Restaurants have been raising their prices at record levels this year as companies seek to offset soaring costs for labor, food and other supplies.
Limited-service menu prices rose 7.1% year-over-year in October, according to new federal data released on Wednesday. Full-service prices rose 5.9% over that same period.
Both numbers were the highest on record, the U.S. Bureau of Labor Statistics said. The agency said its consumer price index was up 6.2% for the full year, the highest level in 31 years.
Soaring menu prices
Menu price increases have become so commonplace in the restaurant industry that analysts are wondering why some companies aren’t raising them faster.
On Wednesday, for instance, the burger chain Wendy’s reported 2.1% same-store sales growth in the U.S., numbers the company said were below its expectations. It also said rising costs are eating into profit margins.
The company said it raised prices “in line with” food-away-from-home inflation, which had been in the 4.5% to 4.7% range—though that increased to 5.3% in October. Yet that would be about 1.5% lower than other limited-service restaurants.
“We believe that pricing in line with food-away-from-home inflation is probably the right spot for us,” CFO Gunther Plosch told analysts on Wednesday. “We’re definitely watching competitive actions in the respective trade areas. And our pricing is pretty sophisticated.”
At least part of the reason restaurants are raising prices so aggressively is that consumers seem OK with paying them. Since the outset of the pandemic, consumers have visited restaurants less frequently but have spent more overall, in part because of a dramatic shift in the industry toward takeout and delivery, where consumers are ordering for more people at a time.
That demand has not seemed to wane even as the prices increase.
On Tuesday, executives with Krispy Kreme said that it raised prices in the “low single digits” in September. That was the company’s second increase this year. The company is paying higher rates for delivery drivers and higher prices for ingredients like flour and sugar.
“We are seeing good acceptance with customers in October,” CFO Joshua Charlesworth told investors Tuesday, according to a transcript on the financial services site Sentieo.
Fast-food chains have raised their prices more aggressively in part because their prices were generally lower to begin with and they’ve had plenty of customers. With full-service restaurants spending much of that time working their way back from the pandemic, they kept their price hikes lower. But they’re picking up the pace now.
At Ruth’s Chris, commodity prices soared 34% last quarter, due largely to spiking beef costs—one of the company’s beef cuts is up more than 150% year-over-year, CFO Kristy Chipman said this week at the Restaurant Finance and Development Conference.
The chain has been “reluctant pricers” over the years, Chipman said. But the company took higher prices last quarter to offset those commodity costs. The company rose prices in the mid-single digits.
“Guests have given us the permission to sit between 5% and 6%, which is higher than we’ve ever been,” CEO Cheryl Henry said, according to Sentieo. She noted the company is reviewing prices more frequently to understand where the company’s pricing should be, given costs.
Cheesecake Factory has yet to pull the trigger on higher-than-usual prices. The company has raised prices 3% this year but said it could have to raise them another 1.5% to 2% if commodity costs continue at their current rate.
“We’ll always look to make sure that there’s enough value on the menu for every guest,” CFO Matthew Clark said. “But I think we’re in position to fully cover the cost of sales and labor as we see it today.”
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