Restaurants Might Be a Cheaper Option Than Groceries With Inflation

  • US consumers are experiencing the steepest food inflation in more than 40 years.
  • The inflationary gap between restaurants and grocery stores hasn’t been this large since the 1970s.
  • Restaurant chains are betting that this will drive Americans to eat out, rather than cook at home.

The conventional wisdom is that avoiding take out saves you money — but with inflation raging, the easier dining option can also be the cheaper one.

That’s because consumer prices are increasing at grocery stores faster than at restaurants. They increased 13.1% year-over-year in July at stores, and only 7.6% at restaurants, according to the Labor Department. It’s the biggest inflationary gap between restaurants and grocery stores since the 1970s.

“High food inflation is positively correlated to fast-food same-store sales, as people see a relative oasis of non-inflation in the value menus,” Evercore ISI analyst David Palmer told Barron’s last week. Even as restaurant prices surge, fast food chains are still proving popular.

Executives at McDonalds, Burger King, Cheesecake Factory, and Applebee’s have recently told investors in earnings calls and presentations that customers have greater incentives to eat out these days, The Wall Street Journal reported this week.

“We need to be delivering great food and great service and great pricing even in a tough environment,” said José Cil, chief executive of Burger King owner Restaurant Brands International. Cil also reported earlier this month that more Burger King customers are redeeming coupons and loyalty rewards to subsidize meals.

The move toward bargain-hunting at restaurant chains comes even as those chains reduce the value of their offerings, as inflation tightens their budgets.

“We’ve seen companies tweaking their value menus across the board,” Michael Schaefer, the global lead for food and beverage at market researcher Euromonitor International, told CNBC this month. “We’re seeing fewer items total, limited price increases, smaller items.”

Inflation is getting better, but not at grocery stores

Even with less bang for your buck, restaurant chains are betting that they’ll still make a more wallet-friendly alternative to home cooking — even though the inflation forecast is looking brighter overall recently, food prices still aren’t in a good place.

US consumers are experiencing the steepest food inflation in more than 40 years, with grocery costs having risen 10% or greater annually since March, the greatest jump recorded by the Labor Department since 1981.

Inflation cooled overall in July as gasoline prices fell, but still remains high, with consumer prices up 8.5% from a year ago. The CPI’s food-price gauge rose 1.1% over the month in July, growing from June’s 1% gain. Grocery costs climbed 1.3%, also accelerating from the prior month’s pace. While prospects for some food commodities like wheat and corn have gotten better since last month, the latest CPI report suggests food costs won’t fall as quickly as gas prices have, as reported by Insider’s Ben Winck.

That’s changing the way Americans have been approaching their grocery shopping, if they’re even doing it at all.

Approximately 95% of US households said they were making changes to their shopping habits to account for inflation, according to a Numerator survey of over 10,000 consumers in April.

According to a May survey from the Food Industry Association (FMI), 21% of consumers are purchasing less meat, and 14% are buying less produce. Some shoppers are switching out those pricier items for more frozen and canned meat, they told IMF, with a higher percentage of shoppers with household income under $40,000 making the switch.

And as chains are betting, consumers might find their way to drive-thru windows instead.

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