Restaurant Value Spread In Unfamiliar Territory

The BLS released CPI data for the month of May last Tuesday, June 17th, 2014 and we thought it’d be interesting to look at the impact it could have on the restaurant industry.  Most notably, the Restaurant Value Spread turned positive for the first time in 25 months as food at home inflation outpaced food away from home inflation in May; as such, the spread widened by 120 bps sequentially to +70 bps. 

This can be interpreted two different ways:

  1. Bullish data point for restaurants: consumers are more enticed to eat out
  2. Bearish data point for restaurants: consumers have less discretionary income to spend on eating out (which is often viewed as a luxury)

Restaurant Value Spread In Unfamiliar Territory - chart1

While we aren’t here to solve this debate, we’d be remiss not to highlight these two hotly contested beliefs.  We’d also be remiss, however, to ignore the recent trends we’ve seen in grocery and food service sales.  The data would suggest a favorable environment for restaurants is developing.  LTM grocery sales have been fairly flat to-date in 2014, while LTM food service sales have shown a slight acceleration.  Importantly, food at home inflation has  accelerated sequentially in each of the last four months.

Restaurant Value Spread In Unfamiliar Territory - chart8

Restaurant Value Spread In Unfamiliar Territory - chart9

The charts below highlight important sequential inflation trends:

  • Core CPI accelerated 10 bps sequentially to +1.9%
  • Food at home CPI accelerated 100 bps sequentially to +2.7%
  • Food away from home CPI decelerated 20 bps sequentially to 2.0%

Restaurant Value Spread In Unfamiliar Territory - chart2

Restaurant Value Spread In Unfamiliar Territory - chart3

The spread between food at home CPI and core CPI widened 90 bps sequentially to +0.8%.

Restaurant Value Spread In Unfamiliar Territory - 4

The spread between food away from home CPI and core CPI narrowed 30 bps sequentially to +0.1%.

Restaurant Value Spread In Unfamiliar Territory - 5

NSA Full-Service CPI accelerated 10 bps sequentially to 2.2%.

NSA Limited Service CPI decelerated 20 bps sequentially to 2.2%.

Restaurant Value Spread In Unfamiliar Territory - 6

Howard Penney

Managing Director

Fred Masotta

Analyst