Restaurants outpacing grocery stores when it comes to inflation
Restaurants outpacing grocery stores when it comes to inflation
Tis the season for big, festive dinners, both at home and at restaurants. Of course, eating out has always cost more than cooking yourself, and the price gap between the two is growing. The latest Consumer Price Index shows that while the cost of food at home and away from home are increasing at a slower rate, inflation is higher at restaurants — clocking in at 5.3% — than it is at grocery stores — 1.7%.
Over the last couple years, Seth Gerber, who co-owns a few restaurants in Boston, has had to make sure inflation doesn’t eat away at his profits.
“Part of the essence of a restaurant is finding ways to use every drop of every ingredient,” he said.
Take salmon. It’s portioned into perfect filets for entrees. But there are usually small scraps left over.
“Can you take that and make it into a rillette and serve it as a sort of smoked salmon sort of spread or some sort of charcuterie?” he said.
Gerber says these workarounds have helped for a while. But they can only go so far. The cost of doing business continues to rise.
“The cost of labor, the cost of ingredients, the cost of energy. Everything has increased,” he said. “And restaurants often have fewer levers to pull in order to keep margins healthy.”
Food, of course, is at the core of any restaurant or grocery business. But when it comes to business models, that’s mostly where the similarities end.
“Just look around a grocery store and look around a restaurant and think about the cost structure of each,” said Chris Barrett, an agricultural economist at Cornell.
“The big thing that has continued rising in the United States as a cost for employers is workers,” he said.
Restaurants rely heavily on them. On average, labor costs make up about 30% of a restaurant’s revenue. For grocery stores? It’s less than 15%.
Stephen Zagor, a consultant and business professor at Columbia University, says for a long time restaurants were holding off on increasing prices.
“When restaurants raise prices, they’re not always sure that the customer really understands why they’re raising prices,” he said.
But it’s gotten to the point where many restaurants can’t afford not to. Especially as diners start to cut back, says restaurateur Seth Gerber.
“Incrementally you see one fewer appetizer or one less glass of wine or just the less expensive glass of wine and I think some of the sort of just open season, go big or go home, has started to wear off,” he said.
He’s had to adjust prices for certain items because of inflation. And he says if people keep pulling back on spending, he might have to raise prices again.
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