The gap between restaurant and grocery prices increased in April

The Consumer Price Index for April came in at 4.9% versus April 2022, marking the 10^th straight month of cooling inflation after a 9% peak last summer.  April’s CPI was up 0.4% versus March, which is the smallest 12-month increase in two years.

While this relief is welcomed news for operators and consumers alike, the 4.9% remains well above pre-pandemic inflationary rates of 2%. Food-away-from-home prices were up 8.6% on an unadjusted 12-month basis after inching up by 0.4% in April. This marked the lowest month-over-month increase since December’s 0.4% uptick. In March, food-away-from-home prices were up 8.8% year-over-year and 0.6% month-over-month. April’s full-service menu prices were up by 7.2% over last year, while limited-service meals were up 8.2%. This is compared to 8% and 7.9% in March, respectively.

By comparison, food-at-home prices – mostly grocery – continued to fall in April and now sit at 7.1% on an unadjusted 12-month basis. The food-at-home category was down 0.2% in April and down 0.3% in March, widening the pricing gap between grocery and restaurants.

March marked the first time the food-at-home index fell for the first time since September 2020 and the first time in which restaurant pricing outpaced grocery pricing since late 2021. With this trend continuing in April, it could impact restaurants’ ability to gain a bigger share of wallet among inflation-weary consumers. In a note, analyst Mark Kalinowski said the grocery versus restaurant gap in April widened by 150 basis points, from 40 basis points in March. He added that the 20-year historical average between the two segments is 60 basis points.

“So April 2023 is the first month in well over a year in which the gap is in favor of grocery stores and, simultaneously, larger than the 20-year historical average gap,” he wrote. “Restaurants may need to do some ‘catch-up’ pricing, so we expect this number to remain quite high by historical standards for the next three-to-six months.”

Notably, however, much of the food-away-from-home increases have been impacted by the end of free school lunch programs. In March, for instance, the price index for food at employee sites and schools increased by over 130%. The National Restaurant Association said this component will continue to distort the overall CPI for restaurant prices until Q4 2023.

“As these programs expired, many students went from paying nothing to paying regular prices for school lunches. As a result, this price index rose sharply in recent months, which is putting upward pressure on the overall food-away-from-home index,” the association said in a statement last month.

That said, there has been some trade down activity happening at restaurants as menu prices remain elevated. During his company’s Q1 call, for instance, McDonald’s CEO Chris Kempczinski said there has been a “slight decrease in units per transaction," for example. Still, most companies across segments have performed well in Q1, exceeding expectations in many cases as traffic remains strong and as consumers have shown their willingness to spend on higher menu prices.

Perhaps because of this, some restaurant companies are now taking a wait-and-see approach to their menu pricing for the remainder of the year. For instance, Chipotle CEO Brian Niccol said his company is “staying the course on pricing, which is, if we see inflation that warrants us needing to take additional pricing, we’ll take it … So, we have not made any definitive plans on pricing for the balance of the year.” 

Contact Alicia Kelso at [email protected]