Food costs are rising, but an industry group says they're rising faster at the supermarket than at restaurants.
This was one of the key takeaways from the Labor Department’s recent May Consumer Price Index (CPI). It showed that the cost of food away from home rose 7.4% for the 12 months that ended in April. By contrast, the cost of food prepared and consumed at home grew 11.9% in price for the 12 months that ended in May.
Even though restaurants come with higher costs — such as labor and rent — they also have some advantages over supermarkets, according to Nick Cole, head of Restaurant Finance at Mitsubishi UFJ Financial Group (MUFG).
"Restaurant chains have been able to achieve lower food-price increases and delay the effect of inflation thanks to a number of advantages they enjoy," Cole told Food Market News.
Among the advantages are access to ingredients at wholesale prices and economies of scale. Restaurants also have the ability to lock in lower prices through future contracts and other hedging strategies.
Modest price increases
Cole says a large number of restaurants have also been able to remain profitable by raising their menu prices at agreeable levels to offset the higher input costs of labor, utilities, construction, and food commodities. At the same time, their price increases have been much more moderate than those of supermarkets, some of which have raised prices by 30% for certain items.
How long restaurants can hold the line of prices remains to be seen. Kraft Heinz and McDonald's, which are among the country’s largest food suppliers, have signaled price hikes because of sharply rising production costs.
Kraft Heinz recently notified retailer customers that prices will rise in August on several products, including Miracle Whip, Classico pasta sauce, Maxwell House coffee, and some deli meat.
While we can expect to see higher menu prices as the summer progresses, industry experts believe it’s very possible that prices won’t rise quite as quickly as at the supermarket.