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