Grocery Prices Flatline While Restaurant Inflation Continues to Climb

As grocery inflation is finally leveling off, at least for the time being, restaurants continue to jack up menu prices, and these increases are sending consumers running to look for more budget-friendly food options.

The latest Consumer Price Index (CPI) data from the U.S. Bureau of Labor Statistics (BLS) reveals that, in June, food at home prices stayed steady relative to the month before, with year-over-year price inflation amount to 4.7%. Meanwhile, food away from home prices continued to creep upward, increasing 0.4% month over month and 7.7% year over year.

However, restaurants’ years of menu price increases have taken a toll on consumer loyalty, with many brands reporting declines in traffic and same-store sales.

Plus, these effects have been weighing on restaurants for a considerable amount of time now. A PYMNTS survey of more than 2,300 U.S. restaurant customers last November revealed that consumers were already reining in their restaurant spending, and that was long before menu price inflation caught up to and then surpassed grocery inflation.

The survey’s results, featured in the study “The 2022 Restaurant Digital Divide: Restaurant Customers React To Rising Costs, Declining Service,” revealed that roughly a third of consumers have been making purchases from restaurants less frequently amid inflation, and more than 80% changed their restaurant spending behavior in some way in response to rising prices.

In a recent interview with PYMNTS, Scott Deviney, president and CEO of fast-casual chain Chicken Salad Chick, which has more than 225 restaurants across 17 states, noted that restaurants have had to adjust for declining traffic by stepping up discounting efforts.

“We were all hit by inflation,” he said. “No one was immune from it. So, we were all taking price, and I don’t think anybody could take price quickly enough. When you fast forward to today, the price increases have eroded some transactions, which they always do. I think what you’re seeing now is the is the knee jerk the other way of discounting, to try to make up for the lost transactions.”

Indeed, data from PYMNTS’ study “Connected Dining: Consumers Like the Taste of Discount Meals,” revealed that discount redemption on restaurant meals increased 86% from March 2022 to February 2023. The share of consumers who reported having used a discount on their most recent purchase from a restaurant rose from 14% to 26% in that time.

Plus, many consumers are finding alternatives to restaurant ordering for convenient meals that do not require them to cook. Research from PYMNTS’ study “Connected Dining: Ready-to-Eat Meals Are Eating Restaurants’ Lunch,” for which we surveyed more than 2,300 U.S. consumers, reveals that the majority of consumers (57%) are purchasing ready-to-eat meals each month. Plus, about half of those consumers report doing so because “it has become cheaper relative to other alternatives.”

Yet, restaurants are hard-pressed to do anything but raise prices. Research cited in last month’s edition of PYMNTS’ “B2B and Digital Payments Tracker®,” a collaboration with American Express, “Inflation Puts Technology on the Menu for Restaurants,” revealed that only 92% of restaurant operators that view food costs as a significant challenge, and 87% of restaurant owners increased menu prices last year.