Full-service menu prices increased a record 8.7% year over year in April, according to new federal data released on Wednesday, as high inflation continued leading operators to charge their customers more for food.
Prices at restaurants with table service increased 0.9% between March and April, according to the U.S. Bureau of Labor Statistics (BLS). Fast-food prices rose 0.3% for the month after declining in March and are up 7% year over year.
Prices for food away from home rose 7.2% year over year. That index includes prices at schools, where free lunch programs have contributed to steep declines.
While menu price inflation has been at or near 40-year highs, it remains far lower than prices at grocery stores. Food-at-home prices rose 10.8% in April from the same level a year ago, the largest increase in that index since November 1980. Generally, consumers will shift spending from restaurants to grocers, or vice versa, when inflation is worse at one of those businesses than the other.
Restaurants have been raising prices to keep pace with the higher cost of hiring people and buying food. Wage rates for nonsupervisory leisure and hospitality workers, including restaurants, are up nearly 13% over the past year, according to BLS data.
The producer price index for food is up even more. Wholesale food prices are up more than 17% over the past year, according to BLS data, the highest in five decades. Companies are paying nearly 50% more for turkeys and 82% more for fresh vegetables and 46% more for cooking oil, among other things. Chicken prices are up 29%.
The higher prices, in other words, are not keeping up with restaurants’ own costs. That has hurt margins at numerous concepts.
At Wendy’s, for instance, margins at company-operated restaurants fell to 11.6% in the first quarter from 17% in the same period a year ago. “We want to be successful on traffic and dollar share performance,” Wendy’s CFO Gunther Plosch told investors on Wednesday. “So we have taken pricing action, but we have not attempted in the short term to offset all the inflationary pressures.”
Quick-service restaurants raised prices more aggressively after recovering more quickly from the pandemic two years ago, but full-service restaurants have caught up as demand returned and their own costs increased.
Higher costs have led many of them to raise prices at levels beyond normal. Texas Roadhouse increased prices by another 3.2% a few weeks ago, and its prices are now up 7.5% over the past year. “We really don’t talk about pricing power,” CFO Tonya Robinson said, according to a transcript on the financial services site Sentieo. “We talk about what kind of pricing do we have to take given the inflationary environment, what’s the right thing for the operator and guest, take as little pricing as we have to.”
The bar-and-grill chain Chili’s increased prices 4.3% last quarter and expects more price increases in the coming weeks. By June it expects prices will be up 6% year over year.
Wyman Roberts, CEO of Chili’s parent Brinker International, said the company has been careful on pricing to ensure that customers do not reject the higher prices. “We understand the challenges with the inflationary pressure we’re seeing but we also understand the importance of getting your pricing strategy right,” he said, according to a transcript on the financial services site Sentieo. “So we have chosen to be probably more thoughtful timing-wise through this year about our pricing action.”
Overall, the consumer price index rose 8.2% year over year, slowing somewhat from 8.5% in March but continuing a long string of inflation unseen since the early 1980s. In remarks on Tuesday, President Biden blamed the problem on a combination of supply chain challenges related to the pandemic and Russia’s invasion of Ukraine, which has led to increased prices for commodities such as wheat and gas.
The U.S. Federal Reserve, meanwhile, has been raising interest rates aggressively to offset inflation, including another half-point last week, the largest increase in two decades. Yet that has increased fears of a recession, which has hammered stocks in recent days.
The National Restaurant Association on Tuesday called on the Biden Administration to pass the Infrastructure Investment and Jobs Act to address supply chain concerns, as well as the Essential Workers for Economic Advancement Act to increase the supply of workers.
“While there isn’t a single silver bullet that will bring the current economic climate under control for the restaurant industry, the Association is taking an ‘all of the above’ approach to legislation that could provide relief for operators,” Sean Kennedy, EVP for public affairs with the association, said in a statement. The association is the majority owner of Restaurant Business parent company Winsight LLC.
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