Fast-food chains have watched their sales growth drop off a cliff.
The real reason may be a bit simpler: It’s getting cheaper for Americans to eat at home.
The price of food at grocery stores has actually been on the decline since the end of 2015, based on the Consumer Price Index for food at home. In fact, in July (the most recent data available), the cost of food at home declined 1.55% from the same month a year ago.
On the other hand, the cost of food away from home – what you pay at restaurants – is still on the rise. In July, prices for food away from home rose 2.79% from same month last year.
According to David Palmer at RBC Capital Markets, this is also a good thing for fast-food restaurants, as ingredient prices have fallen for them, lowering costs and boosting profit margins. But the drop in food prices is also hurting sales.
“Food cost relief has been a boon to restaurant-level margins in 2016, with many fast food operators generating their best gross margins since 2012,” Palmer wrote in a note to clients on Thursday. “That said, lower food costs have historically been a constraint to industry sales and food deflation should last through at least 2Q17.”
It appears that as long as grocery bills are shrinking, Americans are going to make their burgers instead of buying them.
- RBC Capital Markets