U.S. restaurants, faced with higher food and labor costs, are raising menu prices at a much faster pace than historical rates, insistent on preserving profits after an arduous year.
From local restaurants to national chains like Chipotle Mexican Grill Inc., owners have boosted prices by as much as 5% in the past few weeks alone. Even at fast-food companies that were locked in price wars just a couple of years ago to win over cost-conscious consumers, increases aren’t taboo anymore.
“We are going to be paying higher prices in restaurants,” said David Henkes, senior principal at industry researcher Technomic. “Part of the calculus right now is there’s probably some appetite of consumers to pay whatever because they haven’t been out for a while.”
Across the nation, prices for food away from home rose 4% in May from a year earlier, the biggest jump since May 2009. It’s one example of a surge in overall inflation that’s left policy makers at the Federal Reserve debating how long the cost pressures will last as the economy bounces back from the Covid-19 pandemic.
In the Tampa, Florida, area, restaurateur Andrew Koumi bumped up his menu items by 2% to 4%.
Koumi, founder of a six-location chain called Green Market Cafe, tries to keep food and paper costs below 35% of his menu prices, but lately his computers keep flagging items that go above that parameter. He’s paying twice as much to buy chicken as he was in January, and other meats and paper products have gotten more expensive too.
Koumi isn’t too worried about standing out with his price increases, because “everyone’s doing it. Some people are doing it really drastically,” he said. “Could it go up more? It’s scary. I’m hoping that it levels.”
For now, there’s no sign of abating.
Chipotle recently raised menu prices by as much as 4%, after increasing average pay to $15 an hour and hiring thousands of workers to keep up with demand. American homestyle chain Cracker Barrel Old Country Store Inc., which earlier this year raised menu prices by 2.8%, is bumping up that increase to about 3% amid continued pressure from wage and commodity expenses, including pork for sausage and bacon.
McDonald’s Corp., which raised its hourly wage by about 10% in May, hasn’t announced any jump in prices yet but said early this year that franchisees could handle labor inflation “between judicious pricing on the menu as well as just thinking about productivity savings.”
Historically, restaurant operators tend to raise menu prices a few times a year, and they do so more aggressively when inflation is driven by wages rather than commodities, according to BTIG LLC analyst Peter Saleh.
Between 2015 and 2019, the average increase about 2.5%. This year, the rate may reach about 4%, Saleh wrote in a note to investors.