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  /  World News   /  Consumers, restaurants both feel pinch as food prices remain high

Consumers, restaurants both feel pinch as food prices remain high

(NewsNation) — Many restaurants are facing a struggle to survive, constantly fighting to keep menu prices down but making little to no profit.

Due to overall food inflation, customer flow is unpredictable and trending down as Americans cut back across the board. Federal data shows the cost of dining out is up by over 4% in the past year and by a whopping 26% since before the pandemic.

At Papille Gustative in Santa Monica, California, owner Calin Senciac says it used to be that the restaurant would “totally rely” on Friday and Saturday nights, as well as brunch rushes, to get by. But now, Senciac says, “You get some weekends that are pretty much dead.”

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“We raised the prices a couple of times, but how much can you raise the prices?” Senciac asked. “You don’t want to look ridiculous and disappoint your customers. You cannot have a brunch dish, an omelet for $30, right?”

Papille Gustative specializes in organic, locally-sourced food, and ingredients from the farmer’s market are inherently higher. Senciac is well aware that many customers are trying to cut costs, though, so he budgets slimmer profit margins.

As “food-flation” continues across the industry, however, consumers are being more strategic when dining out.

“We don’t go out to eat even once a week anymore at all, we don’t,” Linda Anderson said. “Probably maybe two or three times a month we’ll go out, and we try to do this kind of stuff where you’re having lunch and not having a cocktail, and that kind of stuff because that makes it a little more affordable.”

Unlike a single location of a nationally-owned chain, a neighborhood restaurant cannot survive an extended downturn in customers. The National Restaurant Association estimates the failure rate is one out of every three restaurants.

In another dismal indicator for independently-owned restaurants, a real estate review of rent delinquencies last month finds restaurants at the top of the list with more than half falling behind on rent.

The latest on inflation

Consumer price increases have been at an elevated level in 2024 following a sharp drop last year to 3% from the June 2022 peak of 9.1%.

In March of this year, prices rose 3.5%, compared to this month in 2023, when they were up by 3.2%. Federal Reserve officials said in May that they intend to keep the benchmark interest rate at a 23-year high for as long as needed to get inflation back to their target of 2%.

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Consumers, meanwhile, are not feeling optimistic about the economy. According to an index by the University of Michigan that tracks it, consumer sentiment fell sharply, down to 67.4 this month from 77.2 in April. This is still about 14% higher than a year ago, though, with consumers generally having a gloomy outlook since the COVID-19 pandemic started. Inflation spiking in 2021 only made them more pessimistic, although economists who talked to the Associated Press said that consumer sentiment isn’t necessarily the most accurate gauge of the economy as a whole.

While consumer spending stayed strong in the first three months of the year, despite price hikes, this was fueled mostly by upper-income earners with significant wealth gains in their homes and stock portfolios as well as a historically low unemployment rate of 3.9%, AP reported. Big retailers have still begun to sense some caution from customers recently, as some, especially as those with lower incomes are pulling back on spending.

The Associated Press contributed to this report.