The pricing gap in favor of grocery stores shrunk in September

Inflation in September increased by a seasonally adjusted 0.2%, putting the annual rate at 2.4% according to data from the Bureau of Labor Statistics released last week. The numbers were slightly higher than economists’ expectations, driven largely by a 0.4% increase in food prices, which were up 2.3% year-over-year.  

Food-away-from-home prices were up 3.9% year-over-year and 0.3% month-over-month, with full-service meals up 3.9% over the last 12 months and 0.4% month-over-month and limited-service meals up 4.1% versus last year and 0.2% versus last month.

Meanwhile, food-at-home prices (grocery/supermarket) were up 1.3% year-over-year, an uptick from the category’s 0.9% year-over-year increase in August. With this increase, the pricing gap in favor of grocery stores shrunk by 50 basis points during the month.

According to Kalinowski Equity Research, grocery prices were up 40 basis points compared to August, while restaurants were down 10 basis points. Still, the gap marks the 19th month in a row in which menu inflation was higher than grocery prices. The average pricing gap between the two categories is 60 basis points, and in September, it was 260 basis points in favor of grocery stores.

This trend has muted restaurant sales and traffic as lower income consumers especially trade out to cook at home. It has also ignited a value environment in which chains across segments are launching meal deals and promotions in an attempt to return to positive traffic. The impact of this value battle should become clearer as the industry rolls through third quarter earnings calls in the next month.

For now, Circana data finds that 86% of Americans' eating occasions were sourced from home throughout the past year.  

“Despite easing inflation, consumers continue to face the cumulative impact of several years of rising prices and ongoing economic challenges,” Circana senior vice president and industry advisor David Portalatin said in a statement. “With dining out costing four times more than eating at home, many are cutting back on restaurant visits. Meal patterns have shifted as consumers spend more time at home and adapt to new daily rhythms.”

Portalatin added that consumers have expressed interest in spending on food that offers convenience and health benefits, especially in the beverage space, which could provide an opportunity for restaurants to re-gain traction. Further, gains in away-from-home consumption are leveling off and fast casual restaurants are winning market share, Circana data shows.

Contact Alicia Kelso at [email protected]