free webpage hit counter

As food prices rise with inflation, Chicagoans are rethinking dining

Michael Basserot was thinking about going to Shake Shack for lunch on Wednesday. They decided to go to the McDonald’s at Lake and LaSalle streets for a simple reason: It’s cheaper.

Basserot, who lives in South Hammond, Indiana and works as a clerk in the Loop, has begun making adjustments to his dining-out routine. When he goes to work these days, he is more likely to bring his lunch from home.

“If I go out, I go to more cheap restaurants like McDonald’s and whatnot,” said Basserot, who has three children, including an 11-month-old.

“Life is not as comfortable as it used to be,” he said.

Over the past several months, Chicagoans have been increasing the cost of food as inflation has hit a 40-year high. To combat inflation, the Federal Reserve has raised interest rates four times since March. Raising interest rates is the only tool the Fed has to tame inflation, but doing so reduces access to credit, raising fears of a possible recession, though experts say the economy isn’t there yet.

Some relief from higher inflation in July saw the consumer price index rise 8.5% from the same month last year, up from a 9.1% year-over-year increase in June, according to the Bureau of Labor Statistics. Gas prices and airfares fell, but food and rent prices continued to rise. Expenditure on food eaten at home, including restaurants, rose 7.6% from July last year.

People like Basserot are responding to higher prices by doing less: consuming Shake Shack at their lunchtime for McDonald’s, trading sit-down dining for a quick-casual meal at Chipotle or Panera, or eating at home more often. When they go out to eat, they sometimes choose the cheapest items from the menu.

Doug Collins, 28, said on his way to McDonald’s Wednesday that a year ago, he probably would have sat down to lunch at the Loop. These days, they’re trying to eat out less often and choose cheaper restaurants when they do.

Collins, who lives in Wicker Park and works in sales, said she’s also noticed her McDonald’s double cheeseburger is getting more expensive. It now costs him about $2.99, which he estimates is about a dollar more than it did a year ago. “It’s all a little more expensive now,” Collins said.

In the past three months, 57% of people surveyed by Chicago-based food industry market research firm DataCential said they would cut restaurant costs because of inflation and higher prices. Fifty-six percent said they were visiting sit-down restaurants less often; Half said they were cutting back on fast food visits.

People who make less than $45,000 in household income and have children are picking up more of the cost of a restaurant, said David Portalatin, senior vice president and food industry consultant at NPD Group. In the second quarter, that group of customers visited restaurants about two dozen fewer times than they did in the same quarter last year, he said.

Meanwhile, people earning more than $45,000 and without children slightly increased their visits to restaurants, adding an average of three additional visits. “It’s really hitting families with kids,” Portalatin said.

McDonald’s CFO Kevin Ozan said in a late July earnings call that the Chicago-based burger chain noticed customers trading up. In particular, low-income consumers are more likely to choose value offerings and eat fewer combo meals, Ozan said.

Yes! Brands that own fast-food brands including Taco Bell, Kentucky Fried Chicken and Pizza Hut have seen low-income consumers pull away, CEO David Gibbs said in an Aug. 3 earnings call. So is Shake Shack, according to CFO Catherine Fogerty.

Food industry executives have tried to reassure investors that aspects of their businesses will protect them from the worst effects of inflation.

After pointing out that he started at the company during the Great Recession, Domino’s CEO Russell Weiner pointed to potential gains from trade-downs. “It’s a category for people who want to keep eating when times get tough, they can switch from a sit-down or what have you, to pizza,” he told investors last month.

“Low-income consumers have definitely pulled back their purchase frequency. Fortunately for Chipotle, that’s not the majority of our customers. CEO Brian Nicol said on the July 26 earnings call. Nicole Investors noted that high-income customers have increased their visits to Chipotle restaurants, potentially trading away from pricier locations.

Mark Brandau, group manager at Datassential, said Nicole’s probably has a point β€” but fast-casual companies like Chipotle, which plans to raise prices 4% this month to help cover higher dairy, tortilla, packaging and labor costs, aren’t immune. Consumer sticker shock.

“They’re not without the risk of some of their customers trading up for a fast-food restaurant,” Brandau said. “Fast-food executives are not immune to this, and they may lose some customers to the convenience store or not go out.”

Food companies and restaurant owners are trying to strike a delicate balance: they need to raise prices because their costs are high, but they don’t want to raise them because they start alienating customers. At quick-service restaurants, menu items are up an average of 7%, Portalatin said.

“When you raise your prices, guests don’t eat as much,” said Guy Hollis, who owns and operates 10 Culver’s, most of them in the Chicago area.

Like all restaurant operators, Hollis is dealing with more expensive items, from meat to paper goods to bread products like buns. Labor is also expensive now. And Hollis hasn’t raised prices at the pace of inflation, meaning his margins are smaller than they once were.

They have raised prices at their Culver between 5% and 6% since the beginning of the year. That means a burger that used to cost $6 or $7 is now about 35 or 40 cents more expensive for consumers.

In a statement, Dan Gorski, Culver’s vice president of supply chain, said the company’s sales have “softened” nationally but continue to be very strong for the “(quick-service restaurant) industry β€” especially as many brands struggle to maintain traffic.”

Portillo’s has also taken a strategy of raising prices below inflation. In the second quarter, the company reported “unprecedented commodity inflation,” particularly for meat products such as chicken, pork and beef.

The Oak Brook-based beef and hot dog chain has raised menu prices on some items by about 5% since January after raising them 3% last fall; The company raised wages early in the third quarter. Executives said it was the right call to lag behind inflation in price hikes.

“We’re getting some trade-down customers and we think our value proposition is really resonating with customers right now,” CEO Michael Osanloo said on an earnings call last week.

“It’s a smart strategy if you have the opportunity to hold onto your pricing power,” Brando said. “Portillo’s has such high restaurant volumes that they may have a little more leeway than others. I think it’s kind of tough if you’re an independent restaurant.

At the family-owned Superdog Drive-In, owners Lisa and Don Drucker have not raised prices this year. A Superdog with fries goes for $7.25 at the drive-in’s Wheeling and Norwood Park East locations, the same amount a meal has cost customers since last fall. Druckers have yet to see customers walk away from a visit.

But in an industry that operates on such thin margins, they know they will eventually have to raise prices. From the shortening used to fry potatoes, Dan Drucker said, the price has doubled, to paper goods, hot dog buns and especially labor.

“Our employees have to earn more because their costs are higher,” said Lisa Drucker.

“We struggle when we have to raise prices,” he said. β€œIt’s a gut-wrenching, hand-wringing experience. We don’t want to. “

Leave a Reply

Your email address will not be published.

Previous post Ogden Asks Fandom Artists | News, Sport, Work
Next post The refined South African artist Siphesihle receives an award from the award-winning artist Drake