Restaurant prices rose at steepest pace in 40 years last month. Why it may not stop
Restaurant prices rose in July at their steepest pace in more than 40 years, the federal Bureau of Labor Statistics reported Wednesday.
Those prices have been going up at a faster pace than supermarket food for some time, and projections say the the trend will continue through 2022.
The bureau calls eating out “food away from home,” and found such prices went up 0.8% in July, the biggest monthly increase since February 1981. Prices were up 4.6% over the past year.
Sacramento restaurateurs say they have to raise prices to cover higher costs and stay in business.
“The alternative is to undercharge people and to inevitably jeopardize the survival and employment of many,” said Kimio Bazett, the co-owner of Hook & Ladder Manufacturing Co. and The Golden Bear in midtown Sacramento. “It is a delicate balance and very fragile ecosystem.”
Prices for food at home, or grocery store purchases, were up 0.7% in July and 2.6% over the past year.
The federal Department of Agriculture’s Economic Research Service estimates that during 2021 food at home prices should go up 2 to 3%, and then rise 1.5 to 2.5% next year.
But restaurant prices will likely go up 3 to 4% this year and again next year.
All this is very different from historic trends. Since the early 1970s, restaurant and grocery prices usually rose at about the same pace.
That began to change in 2009, and an Economic Research Service analysis found “the divergence is partly due to differences between the costs of serving prepared food at restaurants and retailing foods in supermarket and grocery stores.”
Restaurants struggling to hire
Restaurant prices are up for at least three key reasons:
▪ Labor. Restaurants are scrambling to fill jobs. From January to July, eating and drinking places added a net 1.3 million jobs. But that was still 1 million jobs short of returning to its pre-pandemic employment level of 12.3 million, according to a National Restaurant Association analysis.
▪ Food prices. The government has revised upward its estimates of price increases for several food items. Beef and veal prices are projected to increase 3 to 4% this year. Pork is likely to be up 4 to 5%, and poultry, 2.5 to 3.5%. Fresh fruit prices are seen as increasing 5 to 6%.
▪ Inflation. “Economy-wide inflation is also high and is contributing to overall price increases,” said the Economic Research Service. Transportation, housing and other components all affect restaurant operations. “Above-average inflation is expected to continue through 2022,” the research service said.
Those factors have forced restaurants, already operating on thin margins, to raise prices or reevaluate their offerings entirely. Steak was once a fixture on Hook & Ladder’s menu, but is now sold only on special occasions.
You can sell beef or chicken at the sticker-shock price the market now demands, Bazett said. But when other restaurants don’t do so, customers are naturally inclined to pick them instead.
“We’ve tried to keep things relatively stable with our other competitors, but that’s the problem, I guess. No one wants to be the pioneer for the $18 burger in Sacramento,” Bazett said. “And from a pure margin perspective, maybe it’s headed in that direction, but it’s still Sacramento and people still have a certain expectation of what things should cost.”
Workers left industry in pandemic
Because of the coronavirus pandemic, restaurant employees felt jerked around the constant stop-and-start of social distancing restrictions. Others were furloughed or laid off, and had time to reevaluate whether they really wanted to go back to a physically demanding profession that doesn’t usually carry great benefits, allow for sick leave or follow the typical workweek.
Either way, workers left the restaurant industry in droves. Throughout the 2010s, Bazett scarcely cooked or mixed drinks at Hook & Ladder or The Golden Bear, working instead on the business sides of each. He spent the pandemic packaging to-go sandwiches and cocktails alongside each kitchen’s slim staff, desperate for all the free help they could get.
Auburn diner Awful Annie’s has felt the effects of annual minimum wage increases and inflation, owner Jai Baker said. Commodity hikes haven’t forced the casual 33-year-old restaurant to raise menu prices as at more upscale eateries, though.
“The ingredients they buy are not ingredients that I would use at my restaurant — high-end steaks, high-end seafood,” Baker said. “They have to charge what market bears.”
A looming bacon shortage caused by a new California animal welfare law would be a different story for Awful Annie’s, Baker said.
Proposition 12, passed in 2018 and going into effect at the start of 2022, will require all pork products sold (not just produced) in California to come from pigs raised with room to stand up, lie down and fully extend their limbs. Less than 4% of U.S. pig farmers were believed to meet those standards as of March, and investment analysts predict limited supply and high prices statewide come January.
Regardless, eaters grateful to be back out in the world don’t seem scared off by higher prices. Industry news source Restaurant Dive reported customer spending was up 32% from 2020 nationwide in April, May and June, back to 2019 levels.
This story was originally published August 12, 2021 at 5:25 AM with the headline "Restaurant prices rose at steepest pace in 40 years last month. Why it may not stop."
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