As food prices continue to soar, grocers are bumping prices up, while restaurants continue to absorb much of this inflationary pressure in a move to avoid losing their customers to less costly alternatives.
The Consumer Price Index for All Urban Consumers (CPI-U), reported by the U.S. Bureau of Labor Statistics (BLS) on Wednesday (July 13) revealed that food prices rose 10.4% year over year in June, food at home (i.e., grocery) prices increased 12.2%, and food away from home (i.e., restaurant) prices grew 7.7%. For reference, in May, food prices rose 10.1%, food at home prices 11.9%, and restaurant prices 7.4%.
“When we saw this in the last recession, the Great Recession, we saw that consumption of away-from-home eating was down and replaced by at-home eating,” General Mills CEO Jeff Harmening told analysts on a call in June discussing the company’s fourth-quarter fiscal year 2022 earnings. “We’re seeing the same kind of behavior starting now, … and that’s because customers want to get out more, but the cost of eating away from home is more than double the cost of eating at home.”
Related: Inflation Shifts Consumer Spending to Grocery, not Restaurants, Says General Mills
In an interview with PYMNTS CEO Karen Webster for the July 1 installment of “This Week in Payments,” Andrew Robbins, CEO of Software-as-a-Service (SaaS) customer experience management (CXM) solutions provider Paytronix, explained that most customers are down-shifting when it comes to food spending, with those who would opt for a low-price restaurant for a given meal switching to grocery options, and those who would have opted for a mid-price restaurant switching to a lower-price establishment.
“If you’re in the low- to mid-end of restaurant expense, you’re going to see some trade down where higher-end people are going to come to you, but you’re going to lose some to grocery,” Robbins said. “So, you’re going to be fine, net-net, but you’ll see some shifting of people in the trade-down process.”
This shift is occurring even as restaurants absorb more of the price increases than grocers, and even as consumers take note of the rising food at home prices. Findings from the May edition of PYMNTS’ Subscription Commerce Conversion Index, created in collaboration with subscription eCommerce platform sticky.io, which drew from a census-balanced survey of more than 1,900 U.S. adults earlier in the year, revealed 71% of consumers noticed that inflation had impacted their grocery costs. Since then, grocery prices have only continued to rise.
Additional details: Inflation Prompts 10x Increase in Consumers Reevaluating Subscription Value
Moreover, cost concerns are becoming more pressing for many consumers. Research from PYMNTS June/July study “New Reality Check: The Paycheck-To-Paycheck Report: The Financial Distress Factors Edition,” created in collaboration with LendingClub, found that 58% of consumers were living paycheck to paycheck in May 2022, up from 54% in May 2021.
See also: NEW DATA: Two-Thirds of Paycheck-to-Paycheck Consumers Faced Financial Disruption in Last 36 Months
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