facebook pixal
Financing

Fast-food prices soar with higher labor costs

Limited-service menu prices rose 6.9% while full-service prices were up 4.9% last month as costs rise and consumers shift away from value.
Restaurant prices labor costs
Photo by Jonathan Maze

Restaurant menu price inflation is not slowing down.

Food-away-from-home inflation rose 4.7% year-over-year last month, according to new data from the U.S. Labor Department, as a combination of higher costs and a consumer willing to pay them to push prices higher.

But even that understates price movement at restaurants because prices for food at employee sites and schools fell 42.5%, a likely result of federal free lunch programs.

Prices at limited-service restaurants soared 6.9% last month. At full-service restaurants, they increased 4.9% year-over-year.

Restaurant prices have risen at a faster rate than they have at grocers and other retailers. Food-at-home prices rose 3% year-over-year—though a lot of that inflation has taken place in recent months.

The price increases at restaurants reflect continued pressure on industry costs while many companies shift away from value to take advantage of a more free-spending consumer.

 

Labor costs, in particular, have played a role. Industry wages are up about 10% over the past year, according to federal data, but that inflation is even higher for frontline workers who have become increasingly difficult to find.

There were more than 1.9 million leisure and hospitality job openings in July, according to the most recent federal data, about twice as many as there was in February 2020 before the outset of the pandemic—10.8% of leisure and hospitality jobs were yet unfilled in July, more than any other industry sector. By comparison, the job openings rate overall was a historically high 6.9%.

As such, wages at $15 or more in many places have become commonplace as restaurants work to fill openings. Companies are also spending more for benefits like tuition and childcare in addition to health insurance.

That isn’t the only thing costing more. Food prices for many restaurants have increased because of high demand as well as supply shortages.

Many restaurants are also investing heavily in technology, which can cost operators more on an ongoing basis. Fees charged to restaurants by delivery-service providers are also contributing as operators offset those fees with higher prices to consumers. While many companies raise prices for delivery orders, some raise them more broadly.

Delivery orders have taken an increasingly prominent role at many restaurants over the past year and a half as COVID limited dine-in business.

Higher prices can be seen in some industry indexes. In August, for instance, Black Box Intelligence said that same-store sales rose 6.1%, over 2019, yet traffic decreased 5.4%. That suggests consumers are paying 11.5% more per order than they did before the pandemic.

Some of that surely is coming from consumers making larger orders whenever they visit, but they are also paying higher prices in the process.

Prices are higher in another sense: Fewer restaurants are pushing value and more are paying premium prices.

There’s a big reason for this. “People are willing to pay more for a little bit more premium experience right now,” David Gibbs, CEO of KFC, Taco Bell and Pizza Hut owner Yum Brands, told investors earlier this week according to a transcript on the financial services site Sentieo.

He said consumers with more money in their pockets due to stimulus programs has eliminated some price sensitivity. “Do I think that there’ll be a little bit more focus on value as we gradually come out of this? Yes I do,” he said.

For now, however, restaurants are raising prices because they have to, and because they can.

Want breaking news at your fingertips?

Get today’s need-to-know restaurant industry intelligence. Sign up to receive texts from Restaurant Business on news and insights that matter to your brand.

Trending

More from our partners