Inflation: Grocery store prices surged higher than restaurant prices in July

Food reporter Brooke DiPalma outlines where grocery prices are outpacing inflation seen in restaurant menus, including fast food prices and how water shortages threaten this year's tomato harvests.

Video transcript

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DAVE BRIGGS: Can you actually save money by eating out more often? For the first time since the 1970s, consumers are seeing the biggest inflationary gap between their groceries and their restaurants. Brooke DiPalma here with the details. Brooke, what are we learning?

BROOKE DIPALMA: That's right, Dave. Consumers are seeing the biggest gap in nearly 50 years between food at restaurants and their trip to their local grocery store. The cost of food away from home is up 7.6%, according to July's consumer price index, up year over year. But the cost of food at-home, that's at your local grocery store, up 13.1% year over year.

Now, the top items driving that growth of groceries includes eggs, up 38%, flour, and coffee. So of course, Dave, this leaves consumers questioning, is it cheaper to go to a local grocery store or their local restaurant? Of course, when you're cooking at home, you have to gather multiple ingredients like eggs, flour, and maybe some coffee on the side.

SEANA SMITH: So Brooke, what's this doing for demand at some of those big name brand restaurants, Chipotle, McDonald's? Two of a bit of different stories, when you take McDonald's, more of a fast food chain, Chipotle a little bit higher-end. But are they seeing increased traffic, foot traffic because of this?

BROOKE DIPALMA: Yeah. Well, this is definitely a top conversation that C-suite executives have been having on calls with analysts this past earnings season. I do want to emphasize specifically what McDonald's CEO Chris Kempczinski said on a call with analysts. He acknowledged that food at home is increasing significantly faster than food away from home. And he said, "I don't know what the impact of that is. But certainly, we expect that there is some benefit that we're seeing as part of that, looking at good value for money." Of course, consumers looking to get those deals.

Now, we did see gas peak in early June. Of course, consumers feeling the pinch from that. And according to ad tracking platform iSpot, these fast food restaurants certainly came out with deals in order to get the consumer back in the store. So earlier this year, from January to April, we saw brands offering deals and loyalty rewards, 46% of them. But in May to early August, that number increased to 58% of these names that we know, like McDonald's and Chipotle, offering more deals, more loyalty.

Now, iSpot also did tell Yahoo Finance-- that's an ad tracking platform once again-- that regional brands, like Bojangles and Del Taco, used value more specifically than these big names in order to lure these customers in.

DAVE BRIGGS: And Brooke we could see some, apparently, higher prices thanks to the water crisis on the west coast. What might be impacted?

BROOKE DIPALMA: That's right. That drought hitting so many farmers on the west coast. I did speak to Brad Rubin of Wells Fargo before jumping on today. And he said that water availability is causing producers to move north in plants with higher contract prices. Now, what that means is, three years ago, it cost tomato producers about $75 per ton. Now it costs them $130 for a ton.

Now, in 2022 of course, that is the top news, prices getting higher. But what exactly does that mean for companies like Kraft Heinz, who produces ketchup, as well as those favorite spaghetti sauce brands? Well, tomato producers are looking to produce about 12 million tons of paste. Now, that would require 60 million tons of tomatoes.

So in this case, just to see on average in 2015, California crop reached a peak of 14.4 million tons. Now in 2022, because of those droughts, the US Department of Agriculture saying that we're only seeing about 11.7 million tons. Now, once again just to emphasize that number, these tomato producers require 60 million tons of tomatoes. So certainly something to keep a close eye on.

SEANA SMITH: Yeah, certainly a heck of a lot of tomatoes. All right, Brooke DiPalma, thanks so much.