Rising Inflation May Make Eating Out a Value Play

Foodservice operators may benefit as the cost of eating at home climbs faster than the cost of dining out.

January 17, 2022

Customer Picking Up Domino's Pizza

ALEXANDRIA, Va.—U.S. consumers are paying more for food ingredients to prepare meals at home as inflation ticks upward, but at the same time, the price of eating out isn’t rising quite as fast, so analysts see an opportunity for foodservice providers to regain that share of the stomach, CNBC reports.

Data from the U.S. Department of Labor indicate that prices of food purchased for at home consumption climbed 6.5% in December over the year-ago period, while prices for food away from home rose 6%, the biggest jump since January 1982, CNBC reports.

Bank of America Securities analyst Sara Senatore wrote in a note last week that the gap in prices improves the value proposition for restaurants, which haven’t yet fully recovered from the pandemic, CNBC says.

Restaurants are paying higher prices for food items, too, but many have ways to partially offset those costs.

Ritch Allison, CEO of Domino’s Pizza, said last week at the virtual ICR Conference that the company anticipates an 8% to 10% increase in food costs this year, which would be 3 to 4 times as much as is typical for the chain. Domino’s plans to alter its promotion strategies to help ease the pain of higher costs for meat, cheese and grains while trying not to turn off customers. Once tactic might be to offer promotional prices for digital orders only.

Darden Restaurants, owner of the Olive Garden, LongHorn Steakhouse, Yard House, Bahama Breeze and Seasons 52 brands, expects to raise menu prices at its restaurants 4% over the next six months to offset a 9% increase in costs for food and beverages plus a 9% jump in labor costs, Newsweek reports.

Rick Cardenas, president and chief operating officer, Darden, said consumers so far aren’t turning away due to the price increases.

Convenience retailers with a strong foodservice offer are well-positioned to win trips away from QSRs when customers are searching for away-from-home eating occasions. NACS Convenience Voices surveys indicate that shoppers are making 1.3 fewer trips per week over the past five years than during prior periods, and when it comes to foodservice, convenience stores are leaking trips to quick-serve restaurants. In fact, 36% of shoppers in the 2020 Convenience Voices program said they had plans to go to a QSR within 30 minutes of leaving a c-store.

At the 2021 NACS Leadership Forum, Lori Stillman, NACS vice president of research, outlined steps retailers can take to help capture those trips. With the average spend at a QSR pegged at $6 per trip, convenience stores can gain over $13 billion annually by winning back just 10% of current leakage, Stillman said.

“Our foodservice offer is very well connected to our packaged beverage offer,” Stillman told Leadership Forum attendees. Consumers are already shopping c-stores to quench their thirst—nearly half of shoppers come inside stores because they are thirsty, NACS Convenience Voices data show. Think about food-to-go offers, take-home meals and comfort foods.

Stillman noted that 85% of consumers don’t know what’s for dinner at 4 p.m. “What are you doing to catch that shopper who is driving by your location on their way home? How do you trigger them to turn around, come in and grab something from you?”

Hear more insights from Stillman in Convenience Matters Episode No. 283, “Outlook Ahead: Convenience Priorities.”