Why Eating at Restaurants Is So Expensive Right Now

If it feels like restaurant bills are getting more expensive, you’re not imagining it: The cost of dining out is on the rise even as grocery prices decline.

The latest inflation data shows that prices for food away from home increased by 0.3% from March to April, while food-at-home prices declined by 0.2%. Compared to a year ago, the restaurant index is up 4.1%.

Americans are taking notice. As restaurant prices rise faster than general inflation, 68% of a surveyed group of consumers said they are “trading down from restaurant meals to food from the grocery store,” according to a recent report from Vericast, a marketing firm.

High prices discourage diners

Dana Baggett, executive director of Vericast's restaurant division, said in the report diners are also making other changes to deal with higher costs, like picking cheaper places to eat and choosing to dine out at more affordable mealtimes (aka breakfast and snacks, not dinner).

Of course, when you dine out, you're not just paying for the food itself but also the labor and all the other costs of running a restaurant. But as the premium to eat out rises, people are naturally changing their habits.

“There’s a noticeable decrease in consumers dining out, especially with consumers that have a household income under $75,000,” Baggett said in the report. “The steadily increasing cost of dining out is testing the limits of what consumers can and will spend.”

Meanwhile, several large chain stores — including Target and Aldi — have announced price drops on food items this month, indicating the trend toward lower grocery costs may have some momentum. In a statement responding to the new inflation data last week, President Joe Biden mentioned the progress but said food prices are still too high, adding that he's "calling on grocery chains making record profits to lower grocery prices for consumers."

In a Bloomberg TV interview last month, Agriculture Secretary Tom Vilsack acknowledged that restaurant prices are an issue for many everyday folks.

“The opportunities at grocery stores are improving significantly, but it is restaurants where we are still seeing a bit of high inflation,” he said.

Fast food companies offer promotions

For their part, fast food restaurants seem to be aware that customers are frustrated about prices. With inflation easing, some companies are trying to gain market share with new promotions.

McDonald's is launching a new $5 meal deal this summer that will include a burger or a sandwich, four nuggets, fries and a drink, and Jack in the Box is coming out with a "Munchies under $4" offer.

“We in the industry are all seeing this kind of pressure from the headwinds of the consumer,” Dean Harris, CEO of Jack in the Box, said during an earnings call last week. “We know that value is going to be something we talk about for the rest of the year. We know the competition is doing that, so we will be in that game."

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