Skip to content
    1. Overview
    2. Alternative Managers
    3. Consultants
    4. Corporations
    5. Family Offices
    6. Financial Advisors
    7. Financial Institutions
    8. Individuals & Families
    9. Insurance Companies
    10. Investment Managers
    11. Nonprofits
    12. Pension Funds
    13. Sovereign Entities
  1. Contact Us
  2. Search
Weekly Economic Commentary | May 17, 2024

Back Into The Kitchen

The price gap between eating out and cooking at home is rising.

Download PDF

 

By Vaibhav Tandon

Restaurateurs faced severe interruptions during the pandemic, amid social distancing and supply chain disruptions.  While these problems have receded, another has advanced: eateries are facing lower demand due to higher prices. 

Eating out has always cost more than cooking at home, but the price gap between the two has been growing.  Even as grocery inflation ebbed from the double-digit increases observed a couple of years ago, the cost of dining out is still rising briskly.  Food inflation has dropped below 2% in the U.S. and the eurozone, but the cost of meals at restaurants and cafes are increasing at over 4% year over year. 

The central difference between the two channels is the cost of labor, which absorbs (on average) about 30% of a restaurant's revenue. Wages for cooks, servers and clean-up crews are rising strongly and persistently.  Pay in the hospitality sector in the U.K. is growing by around 8% year over year, higher than the national average of 6%.  Food service salaries in the U.S. are rising by 5.1% compared to a 3.9% increase for all employees in the private sector.   

Despite some attempts to automate, restaurants have made little headway in their efforts to insulate themselves against labor costs.  Businesses must either pass on the burden to patrons or take a hit on margins.

 

Diners and restaurateurs are still coping with elevated inflation.

Resilient household incomes offer restaurateurs some pricing power in the U.S., but that leverage is dependent on price points.  Top American fast food chains, often synonymous with affordability, are starting to feel the pain as low-income consumers visit less frequently and pare back their orders. According to a survey by Revenue Management Solutions, about half of low-income consumers are making fewer trips to fast-casual and full-service dining establishments.

Meals eaten out account for a little over 5% of the consumer price basket in the U.S. and 11% in the U.K.  As diners escape high restaurant prices by returning to their kitchens, they should help in the fight against inflation.  The menu won’t be as interesting, but it will be affordable.

 

Related Articles

Read Past Articles

Meet Our Team

Check
Navigate to undefined

Carl R. Tannenbaum

Chief Economist

Check
Navigate to undefined

Ryan James Boyle

Chief U.S. Economist

Check
Navigate to undefined

Vaibhav Tandon

Chief International Economist

Follow Carl Tannenbaum
Discover the latest economic insights from our chief economist on social media.

Subscribe to Publications on Economic Trends & Insights

Gain insight into economic developments and our latest forecasts for the United States.


Information is not intended to be and should not be construed as an offer, solicitation or recommendation with respect to any transaction and should not be treated as legal advice, investment advice or tax advice. Under no circumstances should you rely upon this information as a substitute for obtaining specific legal or tax advice from your own professional legal or tax advisors. Information is subject to change based on market or other conditions and is not intended to influence your investment decisions.

© 2024 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability in the U.S. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. For legal and regulatory information about individual market offices, visit northerntrust.com/terms-and-conditions.