Restaurant Inflation: How Bad It Is & What Is the Cause

Americans love to eat at restaurants, but many are feeling the squeeze thanks to restaurant inflation. Inflation has impacted the prices of many goods and services but can be particularly noticeable at restaurants where prices have spiked and portions have shrunk.

Whether you’re thinking about starting a small business during a recession or simply are an interested foodie, understanding restaurant inflation is important.

How Bad Is Restaurant Inflation?

Inflation has been hitting the United States hard in the past few years. Since December 2021, inflation as measured by the Consumer Price Index has been 6.5%. That means that something that cost $100 in December 2021 now costs $106.50

CPI tracks inflation using price changes across a basket of different goods. Food away from the home, meaning restaurant meals, is one of the items in that basket of goods. Between the end of 2021 and the end of 2022, foods away from home saw price increases of 8.3%, a bit more than the overall inflation rate of 6.5%.

In order to keep up with their own rising costs, restaurants have had to increase the prices they’ve charged.

What Causes Restaurant Inflation?

Many factors contribute to restaurant inflation. Anything that influences the cost to keep a restaurant running will ultimately influence the prices charged for a meal.

One major influencer of the recent spike in restaurant inflation is food prices. Consumers are spending 11.8% more for food out of the home, which indicates that the cost of groceries, and therefore the raw ingredients that restaurants have to purchase, have increased significantly. 

One only has to look at recent egg prices, which have increased massively, to understand how ingredient prices may have grown for the average restaurant.

Another concern for restaurateurs is staffing. The Covid-19 pandemic closed many restaurants, at least temporarily, and made many reconsider their relationship with work. Employment in food service dove from more than 12.27 million before the pandemic to just over 6.3 million at the pandemic’s height.

Even two years after that dive in employment, the Bureau of Labor Statistics estimates that employment in the food service industry remains below 12 million people. That means fewer workers, which may force employers to pay higher wages.

There may also be an unsavory explanation for restaurant inflation. Many companies have used inflation as a guise to raise their prices, boosting profit margins. This is called price gouging and congress had enacted bills to try and fix this. There is another term being used called “greedflation”. 

According to some measures, efforts to boost profit margins have contributed to as much as 50% or more of recent price increases.

This may explain a portion of the higher prices at many large chain restaurants.

How Does Inflation Affect Restaurants? 

Inflation obviously impacts restaurants by raising their operating costs. If things like rent, energy, food, and wages increase in cost, restaurants need to pay more money to stay open. That ultimately means accepting lower profits (or even running at a loss) or raising the prices they charge to consumers.

Increased prices at restaurants may lead to changes in consumer behavior. If eating out grows too expensive, it isn’t unlikely that some consumers will choose to cook at home or look for other restaurants that charge lower prices.

That is clearly reflected in a Lending Tree survey that found that 67% of respondents report dining out less frequently due to inflation. 31% also noted tipping less than usual when they go out for a meal.

Inflation may also limit the availability of ingredients. If it simply becomes too expensive to source certain items, or shortages result in unavailability, restaurants may have to update their menus to account for inflation.

Some restaurants have turned to lowering portion size or cutting the hours they are open to keep fighting against price hikes.

How Are Consumers Resisting Inflation?

During periods of inflation, consumers often respond by reducing their spending on things that are not necessities. That includes shopping, travel, and getting meals at restaurants.

How Often Do Americans Eat Out in Restaurants?

Americans love to get meals at restaurants but the numbers show that people who tend to eat out do so incredibly frequently.

Americans, on average, eat out nearly 6 times per week. Of those who dine at restaurants, 56% will get meals out of the house 2-3 times per week. 6% eat out every single day. Younger people tend to spend more on dining and takeout food, with those aged 25 to 34 spending an average of $95 each week. Those aged 55+ spend half that at $42 per week.

Do People Eat Out Less During a Recession?

Yes, people tend to eat out less during a recession. However, the impact might not be the same across the entire restaurant industry.

For example, during the 2007-2009 recession, Americans tended to eat at sit-down restaurants far less frequently. However, fast food spending did not significantly change. The impact was most noticeable among those who lost their jobs, who cut their restaurant spending by the greatest amount. 

Price increases at restaurants had a very clear impact on the number of visits. For example, a $1 increase in the price of fast food meals led to a 5% reduction in a single parent’s odds of buying a meal.

What’s the Average Cost of Dining Out per Month?

Dining out costs vary significantly depending on where you live and the types of restaurants you visit. You could buy an item from a fast food restaurant’s dollar menu every day for a month or spend a similar amount during a single meal at a nicer sit-down restaurant.

Demographics also influence how much you spend, with younger people tending to spend more.

For example, in 2019, the average 25 to 34-year-old who ate out spent $411.66 a month on restaurant and takeout meals. Those 55 or older spent just $182 per month.

The southeastern United States spent the most on meals out of the home, spending as much as young people, $411.66 per month. The southwest spent the least on restaurants and takeout at $260 per month.

Dining In vs Dining Out: Is It Cheaper to Eat Out or Buy Groceries?

In general, buying groceries is significantly cheaper than eating at a restaurant. Consider the fact that restaurants have to charge you for the ingredients, the time the chef takes to cook your meal, the time the waiter spends serving your meal, time spent cleaning dishes and the table, as well as fixed costs like rent and need to add a profit margin.

When you eat at home, you simply pay for ingredients. You handle all of the labor yourself and don’t have to account for profits.

A comparison from review site Meal Kit Comparison found that you can make a typical burger plate, featuring a cheeseburger and fries at home for less than CAD 5.50 while a typical fast food burger in Vancouver ran CAD 11 and a burger at a sit-down restaurant cost CAD 15.75.

Cooking food yourself lets you save 50% or more. Depending on the restaurant you’re comparing to, your own food may even have larger portions or better quality ingredients.

Of course, you need to consider the time spent cooking. Some meals take an hour or more to prepare while others may require just minutes of prep time. There is an opportunity cost to cooking, but for most people preparing food themselves is less expensive.

Tips to Help Restaurants Fight Inflation

Restaurants don’t have to simply accept the impacts that inflation will have on their bottom lines. There are some things a restaurant owner can do to try to mitigate the impacts of inflation.

Consider these ideas:

• Review and update your menu. Look at your menu and consider a few things. Do you have some dishes that are quite unpopular, that use ingredients that have increased in price significantly, or that have ingredients that aren’t used in many other dishes? Eliminating those menu items may help you save on ingredient costs.
• Consider alternative ingredients. Inflation doesn’t impact prices uniformly. Some things see greater price increases than others. One great example is eggs, which have seen huge price spikes. If you can make the same, or a very similar dish, by substituting a cheaper ingredient, you can keep costs low.
• Reduce portion sizes. If you can reduce portion sizes, you can charge the same price for a menu item while keeping costs low. However, you need to strike a careful balance when doing this. Significant cuts to portion size can make customers unhappy.
• Raise menu prices. This is the obvious answer for restaurants but isn’t one that restaurant owners or patrons will prefer. You’ll likely have to raise prices somewhat to keep pace with inflation.
• Seek for additional funding. Securing a restaurant business loan can help you to resist inflation by providing necessary funds to maintain and upgrade equipment, purchase inventory in bulk, and implement cost-saving measures.

Final Word

Inflation impacts every aspect of the economy and business owners need to be ready to deal with it. Restaurants often bear the brunt of inflation as their costs rise and consumers look to cut spending to be able to afford necessities. Use these tips to keep your restaurant’s costs low and your customers happy.