Beleaguered consumers received some good news last week with the USDA predicting reductions in grocery prices in 2024 and the U.N. Food and Agriculture Organization announcing its food price index is at the lowest level in three years.
But despite the dip in the cost for food itself, restaurant prices are expected to continue their recent climb, rising 4.7% this year.
“Labor laws like minimum wage increases are a big reason why restaurant prices aren’t expected to decrease along with food prices,” attorney Ben Michael told The Food Institute. “Minimum wage hikes tend to cut into the profit margins of small businesses more deeply than large businesses since the small ones can’t take advantage of economies of scale in the same way.”
Labor accounts for about 30% of restaurant revenue, compared to 15% for grocery stores.
Despite the glimmer of hope, grocery prices still are 25% above pre-pandemic levels.
Columbia University business Professor Stephen Zagor recently told Marketplace that restaurants no longer can afford to hold off on price increases.
“Incrementally you see one fewer appetizer or one less glass of wine or just the less expensive glass of wine and I think some of the sort of just open season, go big or go home, has started to wear off,” Zagor said.
Prices for all foods are expected to increase 1.3% this year, with grocery prices decreasing 0.4% overall. December food prices were up 1.3% over December 2022, with restaurant prices leading the way, up 5.2%.
A Yahoo/Ipsos poll found more than two-thirds of voters said food inflation has hit them particularly hard.
The left-leaning think tank, the Groundwork Collaborative, said nearly a third of the rise in grocery prices can be blamed on beef, chicken, fruits, vegetables and snacks – all particularly vulnerable to supply chain issues, The Washington Post reported on Friday. Labor shortages, supply chain issues, drought, avian influenza and other factors, including industry consolidation, affect food prices, the report noted.
“We’re going to see prices stabilize, and that’s likely it,” Dawn Thilmany, an agricultural economist and professor at Colorado State University, told the Post.
“I think people are waiting for prices to return to what they call ‘normal’ — and with the exception of a few things, like eggs — we’re not going to see that.”
For 2023, USDA figures show grocery prices up 5% and restaurant food up 7.1%. Farm prices for fruits are expected to increase 1.3% this year while vegetable prices are expected to fall 1.5%.
On a global scale, the FAO reported its price index fell more than a point in January, bringing it to its lowest level since February 2021. Wheat prices fell as the new harvest arrived while corn prices were down on abundant supplies, with the harvest in Argentina just beginning.
The FAO also reported cereal production was up 1.2% last year from 2022, mainly in higher-than-predicted yields.
The Food Institute Podcast
It appears plant-based products have hit a bit of a lull in the U.S., but what’s next for the sector on the whole? David Benzaquen of Mission: Plant and Moonshot Collaborative breaks down the demographics of plant-based eating, common health attributes consumers are looking for, and where the sector could be headed in the future.