In November, YoY CPI growth for Food at Home decreased by 30 basis points to +5.9% from 6.2% in October. CPI for Food Away from Home gained 20 basis points to +2.9% from +2.7% in October.
We will be watching this trend carefully as it would be a negative for restaurants, on the margin, if grocery inflation were to come down closer to the level of inflation being seen in restaurant checks. Restaurant margins have been under pressure from increased food costs, as evidenced by Darden’s Olive Garden chain in the most recently reported quarter (2QFY12).
Malcolm Knapp’s Knapp Track data suggested a slowdown in November across the industry and, we would argue that while that may have been unrelated to the narrowing in the spread between CPI for Food at Home and CPI for Food Away from Home, a continuation of this trend would not be a positive for restaurant trends. Despite falling food costs, inventories need to be exhausted and contracts need to be worked through before the benefit of lower costs hits the P&Ls.
Howard Penney
Managing Director
Rory Green
Analyst
