Rapidly rising food prices may give restaurants an edge—here’s why

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  • The cost of eating out at home is climbing faster than the cost of eating out.
  • According to the Labor Department, food prices at home rose 6.5% in December over the past 12 months, compared to 6% for eating away from home during the same period.
  • Bank of America Securities analyst Sarah Senator wrote in a note that the difference in inflation could make restaurants more attractive to consumers.

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Food prices are rising, putting pressure on restaurant and grocery store shoppers alike.

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But the cost of eating at home is rising faster than bills for eating away from home, which could help restaurants regain the “part of the stomach” they lost during the coronavirus pandemic.

As the restaurant industry tries to bounce back from the crisis, eateries are competing not only against each other, but against grocery stores and meal kit services for consumers’ money. In 2020, 51.9% of consumer spending on food was for household occasions, the first time since 2008 that consumers opted to allocate less than half of their food budget to eating away from home.

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Since then the restaurant has seen its business rebound, but the industry still hasn’t fully recovered. The latest surge of new COVID-19 cases originating from the Omicron variant may present another hurdle for eateries. Black Box Intelligence data shows restaurant sales growth in the week ended January 2 was lower than in the first half of December, indicating that some cautious consumers may refrain from eating out at restaurants.

However, Bank of America Securities analyst Sarah Senator wrote in a note Tuesday that the difference between inflation for meals at home and meals away from home strengthens the value proposition of restaurants, making food more attractive to consumers. it happens. This could give the restaurant a lift during the first half of 2022, though she expects those tail winds to dissipate in the second half of the year.

According to the Labor Department report released on Wednesday, the prices of food at home have increased by 6.5% in the past 12 months. The highest increase was seen in the prices of meat, poultry, fish and eggs. The cost of eating away from home increased by 6% over the previous year, the biggest jump since January 1982.

Like grocery store shoppers, restaurants are grappling with higher food costs, but they have more levers for diners to keep prices low. For example, Domino's Pizza CEO Rich Ellison said at the virtual ICR conference on Tuesday that the pizza chain is predicting that its food basket costs will increase by 8% to 10% in 2022, three times the pace of a typical year. four times more than The company plans to tailor its promotions to avoid sticker shock for consumers and maintain profit margins.

Most restaurant chains have not been able to avoid raising menu prices. Checkers & Rally CEO Frances Allen said in an interview that the drive-thru chain raised prices by 6% this summer and increased them an additional 6% at the start of the new year. Checkers & Rally plans to attract consumers with high quality content.

“We are going to charge people more money, but they are getting a better quality product,” she said.

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