The National Restaurant Association recently reported on the Bureau of Labor Statistics’ March analysis of food and menu prices.
The good news: Inflation slowed from 2.8% to 2.4%, the lowest pace since February 2021. Additionally, consumer prices fell 0.1% in March, showing the first monthly decline since May 2020.
The bad news: Food prices continue to climb, increasing 0.4% in March after a 0.2% increase in February. Grocery prices advanced by 0.5%, while restaurant menu prices increased by 0.4%.
The coming months may show the effects of the tariff pendulum swing with rising prices… or not. Due to the uncertainty, it is almost certain that the Federal Reserve will hold off on any monetary policy adjustments for now.
Menu Prices
While menu inflation has cooled from its peak of 8.8% in March 2023, it has increased for two consecutive months. Full-service restaurants showed the greatest price increases, jumping by 0.6%, the highest increase in nine months. Conversely, limited-service restaurants showed a 0.2% increase.
Year-over-year, both types have seen significant increases, with full-service showing a rise of 4.1% in menu prices, the biggest increase in 14 months. Ongoing inflation and uncertainty appear to be the culprits.
So, what region witnessed the greatest increase in menu prices? Not surprisingly, that statistic goes to the West, where menu price growth experienced a 4.3% increase year-over-year in March. The slowest region was the South, with menu prices rising just 3.5%.
Restaurants Response
While the figures suggest restaurants’ response to rising food prices is increasing menu prices, not all follow that sequence. Shake Shack is one brand looking for normalization. In the company’s earnings call, CFO Katie Fogerty said, “Our outlook for the next three years doesn’t really contemplate any big step-up in pricing.”
Nation’s Restaurant News reported on several other restaurants taking a more wait-and-see approach. These included One Group Hospitality, the parent company to brands like Kona Grill, Benihana, and STK. In today’s current environment, where guests pay close attention to prices, they are cautious, turning to price increases only in the event of a commodity increase or inflation.
Others are looking at ensuring guest retention by controlling costs and efficiency instead of raising prices.
The Effect on Consumers
Samir Zabaneh, CEO of TouchBistro, said this regarding a recent survey they conducted, “While current economic conditions have a clear effect on dining habits, consumers are demonstrating remarkable adaptability, strategically allocating their spending based on what matters most to them—be it exceptional experiences, convenient access, or maximizing value.”
Do you know where you fit into these categories that are currently the top considerations of consumers? Whether an experience, convenience, or value, now’s the time to lean into your strengths.
In conclusion, Zabaneh said, “Even with the rising cost of living, diners consistently demonstrate their commitment to dining out and support restaurants. This enduring customer loyalty drives the restaurant industry forward, creating clear opportunities for restaurants to enhance the dining experience through strategic limited-time offers, efficient delivery, and exceptional in-person service.”
Zabaneh recommended keeping LTOs short to prevent menu bloat. This refers to a menu with too many choices and without a strong culinary vision. He also suggested expanding off-premise options.
An Experience Worth Remembering
It’s important to remember why your brand-loyal guests keep coming back for more. For many, it’s the experience. While price sensitivity is in the air, many customers prioritize the experience above all else, even the quality of the food, ambiance, and service.
A holistic approach creates an experience that encompasses all aspects of dining, from the aesthetics to the meal and service. It’s the small, personalized details and thoughtful touches that make guests remember and come back for more.
At Emerging Concepts, we work with today’s leading restaurant and entertainment concepts, executing customized business strategies in real estate, finance, supply chain, and labor. To learn more about working with our exceptional team of data scientists and real estate, restaurant, and financial experts, contact Emerging Concepts.
