The Bureau of Labor Statistics released CPI data for the month of April this morning. The spread between CPI for Food at Home and Food Away from Home continues to narrow.
We have long been calling out this trend; the advantage that restaurants enjoyed over grocers in 2011, in terms of lower price increases year-over-year, continues to fade. Grocers were forced to raise prices in line with inflation to protect margins during 2011; we believe that restaurants benefitted from that. Last year, restaurants’ strong top-line trends helped the industry mitigate the impact of inflation on margins.
Ahead of the next CPI report, we will be publishing some work specific to several companies in the restaurant and food retail spaces and their comparable sales growth through inflationary and deflationary cycles.
Looking ahead, we believe that the restaurant industry’s ability to lap difficult comps during the summer months may be negatively impacted if the “food value spread” turns negative. Management teams at McDonald’s and Jack in the Box, among others, have highlighted this metric as being instrumental in their thinking about pricing.
Howard Penney
Managing Director
Rory Green
Analyst