Warning! Menu Prices Rise Faster Than Grocery Prices

Menu prices rose 0.3% in May, as foodservice operators continued to raise prices more than competitors in food-retail outlets including grocery stores. For the last 12 months, menu- price increases now outpace grocery-store price increases for the first time since early 2010. Menu prices are up 2.9% on an unadjusted annual basis while food-at-home prices are 2.7% higher.

Food-at-home prices, tracked as part of the Consumer Price Index maintained by the Bureau of Labor Statistics, fell 0.1% in May and have risen significantly less than menu prices since late last year, as wholesale food-price increases have moderated recently. Menu prices tend to lag wholesale food-price shifts more than food-at-home prices and operators are still trying to make up for wholesale increases they mostly absorbed last year.

This differential can negatively affect restaurant sales, as it clearly did during the depths of the Great Foodservice Recession in ’09, when wholesale and grocery-store prices went negative and operators were still raising prices, responding to the record food-price increases of ’08.

Harry Balzer of the NPD Group, speaking June 22 at the Association of Healthcare Foodservice annual meeting in Miami, cited the differential as a warning sign for foodservice. “Consumers have proven they are very sensitive to the relative value of food at-home and away-from-home.” The issue also was raised at Technomic Inc.’s annual Trends & Direction Conference in Rosemont, Ill., on June 20, where the firm’s Pres. Ron Paul detailed some of the “meal bundling” strategies chain operators are using to compete with retailers, especially at dinner.

Still, the overall price increases for both retail and foodservice prices remain moderate at a time when gasoline prices have fallen significantly. And while a few months of change in the differential is a trend, it may not significantly impact consumers’ use of foodservice in the short run.