Photo by Serge Esteve via Unsplash
As the economy reopens all around the U.S., consumers are rushing to have a bite of their favorite fast foods after a year in quarantine. However, they can expect to be charged higher prices than ever before.
According to a news release from the U.S. Department of Labor, the average price of food away from home rose 0.6% in May, following a previous 0.3% increase in April. This price raise came as a result of both an increase in the price of meat and grain this year, as well as an increase in the price of labor.
Additionally, the department states that the index for meats, poultry, fish and eggs increased 1.3% in May, while the beef index rose 2.3% over the month. Ed Rensi, former chief executive officer of McDonald’s USA, told Fox Business, “A case of chicken was $40, now it’s about $130 per case.”
According to MarketWatch, corn, a major player in U.S. restaurants, rose more than 30% this year, its highest price in eight years. Wheat and soybean oil have also reached their highest prices since 2013. Insider reveals these major grains have become more expensive to obtain due to poor weather conditions and low crop yields in their source countries, Brazil and Argentina.
The challenge of hiring restaurant workers post-pandemic has pushed restaurants to increase wages as well. Chipotle, for example, increased its average pay to $15 an hour while Jersey Mike’s in California is offering up to $10,000 in hiring bonuses.
Since restaurants are having to pay more for their commodities and pay their workers higher wages, many are passing along these higher costs to consumers. In many cases, smaller family-owned restaurants who survived the pandemic will have no choice but to raise prices in order to turn a profit and avoid bankruptcy.
According to the Wall Street Journal, Red Robin and Cracker Barrel have increased prices by about 3%. Chipotle has also recently raised their menu prices by 4%.
As of yet, McDonald’s, despite raising its hourly wage by about 10% in May, has not reflected this cost increase in their menu prices. For reference, a 4% price increase from McDonald’s would mean that a Big Mac moves from being $3.99 to about $4.15.
As the U.S. economy attempts to recover from the pandemic, it is driving the biggest surge in inflation in nearly 13 years. The labor department said last month’s increase in the consumer-price index was the largest since August 2008, when the reading rose 5.4%.
However, even as restaurants nationwide implement price hikes across their menu, consumers seem to be willing to pay them.
David Henkes, senior principal at industry researcher Technomic, told Bloomberg, “Part of the calculus right now is there’s probably some appetite of consumers to pay whatever because they haven’t been out for a while.”
Limited-service restaurants raised their prices 6.1% over the past year, and demand for those meals and consumers’ willingness to pay them led to higher charges. Now full-service restaurants hiking up menu prices in response to inflation as the economy reopens are benefiting from the new norm of that previously-established willingness.
The risk of alienating consumers who fell into the unemployment bracket during quarantine remains salient, however. As does the risk of turning away more cost-conscious consumers who have grown accustomed to the budget-friendliness of preparing meals at home.
The United States Department of Agriculture announced on June 8 that it is putting $4 billion toward strengthening the country’s food system, and legislators across party lines have recently proposed bills to inject $60 billion more into the struggling restaurant industry.