Eating In vs. Out

Okay, so the CNN Money article below makes an interesting claim: apparently the inflation rate of food purchased in grocery stores is rising faster than that of food purchased in restaurants. In other words, buying food from grocery stores is getting more expensive at a faster rate than buying food from restaurants is. If this is true, then the implication is that eating in will soon become more expensive than eating out. Whaaat??

Fine. Interesting. Possibly important. But I have one big question…a question which the article doesn’t address in any way. Food is food, right? So how is it that the price of food in grocery stores is going up faster than the price of food in restaurants? As I understand it, they’re more or less sourced from the same places; restaurants then add labor to the raw materials, driving the cost of the end product up. So how is it possible for grocery store prices to be rising faster than restaurant prices? I’d love to get a more in-depth explanation of this alleged phenomenon, or maybe just clearer evidence that this is actually happening (can someone explain that second chart to me please??) But here, see what you think:

Food inflation is far worse in grocery stores than restaurants

Your grocery bills are climbing at a much faster pace than restaurant prices.

By Howard Penney and Rory Green, Hedgeye

According to the latest government figures, the consumer price index for food at home increased by 60 basis points year-over-year to 6% versus the 10 basis point gain in food away from home CPI inflation to 2.7%.

Food inflation is now the most important household expense, according to Wal-Mart’s (WMT) commentary during its earnings call last month. Food prices, according to the Bureau of Labor Statistics, continue to accelerate higher. The charts below illustrate food cost trends and food cost trends versus core inflation. It’s worth noting that the spread between food at home inflation and core inflation widened month-over-month while the spread between food away from home and core inflation narrowed.

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  1. Zia Khan said:

    You are assuming that retailers simply price their wares at cost of goods + small profit. Perhaps they’re taking advantage of the conventional perception in their customer’s mind that eating in is less expensive (and healthier) than eating out. So to make up for the decrease in top line sales at some retail chains, (due to migration to ‘discount’ retailers’) they are inflating their margins. Much more difficult for most restaurants to do as they already suffer from the inverse of this perception – eating out is a value-add, therefore must be more expensive. Hence the wild success of Groupon and its clones — restaurants are biggest customers, it appears. My theory, anyways.

  2. onelittleindndc said:

    That’s definitely a possible explanation. As the article said absolutely nothing about the cause of this “trend,” I have nothing to base a judgment on. However, I do tend to think that as price drivers go, customers’ misperceptions are a relatively small factor when compared to the more traditional drivers like cost and actual demand. So I’m wondering what, if any, changes there have been to those sorts of drivers to create this trend. If it really exists at all…

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