Restaurant inflation is finally higher than grocery, which could worsen eateries’ existing challenges with customers.
The latest data on record from the U.S. Bureau of Labor Statistics (BLS) Consumer Price Index for All Urban Consumers (CPI-U) shows that, in March, food prices rose 8.5% year over year overall, with food at home prices increasing 8.4% and food away from home prices rising 8.8%. This marks the first time in this period of high inflation that restaurant inflation exceeds that of grocery as well as the first time in years that grocery prices fell month over month (-0.2%).
This shift spells bad news for the restaurant industry, given the extent to which consumers have already been overestimating menu price increases, even at times when restaurants were absorbing far more food inflation than grocers, per PYMNTS research.
For “The 2022 Restaurant Digital Divide: Restaurant Customers React to Rising Costs, Declining Service,” PYMNTS surveyed more than 2,300 U.S. restaurant customers in November. Additional findings not included in the report showed that consumers saw restaurant prices as having increased roughly three times the BLS-measured rate at the time of the survey.
On average, the price increases observed by consumers amounted to 24%, both for full-service restaurants (FSRs) and for quick-service restaurants (QSRs). Yet, in November, the BLS measured restaurant price increases of just 8.5%.
Meanwhile, a December survey for PYMNTS’ study “Consumer Inflation Sentiment: Perception Is Reality” found that consumers on average saw grocery prices as having risen 22%, twice the BLS-measured increase at the time.
Consequently, even when grocery inflation was significantly higher than restaurant inflation, consumers perceived restaurant inflation to be worse, sending them running to the grocery store.
Data from the “Restaurant Customers React to Rising Costs, Declining Service” study found that roughly a third of consumers have been making purchases from restaurants less frequently amid inflation. Overall, a share ranging from 81% to 87% of consumers (depending on income bracket) reported having made changes to their dining habits to manage inflationary pressures.
Indeed, grocers have been noting share gains from restaurants. For instance, Kroger, the nation’s leading pure-play grocer, said on its last earnings call in March that, as consumers’ price concerns impact their spending, the company has benefitted from their shift to cooking at home.
“Our customers are looking for more ways to stretch their budget,” CEO Rodney McMullen said at the time. “The gap between food at home and food away from home spending grew in the fourth quarter as more customers gravitated toward affordable meal solutions that restaurants simply can’t provide. Our research shows that cooking at home is three to four times less expensive than dining out. And as Kroger was there for our customers.”
Plus, consumers have been coming to expect discounts at restaurants, even as inflation has put additional pressure on eateries’ already narrow margins. PYMNTS research found that only 42% of U.S. consumers are willing to pay full price to eat at a restaurant they used to call their go-to spot and that restaurants are consequently discounting heavily, averaging 24% off menu prices.