Restaurants are facing a problem they haven't seen since the recession
(Joe Raedle/Getty Images)
Grocery prices are getting lower — and it's causing major problems in the restaurant industry.
The price gap between dining out and eating at home is growing, with the prices for food away from home increasing by 0.2% in September, while the cost of food at home declined by 0.1%, according to data from the US Bureau of Labor Statistics.
The reason for the gap, according to a note from an analyst at Wedbush Securities, Nick Setyan, can be traced to growing labor costs and falling food costs.
Setyan said the gap between grocery and restaurant prices was poised to surpass the gap seen in 2009-2010. In other words, restaurants are about to be a bigger disadvantage than they have at any time since the recession.
In fact, ignoring 2009, the US is in its longest stretch of falling food prices — nine months — since 1960.
(Associated Press)
As a result, customers are increasingly shopping for food to prepare at home, instead of eating out.
The health of the restaurant industry, as measured by the National Restaurant Association's Restaurant Performance Index, recently hit its lowest level since 2013, thanks to declines in same-store sales and customer traffic. Only 30% of restaurant operators reported same-store sales increases in the past year, and just one in three expected sales to grow in the next six months.
"If I'm not mistaken, it's the biggest gap we've seen [between food at home and food away from home] in the last 10 years," Mike Andres, the president of McDonald's USA, said in August. "This is clearly impacting the whole eating-out industry."
A week later, the CEO of Wendy's echoed Andres, saying the widening gap between prices of food at home and food served in restaurants meant companies needed to provide customers with new reasons to eat out.
Grocery stores are eager to take advantage of dissatisfied restaurant customers. Chains such as 365 by Whole Foods are adding more prepared food and in-store restaurants.
In-store dining and prepared foods from grocery stores led to 2.4 billion food-service visits and $10 billion of consumer spending in 2015, according to a recent report by the industry research firm NPD Group. That's an increase of nearly 30% since 2008.
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