Menu price inflation hit a 40-year high in March, according to federal data released this week, as the average price for food at restaurants or school cafeterias rose 6.9% over the past year.
Tucked in that data was this, however: The monthly index for limited-service restaurants fell 0.2%, according to the data from the U.S. Bureau of Labor Statistics. It was the first such decline since well before the pandemic.
In fact, look at this chart on month-to-month menu price inflation, broken down by the two primary industry sectors, and you can see a clear slowdown at fast-food restaurants.
Monthly menu price inflation
Source: U.S. Bureau of Labor Statistics
Look at the data, and you see a flurry of price increases over the summer and into the fall, peaking at 1% in November last year before falling since then.
Meanwhile, full-service restaurants have continued to raise their prices. The result, when looked at on an annualized basis, is that full-service prices have now increased at a higher rate over the past year than limited-service prices.
Annual menu price inflation
Source: U.S. Bureau of Labor Statistics
To be fair, a 7.2% annual price increase is still high. What’s more, the index can be volatile from one month to the next. A couple of months’ worth of slowdowns, even the decline from March, is not uncommon. The second chart shows more clearly that there have been apparent peaks before. Price inflation could return soon enough.
But it’s worth wondering whether the slowdown in fast-food pricing is a sign that the sector’s inflationary trend has peaked.
Fast-food restaurants are traditionally more sensitive to consumer shifts in behavior. Because they get so much traffic on a day-to-day basis they can see relatively quickly, at least compared with full-service, how much a pricing action impacts consumers.
For the most part, executives have touted their remaining “pricing power” despite their price hikes, arguing that there has been relatively little consumer pushback. This data, however, could well suggest that consumers are pushing back enough that operators are shying away from price increases altogether now.
That makes sense. Fast-food prices have been soaring for several months. Few longtime industry observers expected that to continue. At some point, pushback on pricing is inevitable.
The data also corresponds to the increasing concern about inflation among the public. Because they have a higher percentage of lower-income customers, limited-service restaurants can be more quickly prone to changes in consumer behavior due to rising gas prices or other costs.
Some operators have told us recently that they’ve noticed some shifts in the way consumers are spending—they are shifting more toward lower-priced items and value offers. Couponing appears to be on the increase, too. Direct mailings from fast-food concepts have been arriving at my own door on a more frequent basis.
Rich Shank, senior principal with Restaurant Business sister company Technomic, said at the Restaurant Leadership Conference this week that consumers are in an “existential recession” and that industry pricing may be outstripping consumers’ willingness to pay them. As it is, he said, the average price for a fast-food entrée is higher ($10.08) than the level consumers consider it to be “getting expensive” ($10).
“Pricing strategy is butting up against willingness to pay,” he said.
It's not clear yet whether this is happening. But many operators are expecting that particular shoe to drop, and the inflation data could be one sign they're preparing for it.