Why restaurants will have to rethink price hikes in 2024

Consumers have been resilient. But they’re also paying more for food than ever before. Operators may need to look beyond price increases next year.
Coca-Cola North America Chief Economist Carlos Herrera believes 2024 will be "The Year of Management." | Photo by W. Scott Mitchell Photography.

The consumer has been surprisingly resilient despite historic inflation over the past two years. People have jobs and wages are growing. That has helped keep restaurant sales afloat despite a bevy of predictions otherwise.

But that doesn’t mean operators can keep raising prices the way they have been. “2024 is going to be The Year of Management,” Carlos Herrera, chief economist for Coca-Cola North America, said at the Global Restaurant Leadership Conference on Monday. The conference is a sister company of Restaurant Business.

Specifically, he said that consumers are paying more for restaurant and grocery food than ever before, to the point that they’ve started buying less food overall. That could force operators to consider other options to generate profits next year. 

“People have money, people have jobs, people are going out to eat,” Herrera added. “The question is how many meals are they going to afford? People are spending more to go out to eat. But the number of meals are going down. Now we’re really going to have to dot the I’s and cross the T’s.”

He noted that the percentage of consumers’ income being spent at restaurants has been consistent for decades at 5%. But now it’s 5.7%. Consumers have noticed this difference. “The consumer is saying this is pretty expensive,” Herrera said.

It’s more expensive at grocery stores, too, translating into $220 billion in excess food spending at restaurants and retailers than consumers are accustomed to.

Restaurant prices have been increasing faster than the overall rate of inflation for the past two years. That includes September, when prices at restaurants rose 6% over the past year, compared with a consumer price index of 3.7%. After a time, consumers notice that.

Social media and other reports about $18 Big Mac meals and other prices show a consumer clearly frustrated with higher prices, even if operators argue they’ve seen “little pushback” over price hikes.

“They’re spending too much on food,” Herrera said. “Inflation on food away from home is higher than total inflation.”

Looking out at a crowd of restaurant operators, he added, “The guilty party is right here.”

But, he added, “It’s not because we’re greedy bastards. It’s because we have the costs.” Restaurants have to pay a lot for labor, and while the labor shortage that was the hallmark of 2021 and 2022 is easing, the costs of that labor have continued to rise. That has kept pressure on operators to raise prices even as overall inflation slows.

Still, operators have largely run out of room to raise prices, at least in the eyes of the consumer. And so heading into 2024, restaurants will need to rely on managing their costs to generate profit margins, rather than raise prices.

While the consumer is not showing any real sign of “cracking,” they are eating out less frequently because of price hikes. That will only get worse if prices keep going up at a rate faster than inflation.

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