CPI Stuck at 3.1% & Restaurant CPI Still over 5%

The new year opened with slightly lower headline CPI, but still can’t break below 3%. Restaurant CPI is proving even more stubborn as it continues to hover above 5% while Food at Home CPI dropped to the lowest level since June 2021 at 1.2%.

The QSR - Grocery Price Gap

I’ve mentioned a few times in this newsletter that historically we’ve seen that when the gap between Food at Home & Food Away from Home CPI grew we would see consumers trade OUT of QSR in favor of cheaper grocery store food. I received a number of comments over the course of the year pointing out that times had changed, McDonalds was proof because had been able to buck that trend reporting great results quarter after quarter despite a widening gap. Sometimes trends just take time to take hold. Last week McD’s reported that they were losing their lowest income customers to grocery occasions due to over-zealous price increases.  McD’s has long been the guidepost for other QSR brands to follow that use competitive pricing as their primary method of price setting. So as we get of the hump of very large price increases to mask the traffic losses – we can expect comp sales to start looking ugly as the contagion spreads. The industry also needs to brace for the mighty flex of McD’s return to discounting – because the acknowledgement that they have lost customers and want them back means McDonald’s dollars weighing down pricing power for the whole segment in the months to come. The Fed has tried for almost 2 years now to get LSR CPI below 5%. McD’s marketing budget could make that happen in 1 big quarter.

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