Rapidly rising food prices can give restaurants an advantage – here’s the reason

Erick Williams, chef / owner of the Virtue restaurant in Chicago’s Hyde Park, is preparing a beet salad on February 4, 2021.

Jose M. Osorio | Chicago Tribune | Tribune News Service | Getty pictures

Food prices are rising, putting pressure on both restaurants and grocery stores.

But the cost of eating at home is rising faster than the bills of eating from home, which could help restaurants regain the “proportion of their stomachs”[ads1]; they lost during the coronavirus pandemic.

While the restaurant industry is trying to recover from the crisis, the restaurants are competing not only against each other, but also against grocery stores and meal packages for consumers’ money. In 2020, 51.9% of consumption expenditure on food for occasions was at home, marking the first time since 2008 that consumers chose to allocate less than half of their food budget to eat from home.

The restaurants have seen the business pick up since then, but the industry has still not fully recovered. The recent increase in new Covid-19 cases derived from the omicron variant may pose another obstacle for eateries. Black Box Intelligence data show that restaurant sales growth in the week ending January 2 was down compared to the first half of December, suggesting that some cautious consumers may avoid eating at restaurants.

However, Bank of America Securities analyst Sara Senatore wrote in a note on Tuesday that the gap between inflation for food at home and food away from home strengthens the value proposition of restaurants, and makes it more attractive for consumers to eat out. It could give restaurants a boost during the first half of 2022, although she expects the tailwind to subside in the second half of the year.

According to a report from the Ministry of Labor published on Wednesday, food prices at home have risen by as much as 6.5% over the past 12 months. Meat, poultry, fish and eggs had the largest price increase. The cost of eating from home has risen by 6% in the last year, the highest jump since January 1982.

Like grocery stores, restaurants are also fighting for higher food costs, but they have more levers to pull to keep prices low for dinner guests. For example, Domino’s Pizza CEO Ritch Allison said Tuesday at the ICR Virtual Conference that the pizza chain predicts that the cost of the food basket will rise by 8% to 10% in 2022, three to four times the pace of a typical year. The company plans to tailor its campaigns to avoid sticker shocks for consumers and maintain profit margins.

Most restaurant chains have not managed to avoid raising menu prices. Checkers & Rally CEO Frances Allen said in an interview that drive-thru chains raised prices by 6% this summer and increased them another 6% at the start of the new year. Checkers & Rally’s plans to appeal to consumers with higher quality ingredients.

“We’re going to charge people more money, but they’ll get a better quality product,” she said.

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