Restaurant Prices Are Rising Faster Than Grocery Prices For The First Time Since Inflation Ran Hot

By Amelia Lucas

For the first time since inflation began accelerating in mid-2021, restaurant prices outpaced grocery prices on a 12-month basis, according to the Labor Department.

It’s a blow to the restaurant industry, which has already seen lagging traffic numbers as budget-conscious consumers cut back. For months, restaurant CEOs like Cheesecake Factory’s Matthew Clark and Wendy’s Todd Penegor have touted their meals as a relative bargain compared with eating at home, based on consumer price index data.

The National Restaurant Association’s chief economist, Bruce Grindy, attributed the increase to the surge in food prices at schools as free lunch programs instituted during the Covid pandemic expired.

“As a result, this price index rose sharply in recent months, which is putting upward pressure on the overall food-away-from-home index,” he wrote in a blog post Wednesday, adding that it’s expected to keep distorting the overall food-away-from-home index until the fourth quarter.

The price of food at home is up 8.4% in the last 12 months and actually fell 0.3% from February. The price of eggs fell 10.9% in March from the prior month, while the fruits and vegetable index dropped 1.3%.

For months, grocers have been putting pressure on food and beverage manufacturers to keep prices down as shoppers deal with sticker shock, trading down to private-label brands and putting fewer items in their shopping carts. Some suppliers have listened as their volume shrinks: Conagra Brands and PepsiCo have said they won’t raise prices any more this year, while Old Bay seasoning owner McCormick said it’s trying to hike prices but is facing pushback from retailers.

Olive Garden’s parent company, Darden Restaurants, for example, said in March that prices for chicken, dairy and grains remained high in its fiscal third quarter, although they improved sequentially. Darden is forecasting low single-digit inflation for its ingredients in fiscal 2024. The restaurant company has kept its menu price hikes below the inflation rate to attract diners and win market share.

But most restaurants have instead chosen to hike prices to avoid a squeeze on their profit margins. As a result, consumers have been cutting back on their restaurant visits or spending less money when they do dine out.

Restaurant industry tracker Black Box Intelligence reported that the industry saw traffic growth in only two months — January and February — over the last year. Those two months lapped last year’s omicron Covid outbreaks, which led to a sharp drop in restaurant sales and traffic in early 2022.

This article originally appeared here and was republished with permission.