Food prices are falling, so why isn’t the price of your favorite restaurant meal?
Restaurants are raising prices after years of stagnant growth, citing swelling labor costs that are offsetting the benefits of lower food prices. But their competition isn’t budging. Grocery stores, which have ramped up their prepared food options markedly in recent years, are passing those lower costs on to consumers as they compete among themselves for a bigger slice of the market.
The gap between the cost of eating at home and eating at a restaurant is the widest in decades.
Over the past year, a government index measuring grocery prices has fallen by 2.2 percent, the largest fall since December 2009, near the recession’s peak. In contrast, the index measuring the cost of food eaten away from home, or restaurant prices, has risen 2.4 percent. The difference in prices between eating out and eating at home is now the greatest in 30 years.
Cheaper alternatives to restaurants, like grocery stores, have kept more people home, and restaurants are hurting as a result.
Restaurants are stuck between a rock and a hard place, observers say, because competition is stiffer than ever, but the line between profit and loss is thinning. Rising minimum wages around the country, overtime regulations, health care costs, shifting parental leave policies and other mandates are squeezing restaurants at a time when many expected to be recovering – finally – from the recession.
Casual dining chains like Chili’s and Outback should feel the squeeze the most, Moody’s analyst William Fahy forecasts, while so-called fast-casual chains like Chipotle and Panera should continue to do better than the industry overall, he said. Fast-food chains, meanwhile, will face a tough road ahead as more people choose to brown-bag their lunches and eat more dinners at home.
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