Inflation Is Causing Restaurant Prices To Rise Faster Than Grocery Prices

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

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Despite budget-conscious consumers cutting back, this is a blow to the restaurant industry. According to consumer price index data, restaurant CEOs that have been promoting their meals as relative bargains have Matthew Clark and Todd Penegor.

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As a result of the rise in the cost of eating away from home over the last year, the March food prices rose 8.5% over the last year, which is mainly caused by a rise of 8.8% in the price of eating out. This is the third consecutive month when there has been an increase in the price of food away from home.

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Among the factors giving rise to the increase was the increase in food prices at schools following the expiration of the free lunch programs implemented during the Covid pandemic, according to Bruce Grindy, the chief economist at the National Restaurant Association.

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“In response to the rising costs of living, this price index has steadily risen over the past few months, which has put upward pressure on the overall food away from the home index,” he explained in a blog post he wrote Wednesday. He added that the overall food away from the home index will continue to be distorted until the end of the year.

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In the last 12 months, the cost of food at home has increased by 8.4%, but in February it actually declined by 0.3%. For example, the cost of eggs declined by 10.9% in March, whereas the cost of fruits and vegetables decreased by 1.3%.

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Shoppers have dealt with sticker shock for months, switching to private-label brands and shopping less as grocers have put pressure on food and beverage manufacturers to keep prices low. In response to shrinking volume, some suppliers are lowering prices: Conagra Brands and PepsiCo will not raise prices this year, while McCormick said it was raising prices but retailers are pushing back.

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Over the last 12 months, the overall consumer price index has increased by 5% as inflation has continued to decrease over the same period. Compared to expectations for an increase of 5.1%, this was below what was expected. It is also worth mentioning that many restaurant companies have also reported that inflation is easing, although food, labor, and building costs continue to be high.

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In March, Olive Garden's parent company, Darden Restaurants, stated that it continued to experience high prices in its fiscal third quarter, even though it had improved sequentially when it comes to chicken, dairy, and grains prices for its companies. In fiscal 2024, Darden expects the inflation rate on its ingredients to be low single-digits. As part of its strategy to attract diners and win market share, the restaurant company has kept the price hikes of its menus well below the rate of inflation.

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However, in order to keep their profit margins from being squeezed, most restaurants have chosen instead to increase their prices instead. It is as a result of these factors that consumers have seen a decline in restaurant visits or a decrease in the amount of money they spend at restaurants.

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Black Box Intelligence, a company that tracks the restaurant industry and provides traffic analysis, reported that the industry has seen traffic growth in only two months of the last year - January and February. There has been a drastic drop in restaurant sales and traffic early in 2022 as a result of the outbreaks of omicron Covid that took place last year.

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