Menu prices are rising at a pace the restaurant industry hasn’t seen before.
Prices for food away from home increased 5.3 percent year-over-year in October, according to the Bureau of Labor Statistics. Quick-service menu items rose 7.1 percent in the past year, while full-service meals lifted 5.9 percent; both were the largest 12-month increases in recorded history.
Consumers continue to see higher prices as restaurants battle labor and commodity inflation, especially among the fast-food powerhouses. McDonald’s pricing has increased 6 percent year-over-year, with franchisees facing 10 percent wage inflation and company-run outlets seeing more than 15 percent. The burger giant also expects commodities to rise 3.5-4 percent for the full year compared to 2020.
However, it appears the rise in prices hasn’t stopped customers from enjoying McDonald’s.
“The 6 percent has been pretty well-received by customers,” CEO Chris Kempczinski said. “We do certainly have a very big focus to make sure that we are balancing cost pressures and being able to cover those with making sure that our value perception by customers continue to be favorable, and we are continuing to see those surveys and scores from a value favorability perspective still positive from customers.”
Chipotle has witnessed similar trends. In Q2 and Q3 of this year, menu prices rose 9 and 10 percent relative to the prior year. BTIG analyst Peter Saleh said in a note that double-digit price increases have minimally impacted Chipotle’s guest counts, and that means further pricing could occur later this year and into the next.
CEO Brian Niccol attributed it to the chain’s value proposition.
“Even as I look around, I would put our chicken burritos up against a lot of food out there,” he said during Chipotle’s Q3 review. “And when you start to look at where pricing is going on a lot of their menus, our value proposition, I think, looks even more compelling.”
Additionally, inflation has some brands considering fundamental changes to business operations.
Domino’s, which experienced a “very challenging” labor environment in Q3 that resulted in shortened operating hours and reduction in customer service, continues to test price points that deliver long-term profitable growth for franchisees, CEO Ritch Allison said.
That includes the chain’s well-known $5.99 and $7.99 platforms.
“While we are wedded to value, we are not specifically wedded to any individual price points,” the CEO said. “And if a better price point yields better long-term profitable growth for our franchisees, that’s where we’re going to go.”
Wingstop saw the average spot price for bone-in wings reach a record $3.22 per pound in Q3, an 84 percent increase year-over-year. The brand has attempted to minimize inflation through price mitigation strategies with suppliers and by using more of the bird, which led to the release of Thighstop.
The brand is now looking to tackle the issue by taking more control of its supply chain.
“We’re still trying to figure out exactly how that manifests itself, but I think it’s incumbent upon us to not allow such volatility to continue for the long haul, which we believe we can address,” Morrison said.
In terms of monthly increases, the food away from home index increased 0.8 percent in October, after rising 0.5 percent in September. The index for full-service meals grew 0.9 percent month-over-month, and the index for limited-service meals increased 0.8 percent.
