Restaurant operators looking for some relief from a year’s worth of price-related traffic woes might find some hope in new inflation data released on Thursday.
Notably, wages are rising at a faster rate than inflation. Wages last month increased 0.4%, and 4% over the past year, according to the U.S. Bureau of Labor Statistics (BLS). The Consumer Price Index, meanwhile, increased 0.2% in September, and 2.6% over the past year.
“Real wages,” in which the BLS adjusts wage growth for inflation, rose 0.2% in the month and 1.5% over the past year.
Meanwhile, food-at-home prices rose 0.4% month-over-month in September, while food-away-from-home prices rose 0.3%. It was the first time in more than a year that the prices at grocers and other retailers increased at a rate faster than they did at restaurants.
There remains a substantial gap between the two industries on a one-year basis. Over the past year, restaurant prices are up 3.9%, compared with a 1.3% increase at grocers.
In addition, restaurant prices rose faster, slightly, than the overall rate of inflation. Yet the numbers suggest that the inflationary gap between the two biggest purveyors of food to consumers is beginning to narrow.
Both pieces of data could provide a tailwind for an industry weathering a challenging sales environment in 2024.
Many restaurant chains, particularly fast-food chains, have struggled with traffic challenges as consumers frustrated by higher prices have limited their visits. David Henkes, senior principal with Restaurant Business sister company Technomic, pointed out sales and traffic numbers from both limited and full-service chains, and noted that the traffic declines came during what has generally been a strong economy.
The traffic data has been particularly surprising at fast-food chains that usually perform well when consumers are cutting back.
“In aggregate,” Henkes said at the CREATE Conference in Nashville on Wednesday, “these are some pretty concerning numbers to us.” The conference was put on by another Restaurant Business sister company, Nation’s Restaurant News.
Those traffic challenges were driven in large part by a consumer doing more budget shopping in reaction to inflation. Because inflation was rising faster than wages in 2023, consumers took a harder look at their spending and made adjustments.
In particular, they may have looked at menu prices, which was rising substantially more than the price at the grocery store and started eating at home more often.
Thursday’s BLS report suggests both phenomena could be ending.
Consumers dine out more often when they have more spending money. They have more spending money when their wages are rising higher than the prices they’re paying for everyday goods and services. The investment banker Houlihan Lokey noted in a report recently that wage growth catching up with inflation could ease consumers’ price sensitivity and could ease demands for discounts.
That said, the first earnings report from a fast-food chain, Domino’s Pizza, on Thursday featured commentary suggesting lower-income consumers remain pressured. CEO Russ Weiner highlighted some data suggesting consumers are falling behind on their credit card bills, which may be driving them to budget shop for their pizzas.
Nevertheless, the data suggest that, perhaps, the industry’s tough consumer environment is beginning to shift.
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