Hey restaurants, don’t be so opportunistic

November 01, 2011

Just because supermarket prices have jumped doesn't mean fast-feeders have a clear path to higher menu tabs.

So food prices in supermarkets have jumped faster than restaurant menu prices this past year – 6.2% versus 2.6%, the Bureau of Labor Statistics reported through the end of September.

Does that mean fast-food eateries should be able to slide in with more hikes in the coming months? Perhaps they could because the public perceives higher costs. And perhaps they believe they should to offset their own higher expenses.

Indeed, McDonald’s chief financial office Peter Bensen told analysts on a call last week that the higher rate of at-home food-price inflation “might allow for additional pricing actions” to help it cover commodity cost hikes of eight percent experienced in the last three months. That sounds like a lot for the chain to absorb, but a Reuters source at Barclays Capital in New York reminds that commodity costs represent a much smaller share at restaurants than supermarkets.

While The Lempert Report understands that fast-feeders need to satisfy Wall Street, we also see them occupying a distinct role in the marketplace to supply affordable food. Once these eateries begin to cater more to investors than consumers, they risk taking their meals out of the reach of many, becoming less of a destination, and opening a path for new competitors. They need to balance both.

If fast-food operators figured out how to gain by siding with its budget-pressed consumers – perhaps by boldly messaging values and limiting price increases for a specific period of time – that could bring more trips and loyalty, and a shared sense of navigating this economic mess together.