When Tamara Young moved from Washington, D.C. to New York City, she wasn’t expecting her eating habits to change much.
But the 23-year-old finds herself living in what she calls the Bedford-Stuyvesant food desert in a four-person apartment with a kitchen that has little room for her groceries and appliances.
“It’s tiny and I hate it,” Young, who works in public affairs, said.
Although she loves to cook and tries to stretch out groceries as much as possible, she is finding herself ordering food on UberEats more often–about three times each week–and buying lunch more during the week. And she’s willing to do so for the convenience, despite it getting more expensive to eat out each year.
The changing habits of consumers like Young are making it easier for restaurants to pass on price increases in response to economic pressures without hurting sales.
While restaurants, now facing rising wages and a tight labor market, continue to raise prices, consumers are not only able to absorb those costs but are willing to. In this economy, people are generally in a place where they can spend more out on food and there’s also a long-term perception change at play. This is while grocery prices are generally staying down and have been for about a decade.
Restaurants face a different cost structure than grocery stores, with the majority of costs going to salaries and benefits, according to the U.S. Department of Agriculture. It’s a labor-intensive industry that’s seeing wage growth.
“A lot of that has to do with minimum wage increases and the extremely shallow labor pool nationally,” said Hudson Riehle, senior vice president of research for the National Restaurant Association.
In recent calls with investors, financial officers for major restaurant chains noted a need to raise prices in response to labor pressures.
“While sales were very strong, we did experience significant restaurant margin pressure in 2018,” Texas Roadhouse president Scott Colosi told investors in February. “A highly competitive labor market and our own focus to increase staffing levels within our restaurants drove most of the margin pressure.”
McDonald’s Corp. also increased menu prices to offset wages and higher labor costs, chief financial officer Kevin Orzan told investors.
Yet restaurant sales continue to increase, though at a more moderate rate than before the Great Recession, according to the Commerce Department. While it’s clear that restaurants are raising their prices due to higher wages, they’re finding it easier to pass that on to consumers generally in a spot to spend.
“Consumers are in good shape,” Price said. “It’s not just how much that businesses want to tack onto a price, but it’s how much they can. They have been able to raise prices and get those prices to stick, as they say.”
During the recession, when unemployment rose, so did spending at grocery stores, according to the Bureau of Labor Statistics. People at restaurants less at chose cheaper options when they did eat out.
There is a strong correlation between national employment growth and restaurant sales growth, Riehle said. People who are employed have less time to cook meals at home and they have the income to support their spending at restaurants.
But there are also longer-run forces at work here that drive people to eat out more.
The willingness to spend on higher restaurant prices is not solely an economic decision for consumers, said Charles Lindsey, an associate professor of marketing at the University at Buffalo. The perception of what’s acceptable to spend for a quick bite has changed.
The rise in fast-casual options that offer quick, higher-quality meals such as Panera and Chipotle that have made it more commonplace to go out and spend $10 or more for lunch.
“The reference point has shifted in terms of what we’re willing to pay for fast food and the shift was caused, I think in part, by more upscale options coming into the category,” Lindsey said.
There’s also the growing convenience of ordering food, with meals just a tap away on smartphone online delivery apps.
“It’s easier to be a little more impulsive,” Lindsey said.
While growing up in her parent’s Chinese restaurant, the concept of ordering online or outside of the house was never in the picture for Trinity Lin, 23. But now she works at an accounting firm and finds herself ordering takeout almost every weekday, especially with some extra money in her pocket while working overtime during tax season.
“For now, I do have the means order online more and will find myself doing it even on weekends when I could be cooking,” she said.
