Michael Bacerott was thinking of going to Shake Shack for lunch on Wednesday. He decided to go to the McDonald’s at Lake and LaSalle streets instead for a simple reason: it’s cheaper.
Bacerott, who lives in South Hammond, Indiana, and works as a clerk in the Loop, began to change his diet. When he goes to work these days, he probably takes his lunch from home.
“If I go out, I go to cheaper restaurants, like McDonald’s and stuff,” said Bacerott, who has three children, including an 11-month-old.
“Life is not as comfortable as it used to be,” he said.
For the past few months, Chicagoans have been dealing with rising food prices as inflation hit a 40-year high. To combat inflation, the Federal Reserve has raised interest rates four times since March. Raising interest rates is the only tool the Fed has to reduce inflation, but doing so would reduce the availability of credit, raising fears of a possible recession, although experts say the economy is not yet there. .
Customers eat at a Culver’s fast food restaurant on Aug. 9, 2022, on West Lawn in Chicago. (Erin Hooley/Chicago Tribune)
Some relief from higher inflation came in July, when the Consumer Price Index rose 8.5% in the same month last year, down from a 9.1% year-over-year increase in June, according to the Bureau of Labor Statistics. Gas and plane ticket prices have fallen, but food and rent prices have continued to rise. The cost of eating out, including restaurants, rose 7.6% in July last year.
People like Bacerott are responding to high prices by cutting back: cutting down on Shake Shack lunchtime at McDonald’s, trading in fast-food sit-downs to Chipotle or Panera or simply eating at home more often. When they go out to eat, they sometimes choose something cheaper than the menu.
Doug Collins, 28, said on his way to McDonald’s on Wednesday that a year ago, he probably would have sat down for lunch in the Loop. These days, he tries to eat out more often and chooses cheaper restaurants when he does.
Collins, who lives in Wicker Park and works in sales, said he knew even a McDonald’s double cheeseburger was expensive. It now costs about $2.99, which he estimates is a dollar more than it did a year ago. “It’s like everything is so expensive now,” Collins said.
In the past three months, 57% of people surveyed by Chicago-based food industry market research firm Datassential said they would cut spending at restaurants because of inflation and higher prices. 56 percent said they were visiting sit-down restaurants less often; half said they were cutting back on fast food visits.
People making less than $45,000 in household income with children are recouping the most in restaurant spending, said David Portalatin, senior vice president and food industry consultant for The NPD Group. In the second quarter, customers of that group visited restaurants almost twelve times less than they did in the quarter last year, he said.
Mariana Gonzalez serves customers at Culver’s in Chicago’s West Lawn neighborhood on August 9, 2022, (Erin Hooley/Chicago Tribune)
Meanwhile, people making more than $45,000 without children increased their restaurant visits, adding three more visits on average. “It really hits families with children,” Portalatin said.
McDonald’s CFO Kevin Ozan said in late July that the Chicago-based burger chain’s earnings call showed that customers were falling. In particular, Ozan said, low-income consumers were choosing value-added products more often and eating fewer mixed meals.
Yum! The brand, which owns fast-food brands including Taco Bell, Kentucky Fried Chicken and Pizza Hut, has also seen lower-income customers pull back, CEO David Gibbs said on an Aug. 3 earnings call. So does Shake Shack, according to CFO Katherine Fogerty.
Food industry executives have tried to reassure investors that their business sectors will be protected from the worst effects of inflation.
After pointing out that he started the company during the Great Recession, Domino’s CEO Russell Weiner suggested the potential benefit of the downturn in business. “This is a segment where people want to continue to eat out when times are tough, maybe instead of sitting down or what have you, pizza,” he told investors last month.
“The lower-income consumer has definitely delayed their shopping frequency. Fortunately for Chipotle, that’s not the majority of our customers,” CEO Brian Niccol said on an earnings call on July 26. Niccol told investors that higher-income consumers are increased their visits to Chipotle restaurants, and may trade in value areas.
Mark Brandau, group director at Datassential, said Niccol probably has a point — but fast-food companies like Chipotle, which planned to raise prices by 4% this month to help boost the high-end tortilla , packaging and labor costs, do not protect against consumer sticker shock.
“It’s not a risk to some of their customers to do business with a fast food restaurant,” Brandau said. “Just like the food giants aren’t immune to this either, and they may lose some customers to a convenience store or just not going out.”
Food companies and restaurant owners are trying to strike a delicate balance: They need to increase prices because their costs have risen, but they don’t want to raise them so high that they start alienating customers. At quick-service restaurants, menu items grew about 7% on average, Portatin said.
“When you raise your prices, guests don’t eat as much,” said Guy Hollis, who owns and operates 10 Culver’s, most of them in the Chicago area.
General manager Alfonzo Casas, right, prepares food at a Culver’s fast food restaurant on Aug. 9, 2022, on the West Lawn in Chicago. (Erin Hooley/Chicago Tribune)
Like all restaurant operators, Hollis is dealing with expensive ingredients, from meat to paper goods to bakery items like bread. Labor is very expensive now, too. And Hollis hasn’t increased the price for inflation, which means his margin is lower than before.
He has raised prices at Culver’s between 5% and 6% since the beginning of the year. This means that a burger that used to cost $6 or $7 is now costing consumers 35 or 40 cents more.
In a statement, Culver’s vice president of supply chain, Dan Gorsky, said the company’s national sales “weakened” but “continue to be very strong in the (quick-service restaurant) industry — especially considering many brands have struggling to maintain traffic.”
Portillo’s also adopted a strategy of increasing prices in line with inflation. In the last three months, the company reported “unprecedented inflation of products,” especially meat products such as chicken, pork and beef.
The Oak Brook-based beef and hot dog chain has raised menu prices on some items as much as 5% since January after raising them 3% last fall; The company also increased wages at the start of the third quarter. Executives said that behind the inflation rate is the right call.
“We think we’re getting some customers down and that our pricing is actually dealing with customers right now,” CEO Michael Osanloo said on an earnings call last week.
“It’s a smart strategy if you have the opportunity to hold onto your pricing power for more,” Brandau said. “Portillo’s has high-end restaurants that may be a little longer than others. It’s kind of tougher, I think, if you’re an independent restaurant.”
At the family-owned Superdawg Drive-In, owners Lisa and Don Drucker have not raised prices this year. A Superdawg with fries costs $7.25 at the Wheeling and Norwood Park East drive-thru, the same amount the meal cost customers until last fall. The Druckers have yet to see their customers withdraw from the visits.
But they know that in industries that operate on thin margins, they have to raise prices eventually. Their costs are rising across the board, from the shortening used in French fries, which have doubled in price, Don Drucker said, to paper products, hot buns and especially labor.
“Our workers have to earn more because their costs are higher,” Lisa Drucker said.
“We suffer when we have to raise prices,” she said. “It’s a hand-wringing experience. We don’t want it.”
