Food-price hikes look to slow
Few prices are as visible to Americans as the ones they encounter at the grocery store or drive-thru window, which is why two years of rapid food inflation have been a major drag for U.S. households and the Biden administration.
Shoppers have slowly regained confidence in the state of the economy as they pay more to fill up their carts, and President Joe Biden has made a habit of shaming food companies — even filming a Super Bowl video criticizing snack producers for their “rip-off ” prices.
But now, the trend in grocery and restaurant inflation appears to be on the cusp of changing.
After months of rapid increase, the cost of food at home climbed at a notably slower clip in January. And from packaged-food providers to restaurant chains, companies across the food business are reporting that they are no longer raising prices as steeply. In some cases that’s because consumers are finally pushing back against price increases after years of spending through them. In others, it’s because the prices that companies pay for inputs, such as packaging and labor, are no longer rising as sharply.
Even if food inflation cools, it does not mean that your grocery bill or restaurant check will get smaller; it just means it will stop climbing so quickly. Still, when it comes to the question of whether rapid jumps in grocery and restaurant prices are behind us, what executives are telling investors offer some reason for hope.
Ramon Laguarta, PepsiCo’s CEO, said on a recent earnings call that the company would be less likely to raise prices beyond “normal pricing levels” — around 2% to 3% a year.
Some companies seem to be following the rest of the economy back to more moderate price changes. Overall inflation, as measured by the consumer price index, peaked at 9.1% in summer 2022 but slowed to 3.1% at the start of this year, while food commodity costs — such as beef, grains and some kinds of dairy — have been easing.
“Our pricing broadly is coming down in line with kind of inflation getting back to what I’ll call more normal levels,” Ian Borden, chief financial officer at McDonald’s, said on a call with investors.
Such comments underline an important point. Many companies have taken advantage of inflation to pad profits, but for the past several years, some portion of grocery and restaurant price increases has been aimed at covering higher costs.
Wages have been rising rapidly in the hospitality and retail sectors, and key ingredients had been expensive amid supplychain problems, Russia’s invasion of Ukraine and bouts of avian flu.
Companies typically at least try to raise prices when the cost of doing business climbs to avoid losing profits. But as wage and inputcost pressures begin to fade, companies can stop aggressively lifting prices without risking a hit to their bottom line.
Of course, there is a way to cover higher costs without raising prices: Improve productivity, so that each worker can stock more shelves, flip more burgers or wait more tables. At Wendy’s, that means rolling out digital menus to improve order accuracy and allow for sales growth.