October 25, 2011
November 14, 2011
Restaurants are poised to raise prices as Americans become accustomed to more expensive food at grocery stores.U.S. consumers paid 2.6 percent more at eateries in September than last year, while food prices at supermarkets were 6.2 percent higher, according to the Bureau of Labor Statistics’ monthly consumer-price index. Inflation for eating at home has accelerated faster than dining out during the past year, reaching its widest gap since 1990 last month.Restaurants monitor this differential because they don’t want to appear too aggressive with menu pricing relative to the cost of food at home. This gives companies “more credibility” in adjusting prices, particularly as commodity inflation puts pressure on margins.If people go to the supermarket and see that the core items they’re purchasing are on the rise, then they are less likely to be surprised if restaurants are raising prices as well.

Food prices rose at an 8 percent annual pace in September, according to the Bureau of Labor Statistics’ producer-price data. Commodity costs account for a much larger share of expenses at supermarkets than at eateries, so there’s been a “delayed pass-through” as restaurants absorbed some of the increases.

Following the lead of supermarkets, restaurants have some confidence consumers can afford to pay more because of moderate growth in employment and income. Employers added 103,000 workers in September, the Labor Department reported, more than forecast. Personal income rose at an annual rate of 4.5 percent in August, marking 20 months of consecutive yearly growth, Bureau of Economic Analysis data show.

Companies may take creative approaches to effectively raise prices, such as reducing promotions, offering higher-end specials or emphasizing certain menu items.

Eateries need to “think very deliberately” about making adjustments to avoid driving away their core base of diners.

Fast-food chains may have more success because their prices are closer to food-at-home than full-service restaurants. Given the opportunity cost for employed Americans to prepare meals at home, it “might be a better value” to eat out.

For budget-conscious consumers, the “big bang for the buck” still is eating at home, even if it also costs more. The tradeoff is driven much more by unemployment than any price spread.

The jobless rate, at 9.1 percent in September, has been above 9 percent for 27 of the past 29 months, Labor Department data show. Meanwhile, confidence as measured by the Bloomberg Consumer Comfort Index declined in the week ended Oct. 23 to the lowest level in a month.

Grocery stores are having more success in passing along rising food costs because they have less excess supply than dining establishments. 

People are doing smaller things for entertainment, such as eating out as opposed to taking a vacation. Investors are looking for consumer discretionary sectors, like restaurants, where the competitive position is improving.

Source:  Bloomberg.htm; 10/28/11

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