On the Margin
The grocery-restaurant price gap is worse than you think

The grocery-restaurant price gap is worse than you think

This post is part of the On the Margin blog.

The restaurant-grocery inflation gap, widened again in September as my colleague Jon Springer wrote Tuesday. Over the past year, restaurant prices have increased 2.4 percent, according to federal data. Grocery prices have fallen 2.2 percent. 

That’s a 460-basis-point spread, and a big difference in the change in pricing by the two biggest industries that specialize in the sale of food to consumers. It’s not difficult to imagine why consumers might be dining at home more often this year.

Yet even that understates the problem. Look at more detailed Consumer Price Index, or CPI, data, and the issue for restaurants is even clearer.

Specifically, meat prices have dropped a whopping 6.3 percent over the past year. Instead of a 460-basis-point gap, you have an 850-basis-point canyon.

That’s a noticeable difference: A package of steaks that once cost $30 at the grocery store now costs $28.11. Consumers notice that difference, especially if they perceive the cost at their local restaurant to be more expensive.

Meat is a major commodity at a lot of restaurant chains. But it is also a central entrée for a lot of at-home meals, too. If the price of a person’s choice of entrée is a lot cheaper now than it was a year ago, then it could dictate whether that person eats at home or goes out.

Consumers aren’t going to eat out less because peanut butter is cheaper, or because bananas aren’t as expensive. But they would choose to eat at home because they bought a package of steaks for a lower price.

Many issues could be influencing the decline in same-store salesRestaurants have been too aggressive at building units, thus spreading too much traffic around. Independents are finally gaining traction. And consumers are staying home because of the election.

But more than anything else, price remains the biggest single reason for consumers to shift their spending, despite lower unemployment, rising wages and lower gas prices. One hardly needs to be in budget-cutting mode to look at saving a few bucks, and the unusual pricing gap is likely changing behavior enough to broadly move the sales needle. 

This can’t last forever, of course. Yet in the meantime, the sales slowdown brought in part by that pricing gap has cost numerous CEOs their jobs, and led to the bankruptcy of several restaurant chains this year

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze

TAGS: Sales Trends
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