What’s Happening with Food Prices and What Can You Do About It

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Article contributed by Ben Deda, Foodmaven

No one is a stranger to the challenges of rising food prices today, especially restaurant and foodservice operators. It seems like every day different numbers are being thrown out and it becomes hard to track what is going on other than everything getting more expensive.

But there is a lot more nuance to the numbers… nuance that can have a big impact on your business as a restaurant or foodservice operator. By knowing what numbers are the most important to you, you can make decisions on what is on your menu, what ingredients go into those menu items, and how you should think about pricing everything to make sure your business is successful. We are going to give you the background on what data on food prices is available and how to think about the potential impacts of that data on your business. The exact impacts are unique to a restaurant based on your customers, menu, and staff, but you can still use general trends to point you in the right direction on potential actions to take.


Consumer Price Index – Background

You have probably at least heard about the Consumer Price Index (CPI). This is published by the Bureau of Labor Statistics on a monthly basis with percent changes in a calculated price index for select categories, including food items. Additionally, the USDA provides additional analysis on the CPI data that they publish a few weeks later. There are two numbers from the CPI that you really want to pay attention to on a monthly basis: the change in the “Food at Home” index and the change in the “Food Away From Home”. Every consumer has to decided where their food dollars go. Do they spend it on groceries (Food at Home) or on dining out (Food Away From Home)?

If “Food at Home” has gone up more than “Food Away From Home” then it creates a variety of potential forces on your customers. On one hand, an individual may be more likely to dine out because they aren’t feeling the pain of inflation as bad as they are at the grocery store. On the other hand, they don’t have as much potential spend available because on a dollar basis more is going to “Food at Home” even if they are buying the same amount

In this scenario, that means you need to maximize your check size as you may see a drop in overall traffic. Knowing the “Food Away From Home” gives you a benchmark for how much you can increase your prices.

  • Atosa USA
  • RAK Porcelain
  • Red Gold Sacramento
  • Inline Plastics Safe-T-Chef
  • RATIONAL USA
  • McKee Foodservice
  • Texas Pete
  • DAVO Sales Tax
  • AyrKing Mixstir
  • Imperial Dade
  • T&S Brass Eversteel Pre-Rinse Units
  • BelGioioso Burrata
  • Day & Nite
  • Simplot Frozen Avocado

While there is a lag of a couple of weeks, it is still worth paying attention to these numbers from the CPI. Set a reminder for yourself to go check them out after they are published.

Producer Price Index

The Producer Price Index is similar to the CPI except it measures price change from the perspective of the seller. This isn’t necessary the seller directly adjacent to the consumer. It could be a seller at any step in the distribution chain, so it isn’t necessary a direct reflection of what you the restaurant or foodservice operator is seeing in your vendors prices to you. It can be an indicator of what you can expect in prices, especially with their forecasts for two years out.

Commodity and Wholesale

The Commodity and Wholesale price index trends below are through FoodMaven’s Smart Shopping Assistant. We aggregate weekly Commodity price data from the USDA and public fish exchanges in additional to hundreds of thousands of wholesale product price points from our users. There are significant differences on prices based on product, vendor, and market so these are meant as general information.

Both Commodity and PPI are related to Wholesale price, but as you can see there are wide variations in the category trends. The impacts of additional costs like fuel and labor and volatility caused by rapid changes in supply and or demand can create outsized changes in Wholesale pricing

We publish weekly updates to Commodity and Wholesale average price trends across 12 categories. You can access for free at foodmaven.com/blog.

Analysis

The CPI shows “Food at Home” (+12.2%) significantly ahead of “Food Away From Home” (+7.7%) from June 2021 to June 2022 and that difference is projected to continue through 2022. This means that if you haven’t increased your menu prices by 7%-8% in the past year you are probably behind and have room to do so. It also means that while consumers may view restaurant prices more favorable than grocery retail prices, there may be fewer dollars left over to spend on “Food Away From Home”. This is reflected in repeated drops in restaurant traffic over the last two months. You can balance this by focusing on maximizing check size.

Category June 2021 to June 2022 May 2022 to June 2022 2022 Proj 2023 Proj
Food at Home 12.2 1 10.0 to 11.0 2.0 to 3.0
Food Away From Home 7.7 0.9 6.5 to 7.5 3.0 to 4.0
Commodity 19 -5 16.0-18.5 NA
Wholesale 34 1 28.5-33.0 NA

 

2023 is where things may become more challenging for restaurants and foodservice. CPI is projecting to “Food at Home” drop to a 2.0-3.0 percent increase with “Food Away From Home” being higher with a 3.0 to 4.0 percent increase. This is also reflected in the PPI numbers which show most categories between a 3 percent and 9 percent increase in 2023. The one bright spot is that Eggs should come back down to reasonable prices in 2023.

wholesale chart produce meat dairy

https://www.ers.usda.gov/data-products/food-price-outlook/food-price-outlook/#Consumer%20Price%20Index

On a category level, Beef is the least affected by this current market and is actually down in the past 12 months by PPI, Commodity, and Wholesale. Pork, Poultry, and Fruit & Vegetables all see significantly larger increases in the commercial market (PPI, Commodity, Wholesale) than in the retail market (CPI). This may mean you have opportunity for higher margin on beef dishes while needing to be careful that you do not price too high on Pork, Poultry, and Fruit & Vegetables compared to what consumers are seeing in retail.

Understanding what you customers are experiencing when they decide where to spend their food dollars is key to successfully positioning your business in any market. Combine that with an understanding of how your food costs compare and where they are likely to go in the future will keep you ahead of the game. Keep an eye on the couple of data points most important to you and you’ll have the peace of mind that you won’t be caught by surprise.


Ben Deda FoodmavenBen Deda is the CEO of FoodMaven, a food tech startup whose mission is to connect food data across the food system and create transparency so that better decisions can be made. FoodMaven believes this can help make the system better for profits, people, and the planet. Better data leads to better decisions resulting in reduced food waste, reduced food insecurity, and ultimately a better food system.

  • Inline Plastics Safe-T-Chef
  • Simplot Frozen Avocado
  • T&S Brass Eversteel Pre-Rinse Units
  • McKee Foodservice
  • AyrKing Mixstir
  • Atosa USA
  • BelGioioso Burrata
  • RAK Porcelain
  • Texas Pete
  • Imperial Dade
  • RATIONAL USA
  • Red Gold Sacramento
  • DAVO Sales Tax
  • Day & Nite