Restaurant Stocks Fall as Inflation Data Highlights Consumer Behavior Shift

Restaurant stocks faced a decline on Tuesday as latest inflation data revealed a potential shift in consumer behavior toward cooking at home. The Bureau of Labor Statistics reported that prices for food away from home, which includes dining out and takeout meals, increased by 0.5% in January compared to the previous month. This marks a higher gain than December’s 0.3% and puts prices 5.1% higher than those of January 2022.

Fast-food restaurants experienced a more substantial increase, with prices jumping by 0.6% in January, resulting in a year-on-year gain of 5.8%. Meanwhile, full-service restaurants saw a smaller price hike of 0.4% last month, bringing them 4.3% above the previous year’s levels.

Although restaurant inflation has decreased from 8.2% a year ago, it remains relatively high, particularly when compared to overall inflation rates which have cooled down significantly.

In January, the headline consumer price index showed a mere 3.1% increase compared to the previous year, while an index tracking food at home (primarily groceries) reported a rise of 1.2%. These figures are considerably lower than the respective levels of 6.4% and 11.3% recorded in January 2022.

Persistently high menu prices have the potential to deter individuals from dining out, especially with the stabilization of grocery prices. Signs of this trend can be seen in restaurant reservation data provided by OpenTable, which reveals that the number of diners seated in January was 10% to 15% lower than the previous year.

Key Takeaways:

• Latest inflation data indicates a potential shift in consumer behavior toward cooking at home.
• Prices for food away from home rose by 0.5% in January, boosting overall gains in menu prices.
• Fast-food restaurants experienced a more substantial increase than full-service restaurants.
• Despite a decrease in restaurant inflation, it remains relatively high compared to overall inflation rates.
• Persistently high menu prices may discourage dining out, especially with stabilized grocery prices.
• OpenTable data suggests a decline in the number of diners seated compared to the previous year.

Restaurant Brands International Sees Stock Dip Despite Strong Q4 Performance

Shares of Restaurant Brands International (RBI), the parent company of popular fast-food chains Burger King, Tim Hortons, and Popeyes, experienced a 3.8% decline on Tuesday. This drop occurred despite RBI reporting better-than-expected profits and revenue for the fourth quarter.

Burger King, in particular, has been implementing a comprehensive turnaround plan that includes renovating its restaurants and investing more in advertising. During the earnings call, management highlighted an encouraging increase in traffic at its U.S. locations, a positive trend that hasn’t been seen in quite some time.

Unfortunately, other fast-food stocks also suffered losses. Shake Shack saw a 3.2% decrease, Jack in the Box fell by 2.8%, Wendy’s slipped by 2.1%, and Papa John’s experienced a 2.3% dip.

Sit-down restaurant chains also faced similar challenges. Brinker International, the owner of Chili’s Grill, saw a 2.6% decrease in share value. BJ’s Restaurants declined by 3.1%, Bloomin’ Brands (which owns Outback Steakhouse) dropped by 3.2%, and Cheesecake Factory, along with Darden Restaurants (operator of Olive Garden), lost 2.4% and 1.8% respectively.

Investors are eagerly awaiting the upcoming earnings reports from various restaurant companies as they may provide insights into how customer demand is faring amidst rising prices. Shake Shack, Wendy’s, BJ’s Restaurants, and Texas Roadhouse are among the companies scheduled to release their reports on Thursday.