• Supermarket Prices Hurting Restaurant Business

    Supermarket Prices Hurting Restaurant Business

     

    Cheaper food normally helps the restaurant business by lowering its costs and lifting profit margins.

    But this time falling food prices are having a perverse effect by encouraging more customers to eat at home, say executives and analysts.

    Supermarket prices, measured by the food at home index, declined 1.6% over the last 12 months. At the same time, the food away from home index has risen 2.8%, according to the Bureau of Labor Statistics. That gap is the widest it has been since the mid-1980s, not counting the last recession.

    Restaurant visits began to stall in March, and overall traffic then fell in June and again in July, with fast-casual and casual dining segments posting the steepest losses, according to market researcher NPD Group Inc.

    The second quarter was the weakest by sales at existing restaurants since the first quarter of 2010, with three restaurant types posting declining sales in the quarter—fast casual, casual dining and family dining—and sales growth in every other restaurant category but pizza slowing, according to equity researcher William Blair & Co.

    The average check is up because restaurants are passing along higher labor costs. The average restaurant bill rose 1.7% to $7.28 in July versus a year ago, NPD said.

    Wendy’s Co. Chief Executive Todd Penegor says cheaper supermarket prices are the culprit. He recently said the gap between supermarket and restaurant prices is “the biggest driver far and away” of the recent softness in the restaurant industry. It has gotten a lot cheaper “to get beef at your local butcher and go home and grill,” he added.

    This story by Julie Jargon originally appeared in the Wall Street Journal.

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