An increasing number of Americans are choosing to cook at home, making home dining a popular trend, while the frequency of eating out is decreasing. One of the reasons Americans choose to cook for themselves is that ingredients are more affordable, which is a signal sent by consumers under inflation pressure to fast food restaurants and other dining establishments.
According to the Associated Press, inflation has been easing for over a year now, especially in the last six months when the inflation rate of supermarket food has been cooling down even faster. This current trend is the opposite of a few years ago when food producers raised prices, causing supermarket food inflation to surpass that of restaurants.
This shift is putting pressure on owners of chains like McDonald’s and Olive Garden’s parent company Darden Restaurants.
Darden, based in Orlando, reported a 1.1% decrease in sales for restaurants open at least a year. The sales decline for Olive Garden chain stores was even larger at 2.9%, particularly weak in July.
As the cost of home cooking is decreasing at a faster rate, more consumers are choosing to shop for ingredients and paying less attention to fast food restaurants and other dining options outside the home.
McDonald’s reported a 1.1% decrease in sales for the second quarter, whereas it had seen an 11.7% increase during the same period last year.
McDonald’s Chief Executive Officer Christopher J. Kempczinski said in a conference call with analysts following the financial report, “You see consumers being more budget-conscious when dining out, dining at home more frequently, and more consumers looking for value.”
Both Darden and McDonald’s are offering more discounts to attract cautious consumers. Olive Garden reintroduced its “Unlimited Pasta” deal, while McDonald’s introduced a $5 value meal.
The increasing number of consumers shopping at supermarkets and eating at home is driving sales for companies like General Mills, which produces products such as Cheerios cereal, Progresso soup, and Häagen-Dazs ice cream.
“We did anticipate this situation because we see consumers placing more importance on value,” said General Mills CEO Jeffrey L. Harmening in a conference call with analysts. “Consumers are still facing economic pressures, so the situation is as we anticipated.”
General Mills and other food producers had previously raised prices to offset the ongoing inflation, ensuring profits. Now, they, along with other food producers, have lowered some prices to alleviate consumer pressure.
Supermarkets are also benefiting more from consumers dining at home. Kroger chain stores reported a 1.2% increase in sales for stores open at least a year for the most recent quarter. Wall Street expects Kroger’s sales to increase by 1.8% in the third quarter and 2.1% in the fourth quarter.
“We are cautiously optimistic about the sales outlook for the second half of the year, expecting customers to continue prioritizing food and essentials,” said Kroger CEO Rodney McMullen.