After celebrating the end of Covid restrictions with an epic restaurant tab, diners are now hitting the brakes on eating out.
Many US households, especially lower- and middle-income ones, are cutting back on restaurant spending as inflation pressures their budgets. Feeling the same pinch, restaurants from Chipotle Mexican Grill Inc. to Cracker Barrel Old Country Store Inc. have increased prices to keep up. This will likely translate into lower traffic and stagnating sales in coming months.
A September survey from research firm Datassential Inc. found half of consumers had recently cut back on restaurant meals due to high inflation. It was the No. 1 expenditure respondents opted to trim, followed by apparel and travel. About 30% of those surveyed said they plan to dine out less or stop visiting restaurants entirely in the coming months.
“Anytime we see a reduction in buying power -- and that can happen through inflation too -- people will likely substitute towards food at home,” said Jayson Lusk, head of the Department of Agricultural Economics at Purdue University.
Investors are clearly concerned: Of 32 companies on the Russell 3000’s index for restaurants and bars, only two are up this year in the stock market. The index is down 16% in 2022 through Thursday’s close.
A slowdown in restaurant traffic would also be an ominous sign for the broader US economy. The resilience of consumer spending has largely rested on persistent outlays for services such as eating out and travel. In contrast, inflation-adjusted spending on goods has declined for two straight months.
Of course, eating is getting pricier no matter where people dine. Restaurant prices, while climbing, haven’t risen as fast as at the supermarket. Inflation for food away from home surged 8.5% in September from a year ago, versus 13% for grocery stores.
Earnings next week from Chipotle and McDonald’s Corp. will be closely watched for insights into consumer demand. Spending at restaurants is likely starting to decline, according to Bloomberg Intelligence analyst Michael Halen.
“Consumers are going to continue to pull back,” Halen said. “In the summer, a lot of the retail names were talking about how the middle-income consumers were the ones to kind of pull back their spending. I would not be surprised to see that bleed into restaurants in the third and fourth quarter.”
A slowdown is already evident at Mezze Bistro and Bar, an upscale eatery in Williamstown, Massachusetts, that serves fare such as Scottish salmon and eggplant caponata. Co-owner Bo Peabody said that diners are opting for less-expensive options, and they’re also starting to notice menu price increases.