Inflation is drifting down in fits and starts, and so are restaurant menu prices.
Consumer prices were 2.6% higher in October than the same time a year ago, according to federal data released Wednesday, up slightly from September’s 2.4% annual rate. But while the “last mile” in the fight against inflation has proved slow going, dining out costs are moving in a more affordable direction.
The prices of food purchased away from home rose just 0.2% from September to October, down from 0.3% the previous two months, as restaurants ease up on price hikes. About 34% of operators told Toast that they’ve still raised prices over the past year, compared with 42% last year, the point-of-sale software provider found in a survey it released late last month.
“If you think back to last year, there was a lot of uncertainty about how 2024 would play out,” said Kelly Esten, Toast’s chief marketing officer. Since then, an improving economy has restaurants “feeling more optimistic about the future than last year,” she said.
Consumers’ hunt for bargains has forced a reckoning over restaurant prices this year. Fast-food brands like McDonald’s have leaned into value menus to lure customers back, and full-service chains like Red Lobster are embarking on ambitious makeovers to fend off bankruptcies that have rippled through the sector.
Dining out is still noticeably pricier than a year ago, with costs up 3.8% last month since October 2023, Wednesday’s government data showed. But restaurant operators are still seeing “healthy sales volume” as inflation cools, according to the National Restaurant Association.
“Consumers’ ability and willingness to spend in restaurants remains intact,” the trade group said last month, noting that the industry’s annual sales growth as of September was more than double that of nonrestaurant retailers during the same period.
Diners are more likely to notice stabilizing menu prices at quick-service restaurants than at sit-down ones.
Lightspeed Commerce, another point-of-sale provider, said its fast-casual clients raised prices by an average 4.3% between September 2023 and September 2024, slower than fine dining restaurants’ 5.6% average hikes. But the rate at which all eateries changed their menu prices between the second and third quarters this year plummeted by 26%, the company said.
Quick-service restaurants have lowered prices faster for a number of reasons. Many tend to offer cheaper fare, and any value-driven revolt among budget-conscious customers could be an existential threat, experts say.
“Your hamburger place or salad spot down the street has a lot of competitors that they’re worried about their customers going to, so they’re primarily going to be the businesses that are most concerned about raising prices,” said Ara Kharazian, research lead at payroll and payments provider Square.
Overhead is another factor.
Quick-service restaurants have benefited from slower growth in labor costs, Square found. Wages for workers at quick-service establishments that use the platform have risen about 60% since 2017, less than the roughly 74% at their full-service counterparts, as minimum wage laws expanded and many employers hiked pay in a hot labor market. The company estimates annual inflation faced by quick-service operators at 3.6% as of September, versus 4.3% for restaurants with table service.
With President-elect Donald Trump set to return to the Oval Office on a vow to massively raise tariffs that consumers are expected to feel, it remains to be seen where menu prices may head next year.
Some experts foresee the biggest impact on retail goods such as electronics and apparel, as the U.S. imports only about 15% of its food supply. But the potential for higher prices on wine and avocados, for example, is already rattling some in the industry. On Monday, the US Wine Trade Alliance hosted a fundraising and strategy meeting to brainstorm ideas for “showing key members of the incoming administration how tariffs on wine do more harm to domestic businesses, than to businesses abroad,” it said in a statement.
“That may show up at one point during [Trump’s] next administration,” said Joe Brusuelas, principal and chief economist at the financial services firm RSM. But any tariff impacts on what consumers pay for food away from home “seem to be second-order questions,” he said.
Much depends on how far the incoming Trump administration may go when it comes to import duties and the extent of support in Congress for any such plan. “Should we get legally binding tariffs imposed by legislation, or tariff levels be reset to the 1930s, then we have a very different discussion,” he said.