as an industry, would say we’ve seen some relief, but it is not at this point where we would call it being significantly better. It is moderating,” she said.
Looking forward, however, Mui is optimistic that prices will start to come down: “We’ve already seen gas prices come down, and while it doesn’t seem like the issues with Ukraine and the Avian flu are going to significantly improve in the near future, at the very least I would expect the rate of price increases to start to come down, barring any unforeseen shocks.”
Thanks to Lillian Barkley for copy editing this article.