Restaurant menu price inflation hit a 39-year high in November. No operator was surprised by this. “I’m surprised it’s that low,” one said.

Despite this, restaurants are watching their margins thin, meaning operators feel themselves unable to raise prices enough to maintain their prior profitability.

That suggests to us operators are being more mindful of their charges than it seems. They’re raising their charges by quite a bit—fast-food prices in particular are up almost 8% year-over-year. That an industry cannot recapture lost margins when raising prices almost double digits is unusual, to say the least, and speaks to the level of inflation there is in the system.

Labor costs have taken off. Wage rates are up 14% over the past year, almost three times that of other industries. Wholesale food prices are also up in the double digits.

That means operators’ two biggest costs are up well into the double digits, meaning the 8% price increases at fast-food restaurants need to be almost 50% higher for them to recapture lost margins.

An additional 4% price increase on its own would represent higher-than-average menu price inflation and otherwise might spark concern of business lost to grocers. In this case, it’s probably the amount needed for operators to maintain margins.

There have been plenty of recriminations on the inflationary movement in restaurants. But consumers have more money to spend, particularly among younger and lower-wage workers who spend more of it on restaurants. And, as we said, the industry is treading more carefully on these price increases than it seems.

The biggest concern by far for operators, in other words, is simply having enough workers to staff their restaurants. For now, people are simply paying the higher prices.

Source: Great Menus Start Here