Inflation at fast-food restaurants shows no sign of slowing

Limited-service restaurant prices accelerated slightly in April, even as inflation cooled at full-service restaurants and grocery stores.
Restaurant menu price inflation
Restaurant menu prices rose 8.6% annually in April. / Photo: Shutterstock.

Food and labor costs have been easing early this year, at least according to a succession of industry executives on first-quarter earnings calls in recent days. But fast-food restaurants are keeping their foot on the menu-price gas pedal.  

Prices at limited-service restaurants increased 0.6% in April, a slight acceleration from March, albeit one in keeping with recent menu price trends, according to new data from the U.S. Department of Labor.

On an annual basis, fast-food menu prices are up 8.2%. By comparison, prices at full-service restaurants increased just 0.1%, down from a 0.7% increase in March. And over the past year those prices are up 7.2%.

Meanwhile, prices at grocery stores decreased again in April, down 0.2%. Food at home prices increased 7.1% over the past year, continuing a deceleration over the past few months after those prices peaked at 13.5% in September.

Total food-away-from-home prices increased 0.4% in April and 8.6% over the past year. Overall menu price inflation is higher than what’s seen at traditional restaurants largely because of the end of free public school lunch programs.

Yet the higher prices at restaurants, particularly when compared with grocers, could put pressure on the industry amid concerns of an economic downturn. Consumers concerned about the future of the economy could start looking at menu price inflation when compared with the prices they’re paying at grocery stores and opt to shift spending.

Pricing concerns have already kept many consumers from ordering delivery at pizza chains like Domino’s and Papa Johns, for instance, a sector where consumers appear to be more price sensitive than they are at other concepts.

At the same time, the continued pricing limited-service restaurants continue to take may be a sign that such operators feel little pressure from their customers on their charges. And consumers have continued to spend at fast-food restaurants in recent months despite historically high inflation.

Still, the pricing is coming even as executives tout improvements in the labor and food cost environment that drove a lot of inflation in 2022. Several companies, such as Taco Bell owner Yum Brands and Starbucks, said staffing levels increased, according to a search on the financial services site Sentieo/AlphaSense.

And other chains, such as Portillo’s and Chipotle Mexican Grill, said their labor cost percentages decreased last quarter.

“Inflation has slowed measurably,” Dutch Bros CFO Charles Jemley told investors on Tuesday.

Dutch Bros said on Tuesday that profit margins at company stores improved 590 basis points over the past year in the first quarter. On Wednesday, Wendy’s said profit margins at its corporate stores improved 270 basis points.

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