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How does food inflation affect restaurant prices in 2024?
The last few years have brought significant challenges for the U.S. dining industry. Rising inflation, supply chain disruptions, and labor shortages have led to substantial price rises, putting pressure on businesses and consumers. As we look ahead to 2024-2025, understanding the factors behind these rising costs is crucial. Restaurants must adapt to provide value in an increasingly challenging market.
Supply Chain Disruptions and Labor Shortages Drive Up Prices
Business hasn’t been easy for the dining industry for the past few years. Disruptions in the global supply chain, ingredient shortages, increased transportation costs, and the lingering effects of the pandemic have left many restaurants scrambling to maintain their supply levels.
Labor shortages are exacerbating the problem, with wage increases adding an extra burden on restaurant operators. Restaurants are struggling to attract and retain staff, driving up operational costs.
Many restaurants have been forced to pass these added costs on to customers in the form of higher menu prices to stay afloat. In 2023, inflation and labor shortages led to a noticeable uptick in the cost of dining out.
According to the National Restaurant Association, food price inflation has affected every aspect of the industry, pushing restaurants to make difficult decisions on pricing strategies. Average wholesale food prices stood 4.3% above their year-ago level in July, marking the strongest 12-month increase since March 2023.
A recent report from Restaurant Dive revealed that nearly 70% of restaurants had raised menu prices in 2023 to cope with rising labor and food costs. This trend is expected to continue as the industry struggles to balance rising input costs with customer affordability.
Restaurant Prices Continue to Rise Faster Than Grocery Prices
The current inflationary period is marked by the growing disparity between restaurant and grocery prices. Although grocery prices surged during the height of the pandemic, they have since stabilized.
In contrast, data from Restaurant Hospitality shows that restaurant menu prices have consistently outpaced grocery prices over the last 18 months. Consumers are increasingly aware of this gap, leading to heightened price sensitivity.
In July 2024, the Consumer Price Index showed that menu prices rose by 4.1% year-over-year, compared to a 1.1% rise in grocery prices. This trend is partly due to restaurants bearing the brunt of rising food costs 📈 and higher operational expenses like wages, utilities, and rent.
As of mid-2024, dining out costs an average of 30% more than preparing meals at home, which has resulted in a 5% drop in restaurant traffic since the start of the year.
Prices Likely to Continue Rising in 2024-2025
While there are signs of price deceleration, particularly as supply chains normalize, restaurants still deal with higher costs that won’t go away anytime soon. According to Forbes, this prolonged inflationary period indicates we might be heading toward recession.
4 Key Takeaways:
Despite these worries, there are some subtle signs of positive change. The National Restaurant Association reports that inflation is decelerating, albeit at a very slow pace:
- Core Food inflation rose 3.2% year-over-year in July, down from 3.3% in June and the slowest pace since April 2021.
- Menu prices grew 0.2% in July after rising by 0.4% in May and June.
- The Consumer Price Index for Food Away from Home increased 4.1% between July 2023 and July 2024, the same year-over-year pace as in June.
- Restaurant Menu inflation has trended lower year to date, down from 5.3% year-over-year in December (with a peak of 8.8% in March 2023).
However, these shifts might not be enough. Economists expect food costs, labor, and inflationary pressures to persist in 2025, so consumers can expect menu prices to continue creeping up.
According to USDA’s Food Price Outlook for 2024 and 2025, next year’s food-away-from-home prices are predicted to increase by 3.1 percent, with a prediction interval of 0.3 to 5.9 percent.
Consumers Cutting Back on Dining Out
Unsurprisingly, the rising cost of dining has led many consumers to reconsider how often they eat out. A poll by Vericast shows that 67% of respondents consider dining out at a restaurant too expensive, and 68% are switching to home-cooked meals to avoid rising costs.
Many consumers also trade down to less expensive restaurants or opt for takeout to reduce their costs. Despite these challenges, a survey from Lightspeed Commerce reports that consumers are still dining out.
81% of respondents say they dine out at least once a month, but consumers are increasingly focused on value and convenience: 43% are searching for deals with coupons, 39% are opting for value meals, and 36% are choosing happy hour specials.
This trend puts even more pressure on restaurant owners to differentiate themselves from the competition. While some diners may cut back on visits, restaurants offering an enhanced experience or unique value proposition stand a better chance of retaining customers.
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What are some strategies restaurants can use to manage rising food costs?
Restaurants can manage rising food costs by purchasing in bulk, using seasonal ingredients, reducing food waste, negotiating better prices with suppliers, and revising menu prices strategically
Restaurants Must Find New Ways to Provide Value
As dining costs rise, consumers are more selective about dining out, weighing costs, value, and convenience and seeking personalized experiences. Restaurants must employ new strategies to retain customers and deliver value beyond pricing.
Many establishments are improving their offerings with personalized service, curated menu items, and loyalty programs that incentivize frequent visits. Limited-time promotions and exclusive deals have become increasingly sought after by customers.
Meal delivery and takeout have surged, with more restaurants offering affordable meal bundles or exclusive discounts via mobile apps. Technological solutions like mobile ordering, self-service kiosks, and contactless payment are becoming industry standards. In 2024, over 55% of U.S. restaurants have adopted digital ordering systems to reduce labor costs and streamline operations.
However, consumers are still craving the human touch. Restaurants should prioritize customer service and ensure the guest experience remains unaffected by the shift toward technology.
The Role of a Trusted Food Wholesaler in an Inflationary Market
In a time of rising food prices and inflation, partnering with a trusted food wholesaler is critical for restaurants looking to manage their costs while maintaining quality.
A trusted food supplier helps restaurants source ingredients efficiently, keeping the cost of goods sold (COGS) under control. A solid relationship based on open communication allows you to stay agile and avoid business disruptions, as you can negotiate pricing, discuss product availability, and adapt to market changes more easily.
Fadaro understands the pressure rising costs put on your business. As a family-owned company, we’re dedicated to helping restaurants thrive by offering high-quality products at competitive prices. Whether it’s seasonal fresh produce, wholesale specialty foods, or pantry staples, we ensure you get consistent quality and service, even as food costs fluctuate.
Fadaro works with you to solve unexpected challenges, from last-minute changes to product shortages, so that your operations can run smoothly. Our streamlined online ordering system and next-day deliveries help you save time and manage your inventory more efficiently, allowing you to focus on delivering excellent customer experiences.
Explore our catalog and see how we can support your restaurant’s needs today!
