January’s Consumer Price Index, released Tuesday morning, shows a relentlessly stubborn inflationary environment, with prices up 3.1% year-over-year – slightly more than expected. Last month’s index increased 0.3% month-over-month, according to the Bureau of Labor Statistics, driven largely by shelter prices. The 3.1% rate remains well below the peak inflationary rate of 9% in June 2022, but above the 2% range targeted by the Federal Reserve.
Food prices inched higher in January as well, up 0.4% on the month. The food-away-from-home (restaurants) index was up 5.1% year-over-year, with limited-service menu prices up by 5.8%, and full-service prices up 4.3% year-over-year. In December, food-away-from-home prices were up 5.2% versus last year.
Meanwhile, the food-at-home index rose by just 1.2% year-over-year, meaning the gap between restaurants and grocery/supermarket costs remained about the same in January. It also marked the 11th month in a row in which restaurants outpaced grocery pricing. With this about 390-basis-point gap in favor of grocery stores, same-store sales across the restaurant industry slowed in Q4 and into January, according to Kalinowski Equity Research. The company expects that slower pace to continue throughout 2024. Perhaps there is no better example of the impacts from this gap than with McDonald’s. The QSR giant reported Q4 earnings in early February, noting a transaction reduction from consumers making $45,000 and below.
“That consumer is pressured. From an industry standpoint, we actually saw that cohort decrease in the most recent quarter, particularly as eating at home has become more affordable,” McDonald’s CEO Chris Kempczinski said during the company’s earnings call. “There’s been much less pricing that’s been taken more recently on packaged food. So you’re seeing that eating at home is becoming more affordable. That, I think, is putting some pressure from an (informal eating out) standpoint on that low-income consumer.”
McDonald’s said it would rein in pricing this year to correct its course with these consumers. Still, it won’t be easy – for McDonald’s or most QSR companies as California’s AB 1228 goes into effect April 1. The bill brings the mandated minimum wage for these companies up to $20 an hour and several chains, including Chipotle, have shared that they will have to take price increases to manage these added labor costs.
Contact Alicia Kelso at [email protected]