Everything is more expensive these days. Well, that is, unless you’re responsible for buying items like chicken or cheese for your restaurant menus.
Food costs are in a deflationary period. The producer price index for food has fallen for eight straight months through December. Wholesale food prices that month declined 5% over the past year. That’s a meaningful decline.
That said, food costs remain 26% higher today than they were four years ago, according to the National Restaurant Association. And not everything is coming down. Indeed, how much companies’ food costs are slowing or even declining probably depends on their menu. It’s easier operating a breakfast concept or a pizza chain but not great for a local steakhouse.
Still, the slowdown in food cost increases could give brands more options to regain margins and potentially find ways to generate traffic. The increases, coupled with slowing wage rate inflation, provide the industry with a potentially improved operating environment—California fast-food restaurants notwithstanding.
It’s also simply good news for an industry that for a while was being hit with stark increases in both food and labor—for completely related reasons—that sapped margins even with generationally high increases in menu prices.
Brands have lost traffic as a result of those price increases and their high cost of operations has made it difficult to adequately address the issue. Chains have instead introduced a record number of limited-time offers, pushed more technology and social media marketing to get customers in the door.
What has come down the most?
Prices for fresh and dry vegetables have plunged 51%. Eggs, the prices of which skyrocketed a year ago amid the bird flu, have fallen by 61.5%. Turkey prices are down 40.4% for the same reason. Dairy prices are down 7% and grain prices are down nearly 30%.
On the protein front, most of them are down. Processed chicken prices are down 3.8% over the past year. Pork prices are down 6.7%. Fish prices are down 4.3%.
On the other hand, wholesale beef prices are up 20.4%, though those prices stabilized last month. Beef prices could be in for a period of inflation that could take years to unwind.
Indeed, processed fruits and vegetable prices are up 10%. Soft drinks are up 3.9%. And wholesale prices for roasted coffee are up 6%.
While the lower food costs have eased some of the margin concerns for the industry, in general, they are more beneficial for grocers that do not have the labor requirements that restaurants have. As it is, grocers have slowed their price hikes dramatically over the past year as food inflation has calmed.
Those grocers have been drawing particularly lower income consumers away from restaurants that have continued to raise prices beyond that of inflation. And now grocers could be preparing to lower them further. The CEO of Walmart, in fact, has publicly suggested that grocery price deflation is coming “soon.”