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 continues to grow, with the prices for food away from home increasing 0.2% in September, while food at home declined 0.1%, according to data from the US Bureau of Labour Statistics.
The reason for the gap, according to a note from Wedbush Securities Analyst Nick Setyan, can be traced to growing labour costs and falling food costs.
According to Setyan, the gap between grocery and restaurant prices is poised to surpass the gap seen in 2009-2010. In other words, restaurants are about to be a bigger disadvantage than they have been since the recession.
In fact, ignoring 2009, the US is currently in the longest stretch of falling food prices — nine months — that it has experienced since 1960.
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 last year, and just one in three expect 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,” McDonald’s USA President Mike Andres said in August. “This is clearly impacting the whole eating out industry.”
A week later, Wendy’s CEO 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.
Meanwhile, 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 industry research firm NPD Group. That’s an increase of nearly 30% since 2008.
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