Food & Beverage

Food inflation greater at home than dining out

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June 20, 2022

Consumers who purchase food for home have generally experienced higher price increases relative to what they pay for meals at foodservice outlets, including QSRs and fast-casual restaurants — a trend that makes restaurants more appealing, according to Nick Cole, head of restaurant finance at Mitsubishi UFJ Financial Group, in a press release.

The Consumer Price Index indicated that the food-away-from-home CPI (restaurant purchases) rose 7.4% for the year ended April 2022. In contrast, the food-at-home CPI (grocery and supermarket food purchases) was 11.9% higher for the year ended May 2022.

"Restaurant chains have been able to achieve lower food-price increases and delay the effect of inflation thanks to a number of advantages they enjoy," Cole said in the release.

Restaurants' advantages include:

• Access to ingredients at wholesale prices and economies of scale.
• The ability to lock in lower prices through forward contracts and other hedging strategies.
• The flexibility to reallocate ingredients among menu items.

Cole said restaurant labor shortages have stabilized this year, though they still linger and continue to trigger disruptions. Food-delivery drivers are in particularly short supply, impacting delivery-intensive restaurants such as pizza chains.

"Large online retailers attracted a significant amount of labor at restaurants' expense during the pandemic, yet many of the jobs they filled require little training and are designed for high turnover," Cole said in the release. "Therefore, we believe the restaurant industry will be able to pull back many workers with the right mix of incentives."

Additionally, Cole noted the following top industry trends:

• Disruptions in the beef supply are putting related restaurant businesses at risk because of the longer cycle of beef gestation, cultivation and ultimate provision, as opposed to such commodities as poultry and fish, which are characterized by a shorter supply cycle.
• Restaurant dining venues have returned to full capacity, yet chains continue to benefit from having retooled their real estate and technological infrastructure to accommodate drive-through traffic and online orders.
• M&A activity slowed in the first quarter because of margin pressures due to rising commodity prices, workforce shortages, and the need for higher expenditures to attract labor, as Cole and his team had anticipated in November 2021 — yet they expect M&A activity to pick up as the year progresses.