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Restaurant menu prices continue to rise as labor costs soar

Food away from home prices rose 0.6% month-over-month in May, and 4% over the past year, as inflation at full-service restaurants hit a 13-year high.
Photo courtesy of Chipotle

Consumers going out to restaurants are finding higher prices these days as operators charge more for their menu items in a bid to make up for rising labor costs.

Menu prices, or food away from home prices, rose 0.6% between April and May, according to the latest consumer price index data from the U.S. Dept. of Labor.

Prices at restaurants are up 4% on an annual basis.

The rate of menu price inflation was lower than the overall rate of inflation, which was 5% last month on an annual basis. That was the largest 12-month increase since August 2008.

Menu prices have been rising since last summer when consumers began flocking to fast-food drive-thrus and ordering delivery and operators paid higher prices for labor and charged consumers accordingly.

But for most of that time it was the limited-service sector leading the charge, as demand for those meals and consumers’ willingness to pay them led to higher charges.

Yet prices at full-service restaurants rose 4.1% annually in May, according to the Labor Dept., which said that it was the highest rate of annual growth for that sector since October 2018.

The numbers suggest that full-service restaurants are taking their charges higher as operators face higher labor costs as they fill open positions to meet rising demand. Sales at full-service restaurants have largely recovered in the past three months as consumers, with cash to spend, have filled seats at independent eateries and casual dining concepts.

All that said, fast-food restaurants continue to push prices higher. Limited-service restaurants have raised their prices 6.1% over the past year.

Annual menu price inflation, full-service v. limited service

 

Source: U.S. Bureau of Labor Statistics

Labor is getting much of the blame for the rising prices—by contrast, the less labor-intensive grocery sector took prices higher just 0.7% over the past year. Roughly a third of restaurants’ revenue is spent on pay and benefits, which makes them more aggressive in taking up prices when wages rise.

“It feels like the industry is going to have to react,” Chipotle CFO Jack Hartung told investors this week after the company acknowledged that it recently raised prices 4% to pay for higher labor costs. “It feels like the industry is now going to have to either do something similar or play some kind of catch up. Otherwise you’ll just lose the staffing game.”

At the same time, it’s not just labor. Restaurants are facing shortages of certain supplies for everything from chicken to sauces, which in some cases is leading to higher prices.

Some of the other inflationary sectors could also pressure industry prices in the near future, notably energy—which could lead to higher prices for commodities and utilities. The energy index rose 28.5% over the past 12 months. The price of gas has risen 56.2% over the past year.

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