Inflation has been in the headlines all year so how are consumers dealing with it? How are restaurants coping?
Each month this year businesses and the government have been focused on how inflation compares to the same month last year. All consumers seem to know is that they have to cut back somewhere, somehow.
When it comes to food, inflation pressure varies between categories in the store. Overall, food inflation has stabilized at about 8.4 percent in the last three months versus a year ago. Looking more closely, however, CSNews.com shows that “center-store inflation, including snacks, frozen meals, and other frozen foods, has risen every month in 2022 and is now at 14.9 percent when compared to the same time last year.
The fresh meat and seafood, and alcohol segments are only up 4.5 percent and 5.5 percent, respectively, when compared to this time last year. Other categories, including dairy, frozen meals, and other frozen foods, are up significantly (21.3 percent and 18.4 percent, respectively).”
Halloween Scared Consumers, but Wait for Thanksgiving!
When shoppers went to buy candy for the trick-or-treaters, they found that candy prices were up a whopping 13.5 percent over last year. Sales volume was hit despite a more friendly Covid environment for Halloween.
Thanksgiving prices are up even more to 13.7 percent. The meat part of the meal is up just under 10%, but side dishes and desserts are up nearly 20 percent!
Restaurants Find Ways To Raise Prices
While consumers have faced double-digit food inflation, restaurants of course, have been hit by the same problem. Input prices have gone up at a much faster pace than menu prices. In the last 18 months, menu prices have increased by only 6%. According to Paul Westra, managing director of restaurants investment research at Capital One.
Average menu price hikes are around 6% over the last 18 months, but restaurants need to aim for an 11% increase to protect profits, he said. This discrepancy has impacted store-level profitability with profit declines of over 20%, which echo drops seen during the Great Recession in 2008, Westra said.
“The good news is the consumer held up relatively well and is continuing to hold up relatively well,” Westra said. “And the great news is we’re seeing inflation largely normalize.” (www.restaurantdive.com)
Westra anticipates that restaurant profitability will go up 20% over the next year to 18 months and that menu pricing will go down more slowly than inflation.
The faster pace of increase in grocery prices has made eating out a better value relatively. In terms of the actual cost, eating at home is cheaper, and if the consumer gets squeezed too hard, that’s likely where food dollars will go. At the moment, however, the consumer is doing pretty well in spite of inflation hitting almost every corner of their budget.
McDonald’s might provide a ray of hope for the restaurant business. McDonald’s has raised menu prices by about 10 percent. Part of what the company has observed is that consumers are saving money by going out less to pricier sit-down restaurants but continuing to feel that fast food provides good value.
The food service industry looks a lot different than anyone could have predicted in 2019 in the “before times”. Covid and economic changes have created a moving target that is still evolving. Meanwhile, Happy Thanksgiving, and good luck holding onto that cash in your wallet!
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