Falling grocery prices help explain weak restaurant results
Cash-strapped consumers are feeling some extra change in their pockets following continued price declines at “food-at-home” prices over the last several months. Leave it to the government to come up with such a mouthful of a term. This lower cost alternative to eating out helps explain the horrible restaurant traffic and sales results over the last few months. With minimum wage pressures and healthcare costs, it’s hard to see restaurants ranging from McDonald’s (MCD) to any of Darden’s (DRI) restaurant chains cutting actual prices as it would mean sacrificing margins. Talk about a tough pickle!
According to the Bureau of Labor Statistics, food-at-home prices declined by 1.6 percent overall during the month, compared with a 1.3 percent decrease in June — the seventh sequential decline over the last nine months, the Bureau said.
Over the last 12 months, the food-at-home index has decreased by 1.6 percent, with indexes for meats, poultry, fish, and eggs falling 5.6 percent over that span. The dairy and related products index fell 3.1 percent, and the indexes for cereals and bakery products, and for nonalcoholic beverages, also declined. Those figures have increased pressure on restaurant chains at a time when many are facing margin pressure because of higher labor costs.
As the price gap between food at home and food away from home has widened into a gulf this year, restaurant industry same-store sales have taken a hit. Restaurant traffic fell 3.9 percent in July, according to Black Box Intelligence. And restaurant industry same-store sales slowed by nearly 2 percentage points in the second quarter, according to Nation’s Restaurant News research.
Source: Grocery prices drop, widening gap with restaurant prices
