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What’s ahead for shoppers and diners?

Valerie Verkamp by Valerie Verkamp
March 4, 2022
in Headlines
What’s ahead for shoppers and diners?
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Beef prices rose by nearly 10 percent in 2021

Since the beginning of the pandemic, consumers have been burdened with “very large increases in meat, poultry, and fish prices,” leaving many to wonder whether the trend will hold true again this year.

At the USDA’s Agricultural Outlook Forum Virtual Event, several experts confirmed that prices are forecast to continue to rise across many food categories, especially meat.

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Economist Matthew MacLachlan with the Food Markets branch of the Food Economics Division said food prices are forecast to rise between two and three percent this year, adding that in 2021 grocery store price inflation came in at 3.5 percent.

The average household spends about 12 percent of its total expenditures on food each year. That includes money spent on food-at-home and food consumed away from home. While consumption of food outside of the home has been increasing since the 1970s, 55 percent of all the money spent on food goes toward food that was consumed at home.

“In 2021, we observed high inflation in food and mostly across all food categories. Price increases were largest for meat, and they increased more than any other categories. Prices didn’t decrease for any product category but were smallest for fresh vegetables,” said MacLachlan.

Both beef and veal show a dramatic 9.3 percent increase from 2020 to 2021. Pork, poultry, eggs, fish, and fresh fruits all had considerable price increases as well. In contrast, the cost of fresh vegetables rose by 1.1 percent and dairy products increased by 1.4 percent.

“Prices didn’t decrease for any product category, but were smallest for fresh vegetables,” said MacLachlan.

Andy Harig, vice president of tax, trade, sustainability and policy development at the Food Marketing Institute, said: “I would say that if you look at inflation at the economy, generally, food is actually pretty on par with where we’re at. People feel it more, right? Not everyone’s out there buying a TV or buying a car. Pretty much everyone’s going to the grocery store. They tend to feel food price inflation in a way they don’t feel other categories.”

As for the rate of inflation for food away from home, prices are forecast to rise between 3.5 and 4.5 percent this year.

Hudson Riehl, a senior vice president of the research and knowledge group of the National Restaurant Association based in Washington, D.C., confirmed that price inflation is “rapidly accelerating,” adding that wholesale food price inflation is running 7.9 percent on an annual basis.

What is clear is that this is the “highest inflationary environment since the 2011 timeframe.”

Despite the increased cost for food, coupled with pandemic-related higher labor costs, restaurant operators lean toward the belief that it’s undesirable to raise menu prices.

“For the industry perspective, consumers are extremely, extremely sensitive to menu price inflation and operators tend to be very judicious in how and where and why they raise menu prices,” said Riehl.

The restaurant industry is still recovering from the $240 billion shortfall in 2020. Last year, the industry tailored its services to meet the elevated demand for carryout, delivery, drive-through, and curbside. In doing so, the industry estimates that industry sales reached $800 billion last year.

Riehl said the main macroeconomic indicator the restaurant industry follows is the employment rate in the United States.

“[E]ven though there has been recovery from the depths of the pandemic, the national employment situation is still down by 3.6 million jobs. The reason that’s important for the restaurant industry is because when somebody is employed, they have less time for at-home meal preparation and also have additional income to support restaurant spend. The situation of dampened national employment obviously impacts the ability of restaurant sales to progress,” said Riehl.

Another important factor that’s impacting the restaurant industry, says Riehl, is the mass migration out of cities to more suburban and rural areas. Before the pandemic, about 82 percent of the population in North America lived in urban centers, containing upwards of 100,000 people. Now, people are migrating away from the city.

“Pre-pandemic,” said Riehl, “city centers basically enjoyed employment growth which was nearly double what was going on in the more suburban and rural locations. Then the pandemic hits and there’s a mass migration out of these city center areas to the suburbs.

“This was very important because it allowed growth in the large number of independent operations, but when the pandemic hit, some of these operations obviously had to cease and some operators actually moved their restaurants to more rural and suburban locations to follow that migration. One of the most-important questions over the next few years coming up is how does this re-migration into these city center areas occur? And even if there is migration in, in many cases it’ll still be a hybrid work situation. Of two, three, four days in the office, in these city center areas and consequently, that will, once again, limit the ability of restaurant sales to progress in the same manner that they were pre-pandemic,” said Riehl.

One of the biggest developments for the restaurant industry during the pandemic has been streamlining, which allows operators to change up their menus to highlight items convenient for carryout and delivery. Additionally, streamlining allows restaurants to make necessary adjustments when items are in short supply or delayed.

“A lot of this has to do with the digitizing of restaurant menus for the online environment. But also, equally as important, is what’s gone on with food supply challenges,” said Riehl.

Riehl pointed out that 2022 will be “another year of transition” for the restaurant industry.

“In the years ahead, there’ll be greater integration of technology into the restaurant experience. Consumers are quite vocal that they want to see more restaurants incorporating facilitation of ordering and payment, improved service, make delivery and takeout more convenient and to make it a faster experience. The two important drivers of restaurant sales, convenience and socialization. And technology, obviously, can enhance both of those drivers,” said Riehl.

On the heels of the new Omicron variant, the very definition of restaurant will evolve. Less brick-and-mortar restaurants, but more ghost restaurants and virtual restaurants.

“It doesn’t mean that what you view as a restaurant, historically, is going to disappear, it just means there’ll be more options and points of access. That off-premises market becomes extremely important going forward,” said Riehl.

Tags: taxes
Valerie Verkamp

Valerie Verkamp

Valerie decided she wanted to be a newspaper reporter when she was 28 years old and she successfully convinced the editor of the Platte County Landmark to give it 30 days. Now with The Landmark for over a decade, she has written countless stories on local government, education, lawsuits, community news, crime, and the prison system. Valerie hails from Park University with a BA in Elementary Education and a post-baccalaureate degree in paralegal studies from Penn Valley Community College. She has received honorable mention for Best Government News Story and joined her Landmark colleagues as recipient of the General Excellence Award in the Better Newspaper Contest sponsored by the Missouri Press Association.

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