As we enter the new year, the restaurant industry is experiencing some exciting trends regarding menu prices. In December, the food-away-from-home index continued to show signs of deceleration, suggesting potential shifts in consumer behavior and economic dynamics. Let’s delve into the details of what these price trends mean for both diners and businesses.
The Food-Away-From-Home Index
In December, the food-away-from-home index stood at 5.2%, which has been on a steady decline since its peak at 8.8% in March 2023. This downward trend signifies a cooling off of restaurant prices, which may have relieved those beginning to feel the pinch of higher dining costs earlier in the year.
Restaurant Prices in December
Compared to the same period in 2022, restaurant prices in December remained elevated at 5.2%. However, they cooled by ten basis points from November’s 5.3% increase. This information relies on data from the Consumer Price Index, released by the U.S. Bureau of Labor Statistics.
Food-Away-From-Home Index Breakdown
Breaking down the food-away-from-home index further, it rose by 0.3% in December, a slight decrease from the 0.4% increase in November. Full-service meals were up by 0.3%, representing a 4.5% year-over-year increase, while limited-service meals saw a 0.4% month-over-month increase and a 5.9% year-over-year rise. In contrast, food-at-home prices (grocery/supermarket) only increased by 1.3% in the month, falling well below the Federal Reserve’s 2% target rate for inflation. Overall, food prices increased by 2.7% year-over-year, lower than the 3.9% pace of inflation in December, despite being higher than two to three years ago.
A Persistent Trend
December marked the 10th consecutive month of restaurant pricing, outpacing grocery pricing. This trend, highlighted by Kalinowski Equity Research, was non-existent in 2022. The gap between the two categories has widened to 390 basis points, reaching its most significant point in several years. However, experts anticipate this gap to remain relatively high in favor of groceries shortly.
Impact on Sales and Consumer Behavior
The cooling of menu pricing will likely affect restaurant sales and consumer behavior. Lower prices may lead to more moderate same-store sales, but they could also boost restaurant traffic, which has decreased since late summer 2023.
Experts predict that consumers, who have faced several years of inflationary pressures, will become more value-conscious in the coming months. This shift in consumer sentiment aligns with assessments from Fitch Ratings directors Bill Densmore and David Silverman.
A Cautionary Note for California
While menu pricing deceleration is a welcome trend for most of the industry, it may be short-lived for establishments in California. That is due to the impending implementation of California’s AB 1228, scheduled for April 1st. This legislation will raise the minimum wage for Quick-Service Restaurants (QSRs) to $20 an hour, likely impacting other industry segments. Many public companies with a presence in California have indicated that they will need to adjust their pricing strategies to navigate this change effectively.
Conclusion
In summary, the restaurant industry is witnessing a slowdown in menu price increases, which could have far-reaching implications for businesses and consumers. While this trend may provide some respite to diners, it also presents challenges for restaurant owners, particularly in regions with upcoming wage increases. As we move into the new year, it will be interesting to see how these price dynamics continue evolving and shaping the dining landscape.
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