07/13/2022
Today, new monthly inflation numbers were released for June. They are awful for the consumer: costs have risen, across a large swath of areas, by 9.1% in the last 12 month. Last month, was 8.6%.
But the breakdown of the numbers show one business that is under increasing pressure: restaurants. As we break down the food sector, we divide it into two categories: Food at Home, or essentially purchased raw in grocery stores and prepared at home, and food consumed away from home, essentially restaurants. Food at home came in at a high number: 12.2% increase. Food away from home came in much lower, showing a 7.7% increase in the last year in inflation.
But restaurants pay for food as well. But to remain competitive, they are not passing along the full cost increases to consumers. Owners are simply earning less as food costs explode, and in Connecticut with a growing minimum wage and labor shortages, adding more pressure.
This can actually mean that, in some situations, the consumer is getting value eating out. We also know that the unemployment rate is low and wages are growing, meaning consumer have cash to spend, something that can help restaurants. But, it also means that restaurant owners, while still busy and working long hours, are making less even on increased volume, and margins are becoming even slimmer than they traditionally are in the business.
Over time, this will mean more turnover in the restaurant business. Some older restaurants will be forced to close, but optimistic entrepreneurs, emboldened by the low unemployment rate and consumer spending, will look to open. Even now, it seems to be a daily occurrence that one restaurant closing is announced just as a new one is opening nearby.
