As food prices continue to skyrocket, restaurants are letting their margins take the hit, keeping price increases comparatively low to prevent trade-down and keep visits up.
Findings from August’s Consumer Price Index for All Urban Consumers (CPI-U), reported by the U.S. Bureau of Labor Statistics (BLS) Tuesday (Sept. 13), revealed that food prices increased 11.4% year over year, with food at home (i.e., grocery) prices rising higher than the overall food inflation rate at 13.5% and food away from home (i.e., restaurant) prices rising well below the rate at just 8%.
These findings show restaurants holding fast to their strategy of absorbing much of this inflation, as they have been doing throughout this period. Most recently, in July, the BLS reported, grocery prices rose 13.1% year over year, while restaurant prices rose just 7.6%. In June, the former rose 12.2% and the latter 7.7%. In May, they rose 11.9% and 7.4%, respectively.
These effects are compounded by consumers feeling the effects of inflation about twice as much as the figures measured by the BLS. A national online study of 3,783 United States adults conducted by PYMNTS in July revealed that, despite the measured approximate 7% to 13% food price increases, consumers reported paying 20% to 30% more for retail and grocery purchases and to eat at restaurants.
Read more: Why Retailers Should Worry About Inflation but Dread the Wealth Effect
Consequently, many restaurant customers are shifting their behaviors. Despite restaurants’ moves to absorb price increases, consumers are nevertheless turning to grocery options to save on meal spending. PYMNTS’ study “Consumer Inflation Sentiment: Inflation Slowly Ebbs, but Consumer Outlook Remains Gloomy,” which drew from an August survey of 2,169 consumers, found that 78% expect to eat at home more often to save money, up slightly from the 77% that said the same the month prior.
See more: New Survey Shows Consumers Less Optimistic Than Fed on Taming Inflation
However, in a July interview with PYMNTS’ Karen Webster, Paytronix CEO Andrew Robbins argued that this shift will not dramatically affect most restaurants’ sales, given that restaurants will benefit from consumers who may have otherwise ordered from a higher-end restaurant shifting to the next tier down.
“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.”
Read more: Inflation Drives Shift in Customer Mix for Restaurants as Consumers Trade Down
Grocers are certainly taking note of the opportunity to gain share from restaurants, with many debuting new prepared meal options as a lower-priced alternative to restaurant meals for those seeking convenience. Kroger, the leading pure-play grocer in the U.S., for one, has seen strength in its Home Chef meal solution business, which offers both meal kits and “oven-ready” heat-and-eat meals.
“Convenience remains a priority, and Home Chef is meeting that need by providing high-quality family meals as a budget-friendly alternative to eating out at restaurants,” Kroger Chairman and CEO Rodney McMullen told analysts on a call Friday (September 9) discussing the company’s second-quarter 2022 financial results.
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