Menu prices continued to decelerate in December

Restaurant prices in December remained elevated by 5.2% compared to the same period in 2022, but they cooled by 10 basis points from November’s 5.3% increase, according to Consumer Price Index data released Thursday morning from the U.S. Bureau of Labor Statistics.

The food-away-from home index rose 0.3% in December after rising 0.4% in November. Full-service meals were up 0.3%, or 4.5% year-over-year, while limited-service meals were up 0.4% month-over-month and 5.9% year-over-year. Comparatively, food-at-home prices (grocery/supermarket) were up just 1.3% on the month, well below the Federal Reserve’s 2% target rate for inflation. Combined, food prices rose by 2.7% year-over-year and, though they remain higher than they were two and three years ago, they were below the overall pace of inflation in December, which inched down to 3.9%.

December marked the 10^th month in a row for restaurant pricing to outpace grocery pricing. According to Kalinowski Equity Research, no such months existed in all of 2022 and the gap between the two categories – 390 basis points – is now the largest it’s been in several years. President/CEO Mark Kalinowski does not expect the gap in favor of grocery to meaningfully widen, however.

Still, as menu pricing continues to cool, same-store sales are expected to moderate. But lower restaurant prices could also buoy traffic, which has been negative at most concepts since late summer 2023. That said, the consumer is expected to soften this year after several years of inflationary pressures and will likely be more value conscious, according to Fitch Ratings directors Bill Densmore and David Silverman.

Further, such pricing deceleration is likely to be short lived for concepts in California bracing for April 1, when California’s AB 1228 goes into effect. The legislation raises the minimum wages for QSRs to $20 an hour and is expected to impact other segments as well, and many public companies with a presence in California have noted they will take more pricing to combat the change.

Contact Alicia Kelso at [email protected]